“So How Long Have You Been Selling Whole Life Insurance?”

Summary

The Ramsey Show Highlights: “So How Long Have You Been Selling Whole Life Insurance?”
Release Date: December 30, 2024
Host: Ramsey Network

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Overview

In the episode titled “So How Long Have You Been Selling Whole Life Insurance?”, the Ramsey Network delves deep into the intricacies and drawbacks of whole life insurance. The discussion features a critical analysis of whole life policies, contrasting them with other investment and insurance options. The hosts aim to educate listeners on the financial pitfalls of whole life insurance, emphasizing smarter financial strategies.

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Discussion Breakdown

1. Introduction to Whole Life Insurance Concerns

The episode begins with a critical question posed by a listener (Person B) regarding the viability of whole life insurance as a means to increase long-term tax-free savings, especially after maxing out options like Roth IRAs.

• Person B: "So I had two questions regarding whole life insurance... if a person wanted to increase their long term tax free savings, would that be something you would consider as a viable approach?"
  [00:06]

2. Identifying the Speaker’s Background

Person A swiftly reacts to Person B’s questions, questioning their expertise and involvement in the insurance industry.

• Person A: "How long ago did you take your job selling Whole Life?"
  [01:13]

This leads to a revelation that Person B is a licensed agent but hasn't actively sold many policies, highlighting potential gaps in their understanding of the product.

3. Debunking the Tax-Free Growth Myth

Person A dismantles the common misconception that whole life insurance grows tax-free. He explains that the tax-free status only applies if the policyholder doesn't earn a profit from the policy.

• Person A: "Whole life does not grow tax free unless you lose money. And your basis for tax purposes in a whole Life policy is the total of your premiums."
  [01:32]

He further states, "Whole life in and of itself does not grow tax free. That is a Falsehood."
[02:00]

4. Critique of Returns and Fees

The conversation turns to the financial performance of whole life policies. Person A criticizes the low rate of return and high fees associated with whole life insurance, arguing that the returns are often insufficient to justify the costs.

• Person A: "They suck so bad. The rate of return is horrendous and the fees are so high."
  [02:30]

He emphasizes that even if the policy did generate profits, withdrawing those would result in taxation, which rarely happens due to the unfavorable return rates.

5. Comparison with Alternative Investments

Transitioning to alternatives, Person A suggests that investing the extra funds in more straightforward investment vehicles, such as a brokerage account or even a simple "fruit jar," would yield better financial outcomes.

• Person A: "If you put your money in a fruit jar as your side investment after you maxed out a Roth, you're going to end up with more money than you will screwing around with the whole life policy because they lose money."
  [03:18]

6. Analysis of Whole Life as an Insurance Product

Person A shifts focus to the insurance aspect of whole life policies, explaining that they are primarily insurance products masquerading as investment vehicles. He elucidates that the high costs are largely due to the investment component, which offers minimal returns.

• Person A: "Whole life is 20 times more expensive than the same amount of term on the same person."
  [04:48]

He breaks down the allocation of premiums, revealing that a significant portion goes into an investment called cash value, which performs poorly.

7. The Reality of Cash Value Accumulation

Delving deeper into cash value, Person A illustrates how long it takes for the investment component to generate any substantial returns, often leaving policyholders with negligible gains.

• Person A: "The average whole life policy in America today averages 1.2% with an inflation rate of 4.7."
  [05:19]

This stark contrast highlights the inefficiency of whole life policies in preserving and growing wealth over time.

8. Implications for Policyholders

The discussion turns somber as Person A outlines the dire consequences for policyholders. He explains that upon death, beneficiaries typically receive only the face value of the policy, with the invested premiums effectively lost.

• Person A: "When you die, they keep your money. You do not get the face value plus the cash value."
  [06:17]

This revelation underscores the futility of investing in whole life insurance from a purely financial standpoint.

9. Final Verdict and Recommendations

Concluding the episode, Person A strongly advises against whole life insurance, advocating for more transparent and effective financial planning tools. He reiterates the importance of budgeting and prudent investment to ensure financial security.

• Person A: "You're better off put money in a fruit jar... Create your free every dollar budget today."
  [07:35]

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Notable Quotes

• Person A: "Whole life does not grow tax free unless you lose money. And your basis for tax purposes in a whole Life policy is the total of your premiums."
  [01:32]

• Person A: "Whole life in and of itself does not grow tax free. That is a Falsehood."
  [02:00]

• Person A: "If you put your money in a fruit jar as your side investment after you maxed out a Roth, you're going to end up with more money than you will screwing around with the whole life policy because they lose money."
  [03:18]

• Person A: "They suck so bad. The rate of return is horrendous and the fees are so high."
  [02:30]

• Person A: "Whole life is 20 times more expensive than the same amount of term on the same person."
  [04:48]

• Person A: "The average whole life policy in America today averages 1.2% with an inflation rate of 4.7."
  [05:19]

• Person A: "When you die, they keep your money. You do not get the face value plus the cash value."
  [06:17]

• Person A: "You're better off put money in a fruit jar... Create your free every dollar budget today."
  [07:35]

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Conclusion

This episode of The Ramsey Show Highlights serves as a stern warning against the allure of whole life insurance as an investment tool. Through detailed analysis and candid discussion, the hosts elucidate the financial shortcomings of whole life policies, advocating for more transparent and efficient financial strategies. Listeners are encouraged to approach insurance and investments with a critical eye, prioritizing tools that offer genuine growth and security.

Transcript

[A]

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[B]

So I had two questions regarding whole life insurance. I know you're general principal, but I've never actually heard you discuss these two characteristics of whole life insurance or these two scenarios. So I was kind of curious of your opinion regarding the subject, if you don't mind. Sure.

[A]

I'm an expert on my opinion.

[B]

So the first question is like this. Today in America, if a single person is earning $150,000 a year or less, they can put up to $7,000 into a Roth IRA that grows tax free. But at $150,000 after tax is about 130,000. A single person pretty much anywhere in America still has plenty of money. So let's say you're putting money into that investment brokerage account. My question was on whole life insurance. It also grows tax free. I know it doesn't have the same rate of return, but if a person wanted to increase their long term tax free savings, would that be something you would consider as a viable approach? That they've already maxed out their Roth IRA? Or if they have a company, a Roth 401, they still can only max out at 7,000.

[A]

How long ago did you take your job selling Whole Life?

[B]

I've only sold a couple of policies, but um, but no, I don't. I'm not actually involved in the industry.

[A]

Specifically, how did you sell policies if you're not involved in the industry?

[B]

Oh, I am a licensed agent, but I haven't done it in a few.

[A]

Years because you pretty much spouted their line perfectly. This is the Whole Life sales line. That's how I knew you were selling it. You nailed it. Like you were just trained like three weeks ago. That's what it sounded like, not picking on you. But you, this is you, you are representative of the industry. Okay, so let me help you with this. Let me help you with this. Whole life, Whole life does not grow tax free unless you lose money. And your basis for tax purposes in a whole Life policy is the total of your premiums. So if you pay in $100,000 over a bazillion years into your Whole Life policy and your cash value is $90,000, you have lost $10,000. And so of course there's no taxation. Or you can borrow your own money and pay them an interest rate to borrow your own money. And by the way, 100% of the time borrowed money is not taxable. So whole life in and of itself does not grow tax free. That is a Falsehood. If it actually made money and you took the money out, it would be taxable, but they never do because they suck so bad. The rate of return is horrendous and the fees are so high. And so no, I would never consider that as an option. Instead, I would listen to. If you put your money in a fruit jar as your side investment after you maxed out a Roth, you're going to end up with more money than you will screwing around with the whole life policy because they lose money.

[C]

I'm impressed that you sniffed that out as quickly as you did too much.

[A]

Time in 30 years being hated on by Whole Life people.

[C]

So that was pretty impressive. I'm not gonna lie. I, I, I'm impressed.

[A]

Well, I mean the, the, it's a scripted thing that clearly it's a, it's a, it's tax free growth, which is a complete lie, y'all. It's not tax free growth. If there is growth and you take it out, it's taxed, period. But there never is because the rate of return is so horrible and the fees are so high. So, so here's the way Whole life works for those of you listening. And he's talking about it as an investment only, but let's talk about it as an insurance product, which is what it is purported to be. And that's you only have to have a life insurance license, not a securities license to sell the crap. So the, which is easy to pass if you can, if you can roll out of bed, you can probably pass your life insurance exam. It's not that hard. Securities exam, on the other hand, very hard. Now whole life is 20 times more expensive than the same amount of term on the same person. So a 30 year old buying $100,000 policy, if say for instance, they did that for $5, whole life would be $100. Okay, so where does the extra $95 go above the cost of insurance? Because term is only insurance.

[C]

That's right.

[A]

It goes into an investment called cash value, which is what he was bringing up. Okay, the investment called cash value. The first three years on a whole life policy, your Investment growth is 0,100% of your $95 a month. In our example, the extra 19 times you're paying for this, you get zero in your investment. So you open a bank account and you put in $95 a month for three years and the balance is zero.

[C]

No one would do that, by the.

[A]

Way, if they understood that they do it all the time. But no one would do it if they understood that you're right, which is our goal here, is to make everyone understand it. Then once it does start making money. The average whole life policy in America today averages 1.2% with an inflation rate of 4.7.

[C]

Losing money.

[A]

And so after you get past those two things, here's the worst part of the whole thing. So this little couple buys $100,000 whole life insurance policy. They pay into it for 20 years. They have 20,000 bucks in there. Finally, after they got 1.2% and has nothing for the first three, and then he dies, you know what they pay? They pay the life insurance. Just the premium, the face amount. What happened to the money? I've been paying $95 extra to build up in my savings account. Insurance company keeps it. You do not get the face value plus the cash value.

[C]

Well, let me ask this because.

[A]

Let me finish. So you have a savings account that the first three years you put money and they keep all of it. After that you make 1% on it. And when you die, they keep your money. Who would open the savings account? Nobody. But people do. Every day. It's the biggest, let me tell you. It's the payday lender of the middle class. It's crap. Sorry, Andrew, but you asked.

[C]

So when do they. A guy like Andrew, if somebody said I'm interested, let's say they had built up a certain amount of cash value. When would a guy like Andrew say, here's the right time to get at that money?

[A]

So you.

[C]

So you know it's all a risk game, but so that you can get it before you die.

[A]

Well, you can't get it before you die. The only way you could get it is cash the policy in. Because if you borrow the money out before you die, they repay the debt to yourself to make sure they keep the whole cash value before they pay out the face value. So if you borrowed $20,000 and $100,000 policy and you died with the loan out, you get 80 instead of 100. They pay back the loan so they get. Make sure they get to keep it.

[C]

Wow, wow, wow, wow.

[A]

So the only way to get to keep the money is to cash out the policy.

[C]

And then at that point, what was. Why get it to begin and you.

[A]

Have lost money on it, so it's not taxable.

[C]

Terrible, terrible.

[A]

No, you're better off put money in a fruit jar, darling. At least when you die, it's there. Assuming the family knows where the fruit jar is buried. But be careful with that one. That did happen to one of my relatives. We got cousins out there with metal detectors in the backyard trying to figure this one out. But don't do that one either. Create your free every dollar budget today. The simplest way to budget for your life.