The Truth About Whole Life Insurance and Why It’s More Than a “Rich Man’s Roth”

I came across an online article by an anonymous blogger who claimed that the only good purpose for whole life insurance was as a rich man’s Roth. He was certain whole life insurance was only for individuals whose high incomes made them ineligible for the tax-saving advantages of a Roth IRA.

That’s actually pretty funny. Why restrict the incredible advantages of whole life insurance—including the tax advantages—only to the wealthy?

Let’s look at how a Roth IRA works and then compare it to a Bank On Yourself-type whole life insurance policy.

How Does a Roth IRA Work?

A Roth Individual Retirement Arrangement (Roth IRA) is an IRS-approved strategy that allows you to invest money you have earned by making contributions to a Roth IRA plan you have set up. You are not allowed to take a tax deduction for your contribution as you are with a traditional IRA. However, none of the money you take from your plan in the future is taxable. As far as the money in your Roth IRA is concerned, you will not be affected by future changes in the tax rate.

How a Roth IRA differs from a traditional IRA

Roth IRAs are quite different from traditional IRAs.

Chart Comparing Key Differences Between Traditional And Roth IRAsWith a traditional IRA, your contributions are tax-deductible. However, when you withdraw money from your traditional IRA—and you must withdraw specific percentages annually, beginning soon after your seventieth birthday—you must pay taxes on everything you withdraw—at whatever the tax rate happens to be at the time.

See the table for a summary of the key differences between a Traditional IRA and a Roth IRA.

Roth IRAs—like all IRAs—are highly regulated

Roth IRAs, like traditional IRAs, come with many government regulations, including limits on contributions. The rules for 2017 say: If you’re a married couple filing jointly and your “Modified Adjusted Gross Income” is less than $186,000, the most you can contribute to a Roth IRA is $5,500, unless you’ve had your 50th birthday. In that case, you can contribute $6,500.

But if your income is greater than $186,000, your limit is lower. And if your income is $194,000 or more, you can’t contribute anything to a Roth (unless you’re converting a traditional IRA to a Roth IRA).

Confusing? That’s just a quick summary of some of the rules limiting contributions. There are other rules, too: When you can withdraw from your Roth IRA without penalty (that depends on a number of factors), whether or not you can borrow from your Roth (you cannot), limits on the “kind” of money you may contribute (only earned income) and so forth.

Some advisors will say, “Hey, if you can’t contribute what you want to your Roth, put your money in whole life insurance. It’s the Rich Man’s Roth IRA.”

The problem is, they’re portraying life insurance as a second choice. Advisors who fully understand the benefits of a supercharged whole life insurance policy realize a Bank On Yourself-type high early cash value whole life insurance policy should be your first choice—even if you’re ultra-rich!

How Whole Life Insurance Is Better Than a Roth IRA

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This anonymous blogger appears to be a financial advisor, based on his reference to his “clients.” But if he is an advisor, he is shockingly ignorant about some critical life insurance basics.

For example, he says, “Whole life insurance is also known as permanent or universal life insurance.”

Whoa! There are two broad types of life insurance: term and permanent. There are three very, very different kinds of permanent life insurance: Whole life, universal life, and variable life.

If you say that whole life insurance is also known as universal life insurance, you are showing your ignorance.

Here’s one very important way whole life insurance and universal life insurance are not the same:

Both whole life insurance policies and universal life insurance policies contain a “cash value” component—that part of the insurance policy where wealth grows. But with a whole life policy, that growth is guaranteed, based on a schedule that is set in stone—and augmented, in some policies, by dividends (which are not guaranteed).

On the other hand, with a universal life policy—even guaranteed universal life—growth of your cash value is not guaranteed. Veteran life insurance advisor Ken Buccico lists two major disadvantages of universal life insurance that do not apply to whole life insurance:

First, this product [universal life insurance] may [might] not have any cash value, unlike alternative permanent [whole] life insurance products.

Second, the greatest disadvantage of guaranteed universal life is that the timeliness of premium payments is critical to maintain the guaranteed level premium. Other [whole life] policies that contain cash value can provide a source within the policy to cover the required premium to maintain the death benefit; however, a missed or late [universal life] premium payment can jeopardize the guaranteed premium feature, resulting in a policy without a guaranteed premium.”

Because our less-than-well-informed advisor doesn’t understand that the cash value growth of a whole life insurance policy is guaranteed—he makes uninformed statements like:

  • “Every scenario I have ever encountered where an individual has been paying on a whole life policy for an extended number of years, what they were told they would have accumulated by that point has never been even close to what they actually have.

    That’s true for universal life, but not true for whole life insurance. In fact, the opposite is true: Because of the non-guaranteed dividends of some whole life policies, those policy owners virtually always have more—usually, significantly more—than they were guaranteed they would have. In fact, many dividend-paying whole life companies have an uninterrupted track record of paying dividends for more than 100 years!”

  • “Illustrations of potential cash value offered by agents are so often unrealistic.”

    Again, true for universal life, but not true for whole life. Whole life cash value growth (not including dividends) is absolutely guaranteed—in writing. All fifty states regularly audit the whole life insurance companies doing business in their state to ensure that the companies have the reserves to back up their guarantees.

    Furthermore, by law, whole life insurance policy illustrations must show projections based on that guaranteed growth. They are also permitted to show the growth you would have if, over the life of the policy, the company paid dividends no higher than they are currently paying.

  • “A whole life policy that is supposed to make you rich in retirement is a terrible idea. You’ll simply be sending good money into the ether and not necessarily seeing the return you could get with other investments.”

    The poor guy’s talking about universal life and doesn’t even know it. While it’s true that with whole life insurance, you’re not seeing the gains you might get with other investments, you’re not seeing any of the losses, either. For that and other reasons, whole life insurance can be a very good investment alternative.

Our friend confuses stock market returns and whole life insurance growth

This blogger says, “If you’re putting money into a whole life policy in the hope that it will mean smooth sailing in your retirement years, then you are wasting your money.”

That’s backwards!

If you’re putting money into the Wall Street Casino in the hopes that it will mean smooth sailing in your retirement years, it means you weren’t paying attention to what the market has done in the last 17 years or so: two crashes of about 50% or more!

Competitive growth, safety, freedom from most government regulation, and the fabulous tax advantages of whole life insurance make it the smart option, hands down.

Wall Street is the sucker’s bet.

The Importance of Good Whole Life Insurance Policy Design

Mary has a sensible 178-horsepower Kia. Larry has an outrageous 650-horsepower Corvette.
If you want to win a drag race, which car should you drive?

Would you say, “It doesn’t really matter. A car is a car is a car?”

Of course not!

And you shouldn’t think for a moment that all whole life insurance policies are the same, either. A book could be written on the ideal whole life insurance policy—one that combines reasonable cost with superlative cash value growth capabilities, and an increasing death benefit.

I wrote that book. It’s my second New York Times best-seller, The Bank On Yourself Revolution. If you don’t have my book, get my free Special Report on the subject here, which comes with a free chapter from my book.

This blogger doesn’t understand the plain, simple facts about whole life insurance!

Just look at how this anonymous blogger messes with the truth:

Blogger: “This whole life enthusiast wants me to wait 35 years until I start seeing my cash value accrue.”

Gosh, is he really saying that with whole life insurance you’ll have little if any cash value for the first 35 years?

As you can plainly see on my website, you can have a whole life insurance policy with solid growth beginning in Year 1!

Our blogger’s 35-year-old male can see cash value in the very first year—and reasonably expect that by year eight or nine, his cash value grows by more than his annual premium, year after year, after year.

To get that kind of return with any other financial product, you’d need an annual return of more than 8% every single year. Are you skeptical of that? The spreadsheet you can download here demonstrates that it takes an annual return (after any fees) of more than 8% for your annual growth to exceed your annual contribution by year nine—something this high early cash value Bank On Yourself-type life insurance policy does.

  • Download the spreadsheet, then enter any amount you wish in the light blue Annual Contribution box.
  • Choose an Annual Rate of Return and enter that amount in the Rate of Return box.
  • Look in the right column, Difference. The first black (positive) number is the first year your annual growth exceeds your annual contribution. The far left column, Year, tells you which year that is.

Blogger: “Commissions for whole life policies can start at 55 percent of the first year’s premiums and can be as high as 100 percent.”

He needs my book. He’ll see how the type of whole life insurance policies recommended by Bank On Yourself Authorized Advisors cut the advisor’s commission by 50-75%—leaving the advisor with just a small portion of the typical whole life insurance commission.

Blogger: One “aspect of whole life insurance that makes personal finance experts twitchy is that illustrations of potential cash value offered by agents are so often unrealistic.”

No, no, no! Learn the difference between universal and variable life insurance on the one hand, and dividend-paying whole life insurance on the other hand.

The Dual Purposes of a Well-Designed Whole Life Insurance Policy

Our friendly but not-so-well-educated blogger also says, “It’s best to uncouple your life insurance needs from your investment needs.”

He doesn’t say why. I guess he just doesn’t like the idea of dual-purpose products.

He wouldn’t buy a radio that’s also an alarm clock. He wouldn’t carry a cell phone that also takes pictures. He wouldn’t want a refrigerator that has a built-in freezer. And he for sure wouldn’t want a refrigerator that has a built-in freezer and an ice maker.

Just like he wouldn’t buy a financial tool that provides for your financial needs both now and later—a whole life insurance policy!

Here’s another myth about whole life insurance that makes me shake my head in bewilderment …

Blogger: “Whole life is dangerous because it is so expensive. It soaks up so much of your cash. You may not have enough money to buy all the coverage you really need. As a result, many people go terribly underinsured, and it’s the family that pays the price. … Most earners should purchase a sufficient term life policy and a modest permanent life insurance policy.”

That’s pretty amazing. After bashing permanent life insurance—even calling it “dangerous”—he says most earners should have some!

Blogger: “Many financial experts recommend that people … buy term insurance and invest the difference between the term premiums and the whole life premiums.

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Don’t get me started! Let’s say his 35-year-old male buys a 30-year term policy and invests the difference between the term policy’s premium and what he would pay for a Bank On Yourself-type policy.

Sure, in the early years, he could—in theory— be investing the difference. But before too many years have passed, he will be selling off his investments to fund his high term policy premiums. That’s because term insurance starts out cheap but ends up extremely expensive.

Over 50 years, he could save about $30,836 in premiums by getting a Bank On Yourself-type policy, instead of buying term insurance.

Besides, “People don’t buy term and invest the difference,” said David F. Babbel, professor at the Wharton School of the University of Pennsylvania and co-author of “Buy Term and Invest the Difference Revisited,” published in the May 2015 issue of Journal of Financial Service Professionals.

“They most likely rent the term, lapse it and spend the difference,” he said.

Bank On Yourself-Type Whole Life Insurance Policies to the Rescue

Bank On Yourself really does give you the best of both worlds:

  • You can access your principal and growth, with no taxes due under current tax law
  • Immediate cash value, with growth that gets better every year
  • Premiums that never increase—even when you’re 100 years old (imagine a term life insurance policy offering that!)
  • A death benefit that grows over time and is income tax-free to your heirs
  • Flexibility and no government restrictions or penalties, compared to Roth IRAs

You can have all the advantages of the so-called “Rich Man’s Roth” (and more!) with a Bank On Yourself whole life insurance policy—even if you’re not rich

Discover for yourself how people of all ages and incomes are enjoying real tax-saving, wealth-generating, free-from-worries benefits from the “Rich Man’s Roth!

To find out more, request a FREE Analysis and Personalized Solution—customized to your specific situation.

When you request a free Analysis, you’ll get a referral to one of only 200 financial advisors in the US and Canada who have met the rigorous training and requirements to be a Bank On Yourself Authorized Advisor. The advisor will look at your overall financial picture to find creative ways you may be able to fund a bigger policy than you thought possible—sooner than you thought possible—sometimes with little or no increase in your out-of-pocket cost.

When you request a FREE Analysis, you will discover:

  • The guaranteed minimum value of your plan on the day you plan to tap into it … and at every point along the way
  • How much income you can count on having during your retirement years
  • How much you could increase your lifetime wealth—just by using a Bank On Yourself plan to pay for major purchases, rather than by financing, leasing, or directly paying cash for them
  • How you can achieve your short-term and long-term financial goals in the shortest time possible
  • Answers to other questions you may have

No two plans are alike. Your policy will be custom tailored to your unique situation, goals and dreams.

Don’t procrastinate! Request your FREE Analysis here now, while it’s fresh in your mind!

The Surprising Truth About What Happens to the Cash Value of Your Life Insurance Policy When You Die

In Part 1 of this two-part series, I proved the media’s financial gurus are wrong when they claim that it takes years to build cash value in a whole life insurance policy.

In this second part of the series, I’ll show you why all the self-proclaimed experts miss the boat when they claim that whole life insurance policies are a rip-off because you build up all that cash value, then the insurance company keeps it when you die and only gives your heirs the death benefit.

It doesn’t have to be that way, my friend!

Click on the policy statement above to see a larger version

Here’s an actual whole life insurance policy annual statement. (This is a different policy than the one I showed you in Part 1.)

This is a whole life insurance policy purchased on my life in 1992. The statement I’m showing you, issued 17 years later, makes some astounding revelations. [Read more…]

Here’s Proof That the Financial “Experts” Don’t Know About Bank On Yourself Whole Life Insurance Policies

Policy Statement Showing How Whole Life Policies Designed the Bank On Yourself Way are Different From the Policies Most Financial "Gurus" Talk About

Click on the policy statement above to see a larger version

Take a look at this life insurance policy statement. It’s for a policy I took out on September 15, 2002. I’m showing it to you because I want put to rest the misconceptions and untruths the so-called financial “gurus” are spreading about the cash value growth of well-designed dividend-paying whole life insurance policies.

The financial gurus tell you not to buy whole life insurance because your equity in the policy—your cash value—grows too slowly, and you won’t have any equity for the first few years.

This is simply not true of Bank On Yourself-type whole life insurance policies!

You’ll have cash value in the first year with a whole life insurance policy designed the Bank On Yourself way!

[Read more…]

21 Reasons Life Insurance Policy Owners Love the Policy Loan Feature

We recently published a 3-article blog post series inspired by an article that financial planner and investment advisor Michael Kitces wrote about the problems with “banking on yourself” with life insurance policy loans.

Then we invited our readers to tell us what their biggest take-away from these articles was, and to share their personal experience with Bank On Yourself policy loans versus other sources of financing.

The many comments left on these three blog posts demonstrated once again how insightful and articulate our readers are! We’ve published excerpts from some of the comments we received below, where you’ll find 21 reasons why using a Bank On Yourself-type policy loan to access cash beats any other way of accessing capital!

In the first article, we discuss four things Mr. Kitces got right about the Bank On Yourself concept, and then reveal what he got wrong, including five fundamental concepts.

Check out What Michael Kitces Missed in His Bank On Yourself Review, Part 1. [Read more…]

The 8th Wonder of the World? Here’s proof

Recently we “ethically bribed” our readers into learning more about what I’ve called the “8th Wonder of the World.”

You see, the two most common reasons people have for adding the Bank On Yourself method to their financial plan are:

  1. To grow wealth safely and predictably every year – no matter what’s happening in the market or the economy – and to protect themselves from losses in future market crashes
  2. To become their own source of financing when they want to make a major purchase or when an emergency expense comes up – so they can get access to money when they need it and for whatever they want – no questions asked

The second reason – the ability to become your own “banker” – is so compelling that once people use that feature of their Bank On Yourself plan, they often write to tell us what a powerful and emancipating feeling it is. [Read more…]

Michael Kitces’ Big Blind Spot on Bank On Yourself Policy Loans

In his review of Bank On Yourself, Michael Kitces repeatedly harped on the worst-case scenario of a life insurance policy owner taking out a life insurance loan with no regard for ever paying it back.

Kitces rightly pointed out there could be significant tax consequences if a life insurance policy were to lapse due to a large policy loan.

If the interest is not paid, it gets added to the loan balance. Eventually the loan balance could come so close to the cash value securing the loan that the life insurance company—after giving fair warning—would take the cash value to pay off the loan, causing the policy to lapse.

What Kitces didn’t mention is that if the loan balance ever does exceed the available cash value, paying some or all of the loan interest out of pocket generally solves the problem. And he didn’t tell you about the option of taking a policy “reduced paid-up,” as I discussed in our previous article on this topic.

So, we agree with Michael Kitces that a growing loan can cause a life insurance policy to lapse.

But Kitces mostly talks about “when the policy lapses.” Huh? “When”? That’s an odd assumption. It’s like saying, “Don’t take out a mortgage to buy a home, because when you default on your loan …”

Does he really think we are that irresponsible? [Read more…]

Here’s What Michael Kitces Missed in His Bank On Yourself Review, Part 2

In part 1 of this article, I explained that financial planner and investment advisor Michael Kitces wrote a review of the Bank On Yourself concept that redefined my trademarked phrase, “Bank On Yourself” to fit his interpretation of how the concept works.

Now I’ll show you how Kitces missed five critical key requirements of the Bank On Yourself concept—and why it’s so important that you don’t make the same mistake.

To review, to truly be banking on yourself

  1. You must use a dividend-paying whole life insurance policy
  2. The policy must have a “non-direct recognition” policy loan feature
  3. The policy must incorporate a flexible policy design
  4. You, as the policy owner, must be an “honest banker”
  5. You must work with a knowledgeable advisor

Let’s See How Michael Kitces Misunderstood—or Simply Missed—Each of These Five Requirements of Bank On Yourself:

1. You must use a dividend-paying whole life insurance policy

[Read more…]

Here’s What Michael Kitces Missed in His Bank On Yourself Review, Part 1

Financial planner and investment advisor Michael Kitces understands a lot about many areas of money and finance. He has been to school. He has twice as many letters after his name as he has in his name. Literally.

Surprisingly, Kitces does not understand some basic fundamentals of the Bank On Yourself strategy for personal finance.

Kitces wrote a review of the Bank On Yourself concept. And while he got some of the fundamentals right, he missed some very important points.

From time to time, readers ask us about Kitces’ article, so I want to clear up the misconceptions in it. I’ll cover four things he got right about the Bank On Yourself strategy, then I’ll reveal the things Kitces got wrong—including five fundamental concepts.

Here’s What Michael Kitces Got Right in His Bank On Yourself Review …

In his Bank On Yourself review, Michael Kitces correctly stated four things:

1. Kitces: Permanent life insurance “gives an insurance company the means to provide policy owners a personal loan at favorable interest rates, because the cash value provides collateral for the loan”

Well stated! You can’t take out a life insurance policy loan unless you have a life insurance policy with enough cash value to serve as collateral for the loan. And the interest charged for policy loans is generally at competitive, below-market rates.

2. Kitces: “Even as cash value life insurance operates as collateral for a life insurance policy loan, it also remains invested, earning a rate of return that slows the erosion of the net equity in the policy”

[Read more…]

The Bank On Yourself No-Nonsense Guide to Life Insurance

Life insurance is a subject we don’t like to think about. It’s right up there with going to the dentist and writing the annual Christmas letter. (Do people still even do that?)

Thinking about life insurance is one more reminder that we may not live forever. Ugh.

But not going to the dentist doesn’t make things better. And not thinking about life insurance won’t help you live longer.

On the other hand, going to the dentist and thinking about life insurance are two really positive things you can do that are almost guaranteed to make your life better.

If peace of mind, a sense of security, and the knowledge that you’re doing all you can for your family and yourself are important to you, then it’s wise to spend a little time thinking about life insurance.

But life insurance doesn’t have to be complicated or boring—which is why we created this Consumer-Friendly Guide to Life Insurance.

Here are some interesting facts about life insurance that we cover in our Guide. Did you know that …

[Read more…]

Could the Government Seize Your 401(k) and IRA Money?

Is it far-fetched to wonder if the government could take control of your retirement savings in 401(k)s and IRAs?

Or is that just a paranoid conspiracy theory?

The fact of the matter is that it’s not far-fetched, or a conspiracy theory. The groundwork has already been laid.

And the government already gave banks the green light to seize your bank accounts.

Read on for the facts – and I urge you NOT to discount the importance and urgency of this issue affecting your hard-earned savings…

The Government Has BIG Plans for Your Retirement Savings

An article in American Thinker titled “The Feds Want Your Retirement Accounts” revealed that, “Quietly, behind the scenes, the groundwork is being laid for federal government confiscation of tax-deferred retirement accounts. Slowly the cat is being let out of the bag.”

And Bloomberg reported that,

The U.S. Consumer Financial Protection Bureau is weighing whether it should take a role in helping Americans manage the $19.4 trillion they’ve put into retirement savings.”

For the last 18 months, the Treasury Department has been testing the “myRA” program – which Obama created through executive order – no Congressional approval needed.

The myRA, which stands for “My Retirement Account” supposedly “guarantees a decent return with no risk of loss.”

And the only investment allowed in this account is a low-yielding Treasury security.

Of course, the Treasury wants to get more people signed up for this program, because it means more funds flowing right back into the U.S. Treasury to help the government meet its voracious borrowing needs. How convenient… [Read more…]