𝗪𝐡𝐨𝐥𝐞 𝐋𝐢𝐟𝐞 𝐈𝐧𝐬𝐮𝐫𝐚𝐧𝐜𝐞: 𝐓𝐡𝐞 "𝐒𝐜𝐚𝐦" 𝐓𝐡𝐚𝐭 𝐍𝐞𝐯𝐞𝐫 𝗪𝐚𝐬⁣

Brandon Beaudoin
Sep 14, 2024
9 min read

Blog Posts

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Whole life insurance (trigger alert!) sparks a tremendous amount of debate in the financial services industry with some folks quick to label it a "scam". But before jumping to conclusions and following suit with the naysayers and haters, let’s do the prudent thing and look at some facts, apply a smidge of common sense, and perhaps dig a little deeper, shall we?⁣

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This financial product (or tool, if you prefer) has been around for a longgggg time (more on that later). Additionally, it has been (and is) utilized by wealthy individuals, savvy investors, and embraced by institutions like banks (BOLI, anyone??) and corporations. In this post, we’re going to break down why whole life insurance is actually about as far from a "scam" as can possibly be and back it up by facts coupled with some sources as well, for added insurance (see what I did there? Dad jokes!).⁣

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But just to keep things fun and for a limited time only, we’re also introducing the Scam-o-Meter* to help our readers decode whether or not whole life is a scam each step of the way!⁣

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*patent pending (ok, not really)⁣

Here’s how the Scam-o-Meter works:⁣

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𝐓𝐨𝐭𝐚𝐥𝐥𝐲 𝐋𝐞𝐠𝐢𝐭: Not even close to a scam.⁣

𝐌𝐢𝐥𝐝𝐥𝐲 𝐒𝐤𝐞𝐭𝐜𝐡𝐲: Eh, maybe there's a point here, but it’s mostly solid.⁣

𝐐𝐮𝐞𝐬𝐭𝐢𝐨𝐧𝐚𝐛𝐥𝐞: You might want to look into this one more.⁣

𝐁𝐨𝐫𝐝𝐞𝐫𝐥𝐢𝐧𝐞 𝐒𝐜𝐚𝐦: This one’s on thin ice.⁣

𝐅𝐮𝐥𝐥-𝐎𝐧 𝐒𝐜𝐚𝐦: Run away—fast!⁣

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Now, let’s just see where good 'ol fashioned, dividend paying cash value whole life insurance falls on the Scam-o-Meter in each section, shall we?⁣

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#𝟏 𝗪𝐡𝐨𝐥𝐞 𝐋𝐢𝐟𝐞 𝐈𝐧𝐬𝐮𝐫𝐚𝐧𝐜𝐞 𝐇𝐚𝐬 𝐒𝐭𝐨𝐨𝐝 𝐭𝐡𝐞 𝐓𝐞𝐬𝐭 𝐨𝐟 𝐓𝐢𝐦𝐞⁣

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Whole life insurance isn’t some fly-by-night scheme—it’s been around for over 150 years! That’s right, since the mid-19th century, companies like New York Life and Northwestern Mutual have been offering these policies¹. The fact that it’s still here today, with regulation and oversight, still chugging along and helping families and businesses protect their futures says a lot about its time-tested value and trustworthiness. ⁣

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Can one 𝘳𝘦𝘢𝘭𝘭𝘺 logically conclude that a (non-government created) product, with a healthy dose of oversight and regulation along with the sheer amount of time it's been around, actually be a "scam"?⁣

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Pretty bold move for a "scam"....IF it were a "scam"!⁣

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𝐒𝐜𝐚𝐦-𝐨-𝐌𝐞𝐭𝐞𝐫 𝐑𝐞𝐚𝐝𝐢𝐧𝐠: Totally Legit⁣

Here's why: Any financial product that’s been around for over a century, with millions of people relying on it for morally important reasons, isn’t a "scam". It’s a proven, safe, reliable, and flexible option for long-term financial planning.⁣

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#𝟐 𝐓𝐡𝐞 𝗪𝐞𝐚𝐥𝐭𝐡𝐲 𝐔𝐬𝐞 𝐈𝐭 𝐚𝐬 𝐚 𝐒𝐞𝐜𝐫𝐞𝐭 (𝐏𝐫𝐢𝐯𝐚𝐭𝐞, 𝐑𝐞𝐚𝐥𝐥𝐲) 𝐂𝐚𝐬𝐡 𝐒𝐭𝐚𝐬𝐡⁣

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Here’s a fun fact: many wealthy individuals have used and continue to use whole life insurance as a way to store and grow their cash. Why? Because the cash value in these policies 𝘨𝘳𝘰𝘸𝘴 𝘵𝘢𝘹-𝘥𝘦𝘧𝘦𝘳𝘳𝘦𝘥 and they can access it through policy loans 𝘸𝘪𝘵𝘩𝘰𝘶𝘵 𝘵𝘳𝘪𝘨𝘨𝘦𝘳𝘪𝘯𝘨 𝘵𝘢𝘹𝘦𝘴 𝘰𝘳 𝘱𝘦𝘯𝘢𝘭𝘵𝘪𝘦𝘴². And we KNOW the wealthy are 𝘳𝘦𝘢𝘭𝘭𝘺 𝘨𝘰𝘰𝘥 at not paying more taxes than the government is actually owed (which is wayyy smaller than it takes in....but I digress)!⁣

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Case in point: it was widely recognized to be such a good place to store cash that in 1988, Congress passed the Technical and Miscellaneous Revenue Act (TAMRA) which placed limits on just how much money could be poured into these policies. This move was designed to curb the overuse and abuse of cash value life insurance as a tax shelter while preserving still its core benefits³.⁣

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𝐒𝐜𝐚𝐦-𝐨-𝐌𝐞𝐭𝐞𝐫 𝐑𝐞𝐚𝐝𝐢𝐧𝐠: Totally Legit⁣

If it’s good enough for those who know how to make boatloads of money and keep more of it—and so powerful that Congress had to step in to throttle back its use—it couldn't possibly be a "scam".⁣

#𝟑 𝐁𝐚𝐧𝐤𝐬 𝐀𝐫𝐞 𝐈𝐧 𝐨𝐧 𝐈𝐭 𝐓𝐨𝐨⁣

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Believe it or not, banks—you know, just those institutions we trust to keep our money "safe" (fake news) yet profit incredibly handsomely off it—are 𝘩𝘶𝘨𝘦 fans of cash value life insurance. ⁣

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U.S. banks collectively own hundreds of billions of dollars in life insurance assets, known as Bank-Owned Life Insurance (BOLI)⁴. They use these cash value permanent policies to fund key employee benefits and keep as a stable, low-risk (and tax-advantaged!) asset on their balance sheets. Be pretty weird for banks and other institutions to acquire hundreds of billions of dollars worth of "scam" assets, under heavy regulation, mind you, no?⁣

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𝐒𝐜𝐚𝐦-𝐨-𝐌𝐞𝐭𝐞𝐫 𝐑𝐞𝐚𝐝𝐢𝐧𝐠: Totally Legit⁣

Banks don’t sink money into scams. They sink money into what is going to profit them. If they’re putting their money (really, our money) into cash value life insurance, it’s because they keenly recognize its safety and value.

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One caveat I have to make here is that not all BOLI policies are whole life policies. Some are, however, and all BOLI policies are permanent cash value policies with cash surrender values so cash value insurance owned by banks and institutions still makes my point. ⁣

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#𝟒 𝐈𝐭’𝐬 𝐚 𝐒𝐚𝐟𝐞 𝐁𝐞𝐭, 𝐄𝐬𝐩𝐞𝐜𝐢𝐚𝐥𝐥𝐲 𝗪𝐡𝐞𝐧 𝐓𝐢𝐦𝐞𝐬 𝐀𝐫𝐞 𝐓𝐨𝐮𝐠𝐡⁣

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Whole life insurance is considered a safe asset, which is a big deal, especially during economic downturns. The policy offers guaranteed cash value growth and a death benefit that doesn’t depend on the stock market⁵. It’s like having a financial rock in a sea of uncertainty.⁣ And there's plenty of uncertainty to go around.

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Furthermore, through every war, every recession, every pandemic and every down market numerous mutual insurance companies have offered well over 100+ years of 𝘤𝘰𝘯𝘴𝘦𝘤𝘶𝘵𝘪𝘷𝘦 dividend credits to their policy owners. ⁣

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𝘖𝘷𝘦𝘳 𝟷𝟶𝟶 𝘤𝘰𝘯𝘴𝘦𝘤𝘶𝘵𝘪𝘷𝘦 𝘺𝘦𝘢𝘳𝘴.....not sure about you but that does in fact scream "safety" and "robustness" to me!⁣

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𝐒𝐜𝐚𝐦-𝐨-𝐌𝐞𝐭𝐞𝐫 𝐑𝐞𝐚𝐝𝐢𝐧𝐠: Totally Legit⁣

The guarantees and stability offered by whole life insurance make it a safe and reliable financial tool, not some scammy product. Hate to break it to ya...⁣

#𝟓 𝐈𝐭’𝐬 𝐌𝐨𝐫𝐞 𝐓𝐡𝐚𝐧 𝐉𝐮𝐬𝐭 𝐈𝐧𝐬𝐮𝐫𝐚𝐧𝐜𝐞—𝐈𝐭’𝐬 𝐚 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐒𝐚𝐟𝐞𝐭𝐲 𝐍𝐞𝐭⁣

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Whole life insurance does more than just pay out (tax free!) when you’re gone. It comes with a cash value component that grows, 𝘨𝘶𝘢𝘳𝘢𝘯𝘵𝘦𝘦𝘥, over time and for life⁶. And it often comes with fantastic add-ons (called 'riders') that protect one's income and premium payments in the event of disability and chronic illness.⁣

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Of course, critics tend to focus on the cost of premiums because they know full well that that's what will scare folks away from prudent use of their dollars but they do so without regard to any consideration of the 𝘷𝘢𝘭𝘶𝘦 a lifelong benefit of guarantees and protection provides an insured. They do so glossing over the fact that in as early as 5-7 years (or earlier even!) of the policy opening that 𝘦𝘷𝘦𝘳𝘺 dollar paid in can produce more than one dollar in returns. ⁣

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And, better yet, it only continues to go up in value due to un-interrupted compounding!

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Weird "scam", right? Guaranteeing your dollar premium paid in after ~5+ years and for the rest of your life earns more and more dollars.⁣ Whoa...

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𝐒𝐜𝐚𝐦-𝐨-𝐌𝐞𝐭𝐞𝐫 𝐑𝐞𝐚𝐝𝐢𝐧𝐠: Totally Legit⁣

The guaranteed death benefit and growing cash value are concrete, reliable benefits that make whole life insurance a smart financial choice.⁣

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#𝟔 𝐈𝐭’𝐬 (𝐈𝐧𝐜𝐫𝐞𝐝𝐢𝐛𝐥𝐲) 𝐅𝐥𝐞𝐱𝐢𝐛𝐥𝐞, 𝐓𝐨𝐨!⁣

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People often think of whole life insurance as some rigid product but it’s 𝘢𝘤𝘵𝘶𝘢𝘭𝘭𝘺 one of the most flexible financial tools out there. The policy’s cash value component is where much of this flexibility comes into play allowing policyholders (and policy owners!) to access funds in an 𝘪𝘯𝘧𝘪𝘯𝘪𝘵𝘦 number of ways that can adapt to their ever-changing needs over time.⁣

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Because flexibility is one of my absolute favorite parts of whole life insurance I'll dig into this portion a little deeper. The following points lend credit to whole life insurance's flexibility:

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𝐏𝐨𝐥𝐢𝐜𝐲 𝐋𝐨𝐚𝐧𝐬: One of the most significant benefits of whole life insurance is the ability to take out loans 𝘢𝘨𝘢𝘪𝘯𝘴𝘵 the policy's cash value (note I didn't say "take the cash value out" of the policy). These loans are tax-free and don’t require a credit check nor answering any questions about it's intended use making them a readily accessible source of funds for emergencies, business opportunities, major life events, or....anything⁷. Unlike traditional loans, policy loans from a whole life insurance policy come with flexible repayment terms, and if not repaid (because repayment while alive is optional), the outstanding amount plus accrued interest is simply deducted from the death benefit when it's awarded to the beneficiary.⁣

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𝗪𝐢𝐭𝐡𝐝𝐫𝐚𝐰𝐚𝐥𝐬: In addition to loans, policyholders can make direct cash value surrender withdrawals from the cash value of the policy. These withdrawals are typically tax-free up to the amount of premiums paid offering another flexible option for accessing funds when needed. While cash surrender withdrawals will reduce the death benefit, they allow policyholders to use their accumulated cash value without needing to go through a loan process.⁣

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𝐏𝐚𝐢𝐝-𝐔𝐩 𝐀𝐝𝐝𝐢𝐭𝐢𝐨𝐧𝐬: Whole life insurance policies allow for an incredible rider called Paid-Up Additions (or PUAs for short), which are additional amounts of fully paid-up insurance "blocks" (hence the name) that increase both the death benefit 𝘢𝘯𝘥 the cash value of the policy. This feature provides flexibility for policyholders to enhance their coverage over time in addition to their cash value liquidity depending on their financial situation and goals.⁣

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𝐏𝐫𝐞𝐦𝐢𝐮𝐦 𝐏𝐚𝐲𝐦𝐞𝐧𝐭 𝐅𝐥𝐞𝐱𝐢𝐛𝐢𝐥𝐢𝐭𝐲: Many whole life policies offer premium payment flexibility allowing policyholders to use dividends to pay premiums, reduce the amount of premiums owed, or even create a fully paid-up policy that no longer requires ongoing premium payments. This flexibility is particularly valuable during retirement or other times when income may be reduced.⁣

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𝐃𝐢𝐯𝐢𝐝𝐞𝐧𝐝 𝐎𝐩𝐭𝐢𝐨𝐧𝐬: Whole life policies offer dividends to policyholders which can be used in several flexible ways: to purchase additional PUAs, to reduce future premiums, to accumulate at interest within the policy, or to be taken as cash distributions (tax-free up to cost basis!). ⁣

These options allow policyholders to tailor their policy to meet their current financial needs.⁣

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𝐔𝐬𝐞 𝐚𝐬 𝐂𝐨𝐥𝐥𝐚𝐭𝐞𝐫𝐚𝐥: The cash value in a whole life policy can also be used as collateral for external loans and Lines of Credit. This flexibility allows policyholders to secure financing without having to liquidate other assets or disturb their existing financial plans.⁣

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𝐋𝐞𝐠𝐚𝐜𝐲 𝐏𝐥𝐚𝐧𝐧𝐢𝐧𝐠 𝐚𝐧𝐝 𝐆𝐢𝐟𝐭𝐢𝐧𝐠: Whole life insurance also offers flexibility in estate planning. Policyholders can designate multiple beneficiaries, make changes over time, and even set up trusts or charitable gifts funded by the policy's death benefit offering a tailored approach to legacy planning.⁣

𝐒𝐮𝐫𝐫𝐞𝐧𝐝𝐞𝐫𝐢𝐧𝐠 𝐭𝐡𝐞 𝐏𝐨𝐥𝐢𝐜𝐲: While typically a last resort, policyholders do have the option to surrender their policy for most of its cash value (there is a surrender charge since there's impact to the insurance company). This provides a final layer of flexibility if financial circumstances change drastically although it does result in the loss of the death benefit.⁣

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𝐒𝐜𝐚𝐦-𝐨-𝐌𝐞𝐭𝐞𝐫 𝐑𝐞𝐚𝐝𝐢𝐧𝐠: Totally Legit⁣

Flexibility and liquidity in a financial product are marks of a well-designed tool, not a scam. That would be a pretty feature-rich scam, don't you think?! Whole life insurance offers options that work 𝘧𝘰𝘳 𝘺𝘰𝘶, 𝘯𝘰𝘵 𝘢𝘨𝘢𝘪𝘯𝘴𝘵 𝘺𝘰𝘶, providing a versatile foundation for both short-term needs and long-term planning.⁣

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#𝟕 𝐈𝐭’𝐬 𝐚 𝐊𝐞𝐲 𝐓𝐨𝐨𝐥 𝐟𝐨𝐫 𝐄𝐬𝐭𝐚𝐭𝐞 𝐏𝐥𝐚𝐧𝐧𝐢𝐧𝐠⁣

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Whole life insurance isn’t just about you—it’s also about protecting your legacy for loved ones. The death benefit typically income-tax-free for your beneficiaries making it an incredibly effective way to cover estate taxes and pass on wealth⁸. For high-net-worth individuals, this can be a big, big deal and save lots in estate taxes.⁣

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𝐒𝐜𝐚𝐦-𝐨-𝐌𝐞𝐭𝐞𝐫 𝐑𝐞𝐚𝐝𝐢𝐧𝐠: Totally Legit⁣

If you’re looking to protect and transfer wealth whole life insurance is a very solid option. It’s designed to help, not to deceive. And provide your beneficiaries money they need most in times of need and mourning....𝘯𝘰𝘵 the government.⁣

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𝐅𝐢𝐧𝐚𝐥 𝐓𝐡𝐨𝐮𝐠𝐡𝐭𝐬: 𝗪𝐡𝐨𝐥𝐞 𝐋𝐢𝐟𝐞 𝐈𝐧𝐬𝐮𝐫𝐚𝐧𝐜𝐞 𝐢𝐬 𝐭𝐡𝐞 𝐑𝐞𝐚𝐥 𝐃𝐞𝐚𝐥⁣

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Whole life insurance is far from a scam. I think we've made that very evident from the information presented above (thanks Scam-o-Meter!). ⁣ With a history that spans well over a century, its strategic use by the wealthy as well as banks and other institutions, and its status as a safe and flexible asset, it’s clear that this financial tool is the real deal. ⁣

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While it might not be the right fit for everyone, dismissing it as a scam wrongly and ignorantly ignores the many significant benefits it actually offers us. ⁣

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So, take the time to understand it, and you're likely to find that whole life insurance might just be what you need for your financial future. I, regretfully, did not give it it's proper due diligence (let alone talk to anybody using it to it's full advantage) when I was younger and missed out on so much opportunity as a result. Don't make the same mistake I did. Dig deeper!

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I'll leave you with this thought:⁣

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There is actually scam at play here.

The misinformation floating around, poor financial advice from licensed professionals and financial talking heads regarding dividend paying whole life insurance and it's plethora of benefits is the REAL scam at issue.

And I'm here to debunk it!⁣

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𝐒𝐨𝐮𝐫𝐜𝐞𝐬:⁣

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1. New York Life: A History of Security⁣

https://www.newyorklife.com⁣

2. National Association of Insurance Commissioners (NAIC)⁣

https://www.naic.org/documents/prod_serv_consumer_b_permanent.pdf⁣

3. Congressional Research Service: Life Insurance and TAMRA⁣

https://crsreports.congress.gov⁣

4. Investopedia: Bank-Owned Life Insurance (BOLI) Basics⁣

https://www.investopedia.com/terms/b/boli.asp⁣