Earlier this year, a video dubbed on YouTube with the question Is whole life insurance a scam? The video, produced by the young couple Philip Olson and Julia Lorenz-Olson, starring in a PBS show they call Two Cents, formulates their thoughts on the subject. They seem to be involved in fee-based financial planning through an advisory practice they started in Texas.
I did not know about them before the video was released, nor did I know about the PBS show, where they are shown. I did not watch the video that started to end when it was first released, but it reappeared on the radar recently and I decided to watch and pay attention to their message.
Maybe they had something insightful to say?
Unfortunately, the answer to that question is no, and since I have been more than willing to criticize incorrect universal life insurance attacks, a transition to focusing on a poorly executed whole life insurance attack is a welcome change in my end.
Here is the video for those who want to watch before I read what I have to say:
Whole Life Insurance Sold by Sleazy Pitchmen
The video begins with a woman flipping through channels on her TV. Each channel plays a cheesy clip of some of the TV's audience pleasures. Her channel surfing stops when a young man speaking in an obviously false Australian accent asks " are you looking for a good return on your money, but you are worried about a financial crash? " A starburst spins dramatically on screen and marks the words " Great Return ."
The screen pans to the woman with a dramatically curious look on her face.
The pitchman continues to sell on screen and his home audience a nod in ever-increasing excitement in much the same way I always imagined Robert Tilton fans ready to submit that $ 1
Building excitement in a way that tried to mimic the best Billy Mayes Kaboom days finally, the pitchman on screen names his wondering financial product by name … FULLY LIFE INSURANCE! He exclaims with a wink. His home audience member is less enthusiastic. Her excited face becomes noticeably doubtful as she just lets out a skinny "huh?"
The scene is comical, but the subtle framing is not lost on me. Of course, this is television, and even sparsely watched (and government, do not forget government) supported television cannot help itself when it comes to sensationalized overly produced theaters.
The message from the beginning is clear, the whole life is a scam sold by sleazy pitchmen and we will explain all the reasons why it is bad. The truth is, you can hold that opinion if you want. In fact, this would not be a new feeling from a pretend financial advisor shown on PBS. Suze Orman donated the message for at least the past two decades on PBS specials.
So if you'll be that strong against whole life insurance, I expect you to come to the table with some airtight logic in your argument. And that, you will see, is where this one falls off the rails.
Were you a full life insurance as an investment?
Olsons begins the discussion on whole life insurance by noting that you may be thrown a basket ball by your financial advisor when he / she recommends that you invest in whole life insurance. They even have some information about how often this can happen.
They note that when asked, 30% of respondents in the survey said that an advisor recommended that they buy full life insurance. Here is a screenshot of the screenshot they shared in the video:
Apparently, this means that there is a widespread practice of financial advisors out there who tell their clients to buy full life insurance.
Wait … the total votes in this very scientific survey conducted on Twitter are … 38?
As of July 27, Two Cent's Twitter account has 1,493 followers. I do not know how many followers they had back in December 2019 when they asked the question. Maybe they got a lot of followers in the beginning of 2020, which makes these 38 respondents a much higher percentage of their total Twitter base?
Regardless, the fact remains that 38 respondents are hardly a sufficient sample size to make any claims. Follow up with the fact that this is a survey conducted on Twitter, and we can definitely throw this evidence off the record.
The History of Life Insurance
About two minutes into the video, Olsons decides to give viewers an overview of where life insurance began. What this has to do with the whole life insurance status as fraud I could not determine, but they do mention that the primary purpose of life insurance is to protect from financial loss when someone dies. They note that 59% of Americans own some form of life insurance, and are aware of these statistics from the Insurance Barometer from 2018, which consists of The Life Happens Foundation and LIMRA.
They then go on to claim that term life insurance is the most common type of life insurance and they provide an overview of how term insurance works. But interestingly, there is no source for the claim that life insurance is the most common type of life insurance. I have been selling life insurance for over 12 years now, and I do not know of any data that definitely explained the term life insurance as the most common type of life insurance.
Google does not actually agree. See for yourself what I saw when I googled it:
Now I do not say that Google is in fact the one working for the truth on this issue . I'm just pointing out that there is some question about what is the most common life insurance policy, and Olsons apparently "forgot" to cite a source for their statement.
After explaining the term life insurance, the couple dives into an explanation of how the whole life insurance works. The description is very small on details, but I will give them a pass because I guess they tried their best to make this information as easily accessible as possible.
Infinite Banking and the Silver Bullet!
After a basic explanation of whole life insurance, Olsons takes up the idea of Infinite Baking et. al. and give a very brief overview of how it is marketed. Then Julia explains that "advocates for whole life insurance treat it like a financial silver ball for your needs." She does this standing next to a TV with 90's graphics that bounce back and forth and read "investaWOW."
Philip then returns to his pitchman character complete with a fake Australian accent to reinforce the plates in an eye-rolling whole life pitch.
" Life insurance without expiration date! "
" A taxable investment for your future! "
" Fire your banker and borrow money for yourself! "
Then his wife asks," how can the term life hold a light for this? "
So they decide to … run the numbers!  Now we can take a timeout and note how stupid it is to compare whole life insurance and life insurance, before we dive after using the numbers?
As if they really compete with each other? During the nine years I have been driving The Insurance Pro Blog I have gone out to mention that life insurance is uniquely designed to meet specific needs related to the purchase of life insurance.
Furthermore, we expanded it, we have very clearly explained several times that the reasons for buying life insurance does not resemble the reasons for buying full life insurance ng. Anyone who suggests that they are is an idiot.
Had Olsons simply pointed this out (and make no mistake with what I say, there are lots of insurance agents who are dumb enough to think / pretend the term life insurance and whole life insurance are interchangeable) I could have given them a big thumb up.
But they did not. Instead, they fought stupidly with fools and went on to set the stage as one of the most sloppy buying terms and invest the difference arguments I've seen in some time.
Let & # 39; s Run the Numbers
Makes a reference to a 90's sitcom, Olsons presents two sisters who want to buy life insurance. One chooses the whole life insurance and the other the term life insurance.
They start with a sister who buys the whole life insurance. Her premium will be $ 563 / mo for a $ 500,000, which they claim is the national average – no source is given for this.
The cartoon character representing the sister's eyes gets big when they announce the $ 563 monthly prize. The signal that this is a significant premium. They note that she is attracted to the cash value growth throughout her life policy, but then warn her to keep going. That the dividend of 5.5% on her entire life policy only applies to her cash value, not to the total contribution amount she pays. This statement is more or less correct when it comes to dividend functionality.
Julia then goes on to explain that according to a consumer report in 2015, she studied that the net result achieved by most policyholders for life is closer to 2%. I am very familiar with the "consumer report" on consumer reports. I wrote a blog post about it just last year. In that article, Consumer Reports decided nothing about what a typical policyholder can expect to achieve in terms of return on cash value.
The author of that article only used the guaranteed book for comparison and claimed that it made sense to do so because dividends are not guaranteed. This statement is extremely asshole, and you can read my comments on why I wrote in the blog post.
Despite the misinterpreted intent of the Consumer Reports
study Olsons continues to project the entire life sister's cash value of 30 years based on this 2% figure compounded annually. They note that she would have just over the sum of the premiums she paid at the age of 70 and that she would also have her original death benefits of $ 500,000.
They then turn their focus to the concept of life-creating sister. She only pays $ 52 a month for life insurance and she will take that difference between $ 563 and $ 52 … $ 511 … and she will invest it every month in a "basic stock index fund" where she "probably will be on average above 7%. " There is no source for where they came up with these 7%.
Olsons then calculates the term life sister's investment account at 619,780 dollars when she turns 70. Philip states that this is twice as much as the whole life sister received with cash value throughout
Note that Olsons sought out "data" when they wanted to overshadow the entire life insurance policy, but never bothered to support their claims about the superiority of recommended alternatives with factual information, nor let us ignore how dubious the data sources are
So far, we've seen data to support the claim that whole life insurance is discounted by advisers, a claim supported by a laughing pool of Twitter users, and then they presented data to support their low-rolling extrapolation of cash values for. whole life and supported an article that was presented as a "study" that does not in any way state what they claim it does.I am not enough dj inheritance to directly claim that Olsons intentionally uses sources as a fake to appear more legitimate, but I have a hard time rejecting the idea given their behavior.
What if we took data from a third party source of expected return on investment and used the same data for project values in this example? DALBAR says that a 20-year return for an investor in equity funds is 4.25%, which is significantly less than 7%. Ignoring all kinds of fees or taxes would put the term sister's investment balance at about $ 359,000 when she turned 70.
If I designed the whole life sister's policy to maximize the cash value of the policy, she would potentially have nearly $ 481,000 in cash value and $ 959,000 in death benefit, which is significantly more death benefit than originally planned. And she was able to stop paying premiums at the age of 70 without losing her death benefit. It does not sound so awful to me.
Why do counselors recommend full life insurance?
Stop me now if you've heard this before …
It turns out that financial advisors recommend full life insurance because they are obsessed with the crazy high commissions they earn by selling you a policy. Philip claims to have experience in the industry where he was encouraged to sell full life insurance with a high commission over other financial tools. Maybe he did. That alone does not mean that every person with an insurance license only wants to sell full life insurance because of the commissions. And anyone included Olsons, who advocates for one or another financial idea to monetize his recommendation.
Also note that Philip claims sufficient experience to know that the entire life insurance is primarily sold to earn commissions, but some how lack the knowledge to question Consumer Reports false suggestions that dividends are unlikely, or if dividend is earned, this will very likely result in a death benefit higher than the original guaranteed death benefit for an entire life policy.  If someone recommends full life insurance just because it is the option that pays him / her the most amount in commissions, the person is really awful. The presence of terrible people does not mean that everyone who engages in similar business activities is also horrible. Olsons presented no evidence that everyone who sells for life does so just to screw people up and make a lot of money in commissions. Hearsay does not count as evidence.
There are some situations that guarantee the whole life insurance
Near the end of the video Julia comments that there are certain situations that can make sense for the whole life insurance. These include things like having a child with special needs or having significant assets and needing full life insurance for various wealth transfer purposes.
There are, I can assure you, several more circumstances where the whole life insurance fits into someone's life. The attempt to act objectively by paying a small compliment all my life, but to exclude its application to rare circumstances, does not gain any points in my book. It also shows their ignorance of the subject.
Let me also take a moment to be completely clear about something. I think there are several valid arguments against whole life insurance and permanent life insurance in general. While I find a lot of value in what it has to offer, I'm not so blind to the complexity of the world that I'll suggest it's right anyway. But if you are going to argue against the whole life insurance policy, you need to do more than make a decades old argument baked with shady sources for only half the points you intend to make.
Your personal experience (relatively short of that) of being able to sell full life insurance will not come close to representing the information needed to really substantiate the claim that whole life insurance is primarily sold because salespeople want to earn high commissions.
The video sought a pure honest picture to explain the truth behind the whole life insurance. But that facade covers a white ignorant couple who are trying to behave on a subject that they are either too careless or too inexperienced to really deal with. And one of them happens to be a fiduciary. This is another example of the hypocrisy we have been complaining about for several years. Bad advice, no matter how well-meaning, it is still bad advice.
In the end, the video is well-produced propaganda; the irony is that it is the real scam.