Insurance isn’t exactly the most exhilarating and gripping financial topic, so this is my attempt to explain the basics of life insurance as simply and briefly as possible.
Jake happy to help clarify why whole life (WL) even exists.
I’m not going to argue that most WL sold shouldn’t have been that’s true. But in the right use cases, WL can outperform market alternatives for its role.
Think of it like chemo: I introduced this analogy because both are powerful tools when applied correctly. Chemo saved lives when used appropriately but got overused because people were paid to push it. Same with WL: it’s not the tool’s fault, it’s the incentive structure that led to misuse.
Here’s what your piece missed:
✅ Modern Whole Life Pros (when designed right)
Break-even at 4–5 years = early liquidity + flexibility
Tax-deferred growth + tax-free loans = no sequence risk
Guaranteed death benefit + cash value = stability in volatility
Private banking tool → cash value = cheap, fast collateral
Asset + creditor protection in most states
❌ Cons
Requires discipline + long-term view
Bad design = old 10–15 year breakeven, poor returns
Loans need active management or reduce death benefit
⚡ Why your argument is flawed
10–15 year zero-return? That’s outdated modern designs from ethical, and educated private agents break even in 4–5 years.
WL’s real IRR ~5% compares favorably to bonds/CDs with better tax treatment.
As a fellow advisor who is also independently insurance licensed, it's frustrating to see the bias against whole life (and other insurance products) that many other advisors have.
We've softened a bit with annuity products, particularly since folks like Kitces and Pfau have demonstrated their utility, but for some reason the same hasn't happened with whole life insurance despite similar studies demonstrating how useful it can be as a non-correlated asset with guaranteed returns for situations such as mitigating against sequence of returns risk.
I suspect the main reason is misinformation and a lack of understanding of the mechanics of the product as demonstrated by your post (I say this gently in the spirit of constructive criticism).
Some examples:
● Whole life, universal life, variable life are all types of permanent insurance, but they are all distinct products, not just different types of WL.
● Your description of insurance commissions is a bit misleading. Term and WL both front load commissions. In year 1, the agent will receive a large commission equaling ~50-130% of the initial annual premium. Then in a handful of subsequent years, the agent will receive a small trailing commission (~5% or lower, decreasing year over year). So both WL and term premiums are going toward commissions in a similar manner.
Secondarily, and more cynically, I believe it not only has to do with pushy insurance salespeople, but also with the fact that it's an expensive product that takes away from advisor AUM.
It's true, anyone pushing it primarily as a wealth-building or income replacement vehicle is probably just trying to make a commission, but to reject an entirely useful product simply because it's commissioned seems disingenuous and short sighted.
I've been in the industry long enough to know how sales driven a lot of fee-only advisors and firms can be. AUM drives decision-making. And while not all advisors are predatory, some are. Likewise, not all insurance agents are predatory simply because commissions are baked into the product (there's literally no alternative compensation structure), but some are.
I think it would also be worthwhile reading up on different whole life policy designs. There are a lot of options that solve for a lot of the common issues that advisors seem to express with WL. Paid up additions, short pay, blended policies, riders. It helps to work with an agent you trust who can craft a policy design specifically for your particular client. We work with a lot of RIAs in our area doing exactly that as they appreciate that we're also wealth managers who get where they're coming from (obviously we also have a strict "no poaching" policy).
Hopefully my reply was helpful and educational in some regard. I'm a bit frustrated at the ubiquitous knee-jerk reaction many advisors have against everything except term insurance. As I mentioned, not too long ago that included annuities as well. Thanks for letting me vent a bit in your comments.
Jake happy to help clarify why whole life (WL) even exists.
I’m not going to argue that most WL sold shouldn’t have been that’s true. But in the right use cases, WL can outperform market alternatives for its role.
Think of it like chemo: I introduced this analogy because both are powerful tools when applied correctly. Chemo saved lives when used appropriately but got overused because people were paid to push it. Same with WL: it’s not the tool’s fault, it’s the incentive structure that led to misuse.
Here’s what your piece missed:
✅ Modern Whole Life Pros (when designed right)
Break-even at 4–5 years = early liquidity + flexibility
Tax-deferred growth + tax-free loans = no sequence risk
Guaranteed death benefit + cash value = stability in volatility
Private banking tool → cash value = cheap, fast collateral
Asset + creditor protection in most states
❌ Cons
Requires discipline + long-term view
Bad design = old 10–15 year breakeven, poor returns
Loans need active management or reduce death benefit
⚡ Why your argument is flawed
10–15 year zero-return? That’s outdated modern designs from ethical, and educated private agents break even in 4–5 years.
WL’s real IRR ~5% compares favorably to bonds/CDs with better tax treatment.
WL serves key roles: estate planning, legacy assets, tax arbitrage, asset protection, private banking.
As a fellow advisor who is also independently insurance licensed, it's frustrating to see the bias against whole life (and other insurance products) that many other advisors have.
We've softened a bit with annuity products, particularly since folks like Kitces and Pfau have demonstrated their utility, but for some reason the same hasn't happened with whole life insurance despite similar studies demonstrating how useful it can be as a non-correlated asset with guaranteed returns for situations such as mitigating against sequence of returns risk.
I suspect the main reason is misinformation and a lack of understanding of the mechanics of the product as demonstrated by your post (I say this gently in the spirit of constructive criticism).
Some examples:
● Whole life, universal life, variable life are all types of permanent insurance, but they are all distinct products, not just different types of WL.
● Your description of insurance commissions is a bit misleading. Term and WL both front load commissions. In year 1, the agent will receive a large commission equaling ~50-130% of the initial annual premium. Then in a handful of subsequent years, the agent will receive a small trailing commission (~5% or lower, decreasing year over year). So both WL and term premiums are going toward commissions in a similar manner.
Secondarily, and more cynically, I believe it not only has to do with pushy insurance salespeople, but also with the fact that it's an expensive product that takes away from advisor AUM.
It's true, anyone pushing it primarily as a wealth-building or income replacement vehicle is probably just trying to make a commission, but to reject an entirely useful product simply because it's commissioned seems disingenuous and short sighted.
I've been in the industry long enough to know how sales driven a lot of fee-only advisors and firms can be. AUM drives decision-making. And while not all advisors are predatory, some are. Likewise, not all insurance agents are predatory simply because commissions are baked into the product (there's literally no alternative compensation structure), but some are.
I think it would also be worthwhile reading up on different whole life policy designs. There are a lot of options that solve for a lot of the common issues that advisors seem to express with WL. Paid up additions, short pay, blended policies, riders. It helps to work with an agent you trust who can craft a policy design specifically for your particular client. We work with a lot of RIAs in our area doing exactly that as they appreciate that we're also wealth managers who get where they're coming from (obviously we also have a strict "no poaching" policy).
Hopefully my reply was helpful and educational in some regard. I'm a bit frustrated at the ubiquitous knee-jerk reaction many advisors have against everything except term insurance. As I mentioned, not too long ago that included annuities as well. Thanks for letting me vent a bit in your comments.