Monthly Archives: November 2014

Conflict of Interest: Hong Kong’s New Insurance Regulator Will Be Underfunded If It Enforces Consumer Protection Laws

The new Independent Insurance Authority (IIA) is expected to obtain 70% of its funding by imposing a 0.1% levy on policyholders’ premiums. 

This plan assumes that new premiums will continue to grow by about 2% per year.

Last year, life insurers collected roughly 99% of new premiums by selling ripoff life investment products, such as whole life and ILAS. Life insurers only earned 0.7% of new premiums by selling pure life insurance (i.e., term). 

2013 Life Insurance New Business - Highlighted

Countless independent experts say that term life is the only type of life insurance product that 99% of consumers should own. Experts also say that life investment products, such as ILAS and whole life, are blatantly exploitative and often deceptive. Such policies are rarely bought by informed consumers.

The Insurance Companies (Amendment) Bill 2014 will soon legally require insurance salespeople to act “honestly, fairly, [and] in the best interests of the policy holder”.

Conduct Requirement

If this law is enforced, new premiums collected by life insurers will not grow by 2% per year as LegCo is assuming. Instead, new premiums will drop by as much as 99%, since sales of ripoff life investment products should fall to near zero.

As a result, the IIA will be significantly underfunded.

The only way the IIA could avoid a fiscal crisis is by allowing insurers to break the law and continue exploiting consumers.

In other words, the interests of the IIA will be aligned with the interests of insurers and pitted against the interests of consumers.

To eliminate this inevitable conflict of interests, and to allow the IIA to do its job and enforce the law, LegCo must introduce an alternative, viable funding plan for the IIA.

Insurance Companies Pillage the Retirement Savings of Humanity as Regulators Twiddle Their Thumbs

A few weeks ago, I scoured the internet for articles about life insurance, and the stuff I found was horrifying. Virtually every country in the world is plagued by scandals. Regulation is universally inadequate, non-existent, or unenforced. Whole life, universal life, and unit-linked policies are everywhere condemned as ripoffs, and the people who flog these products are widely regarded as the scum of the Earth.

I saved links to many of the articles and excerpted the most illuminating quotes. All of this info has been organized below, categorized by country.

The bulk of the articles are from the United States, United Kingdom, Canada, and India. There are also articles from Japan, Korea, Singapore, New Zealand, UAE, Ireland, Germany, and Switzerland. I have excluded articles from Hong Kong, as there are already an abundance of articles on the “News” section of this website. 

I could have kept reading and collecting more articles from more countries, but I saw no point. A Google search for the phrase, “life insurance scandal“, retrieves 75,100 results—more than anyone could hope to read, especially since the number of scandals is growing daily. Also note that these 75,100 search results only reflect articles written in English (not Chinese, Spanish, and other languages).

I encourage regulators/legislators to browse through the articles below to gain a sense of the magnitude of the devastation that life insurers have brought upon families all over the world.

It is overwhelmingly clear that the root of every country’s problem is a product distribution model greased by excessive, secret commissions and other high charges which are deliberately hidden by opaque, deceptive policy structures.

In order to stop insurers from systematically exploiting consumers, regulators must rein in (if not ban) commissions and require total transparency in pricing. If insurers are unable to sell their products without bribing brokers and deceiving consumers, then their products don’t deserve to exist. Good products, such as low-cost index funds and term life insurance, sell themselves.

United States

Deceptive Sales Practices in the Life Insurance Industry
(Joseph Belth – The Journal of Risk and Insurance – June 2, 1974)

“The purposes of this paper are to describe a variety of deceptive sales practices used in the life insurance business and to suggest ways in which such practices might be modified so as to eliminate the element of deception. All of the practices discussed in the paper involve numbers, and also utilize improper statements about either the price of life insurance protection or the rate of return on the savings element of a cash-value life insurance contract. The conclusion is that the widespread use of such practices constitutes a national scandal, and that the entire subject should be examined carefully by those interested in the welfare of the life insurance business.”

Policies of Deception?
(BusinessWeek – Jan. 16, 1994)

“But such whole-life solicitations are at the heart of the widening scandal hitting Metropolitan Life Insurance Co. and other big insurers. At least 13 states are investigating allegedly misleading sales practices by MetLife agents, mainly for national mailings made from its Tampa office. MetLife says it is cooperating.

Now, the scrutiny is spreading. Misleading sales literature for whole-life insurance policies, allegedly used by agents of New York Life Insurance Co. and Prudential Insurance Co. of America, has surfaced in state insurance-department offices. A New York Life spokesman says the company is cooperating with an investigation by the Florida Insurance Dept. and has hired a law firm to investigate. He says he is unaware of a New York inquiry. A Prudential spokesman says it has received an inquiry from New York about an agent’s sales letter and has pulled the unauthorized letter. “We don’t expect to have the same type of problem that we’ve read about,” he says.

Few regulators believe the scandal will stop there, however. “There’s no doubt in my mind that the scope of this is broader than just MetLife and some other companies mentioned,” says Salvatore R. Curiale, New York’s superintendent of insurance. “I think market conduct and misleading sales practices will be the major issue for life companies in 1994.” Curiale is mailing a sternly worded letter to 147 life-insurance companies urging them to beef up internal controls of sales personnel. Adds Florida insurance commissioner Tom Gallagher: The investigations are “putting pressure on the industry to clean up its act.”

At the heart of the scandal are whole-life insurance policies–long sold as products consumers can use to fund retirement, which, indeed, they can. The problem is that with competition for consumer dollars becoming more intense, insurers’ sales tactics have become increasingly aggressive.”

The Life Insurance Deception
(Financial Publishers Association – No Date)

“Back in the old days, insurance companies sold you insurance.

You paid them a premium. They paid you on your claims. Simple.

But some people in the industry came to the conclusion that just selling insurance wasn’t good enough. Mutual funds were growing like gangbusters. Savings and loans were hot on the tail of American savers. Even conservative banks were spreading their wings. Insurance executives figured they wanted a piece of the revenues too.

“Instead of just selling insurance policies, we can sell investment programs with a veneer of insurance,” they reasoned. “Instead of just watching money come in one door (as premiums) and go out the other door (as claims payments), we can actually hold onto people’s money — like a bank or mutual fund,” they figured.

They wanted to expand beyond the boring business of selling insurance to the exciting business of selling investments.”

“Prudential — the Rock-of-Gibraltar-largest-insurance-company-in-the-world Prudential — came up with another very “creative” solution. They figured out a way to disguise the life insurance as an annuity, set up a big sales force trained to obfuscate the real nature of the product and sell it to millions of investors. All annuity policies sold by insurance companies do have a small life insurance component. But that’s a far cry from being an actual life insurance policy.”

“It’s hard to find out how much a product really costs. It’s hard to figure out how much you’re paying in commissions. It’s hard to know what the true yield will be. And unless it’s term insurance, it’s impractical to compare the products of all competing insurers side by side.

People in the insurance industry who have lived with this problem all their lives don’t pay much attention to it. But anyone who compares insurance to mutual funds or ETFs is appalled. “Can’t you tell me what your 1-year yield is? Can’t you tell me what your expense ratio is? Can’t I compare your policy with a hundred other policies?”

The answers: No. No. No. You can’t do anything even close.

How does the insurance industry get away with this secrecy? By always maintaining that thin veneer of insurance on their investment products.”

“If you’re shopping for a mutual fund, you will get a prospectus that discloses all the risks. If you’re shopping for a cash-value life insurance policy, you get a policy illustration that often promises much but discloses little.

What about the actual insurance contract itself — the actual product you’re buying? You don’t get to see that until after the underwriting process is complete. You’d have to go through this same process with several companies before you could make a comparison. Shopping around becomes so impractical as to be virtually impossible.”

“Typically, [the policy illustration] tells you little about the allocation of your funds or the breakdown of fees. It discloses nothing about the risk or the financial stability of the insurer. It tells you nothing about the commissions your broker will make.

Rather, its primary purpose is to give you scenarios of future performance based on assumptions about inflation and interest rates. Some companies use conservative assumptions. Some companies try to tweak the results to make the policies look better. And some go off the deep end, making assumptions that make their policies really shine.”

“You ask the agent what his commission is. His response: “Don’t worry about that, the company writes my commission check.” He doesn’t tell you that no matter who writes the physical check, the money comes out of your pocket.”

Ready to buy life insurance? OK. Then you’d better get started learning all the jargon. Do you know what a “paid-up addition” is? How about a “mortality charge”? “Waive-of-premium rider”? If you don’t, you’re in good company. Most consumers who try to learn about life insurance are overwhelmed by the jargon. As a result, many simply bow to agents’ high-pressure tactics without knowing what they are buying or how much it costs.”

“One of the most underhanded aspects of the life insurance industry is that, in the third millennium, you are not likely to encounter anyone who introduces himself as a life insurance salesman. Instead, you will encounter “pension consultants,” “financial advisors,” and “financial planners.” Heck, even stockbrokers and bank tellers are selling life insurance when they can.”

“In this environment, the ethical agents have a hard time making a better-than-average living, while the sharks have a field day.”

“But somewhere in the middle, there are also well-meaning people who were sold a bill of goods while they were being trained in insurance products. They have been conditioned by the industry, they think they know what they are talking about, they tell you what you want to know (according to what they have been told) and they are most likely not out to cheat you! But you get cheated anyway because your well-meaning agent is in the same position you are in: He believed what the “experts” told him.”

Life insurance industry will not police itself
(The Baltimore Sun – Feb. 13, 1994)

“Life insurance scandals continue to ripple through American pocketbooks. The landscape feels like the Wild West. Too many outlaws, not enough sheriffs.

The latest headline-grabber originated at giant Metropolitan Life. MetLife agents based in Tampa, Fla., gulled customers out of some $11 million, by selling them so-called “retirement plans” that were cash-value life-insurance policies in disguise. Buyers thought that their monthly payments were pure investments; in fact, they were life-insurance premiums.”

“Before closing this particular chapter, MetLife may offer refunds to nearly 65,000 clients. The company has paid fines in Georgia and Massachusetts and other forfeits may follow. But all that’s unique about MetLife is that (1) the promotion was so widespread and (2) it got caught. For several years now, many companies and agents have been touting insurance as a “private pension” or a “retirement savings plan” — superior, they claim, even to tax-favored Individual Retirement Accounts, Keoghs or 401(k)s.”

“Firing a handful of agents jibes with the industry’s usual defense: that sales deceptions are practiced by just a few “bad apples.” But MetLife management was warned by the Texas insurance commission back in 1990 to quit selling misleading retirement plans.

Will MetLife’s troubles inspire a cleanup in the rest of the industry, shot through as it is with deceptive sales techniques? Not very likely, despite years of persistence by insurance-industry reformers. They’re trying to teach a pig to sing, which wastes the breath and annoys the pig. It’s time for better regulation to step in.”

Variable Universal Life Insurance Sales Misconduct
(Stock Market Loss – No Date)

“VARIABLE LIFE INSURANCE SCAM

You might wonder why lawyers who represent investors in disputes against stockbrokers would be writing about life insurance. Most people are unaware that certain life insurance products are actually securities and can only be sold by agents who hold a special type of broker’s license. In fact, we are seeing more and more cases of bad brokers turning to insurance products as a way to boost their sagging income. People often don’t realize that an insurance agent can be sued for sales abuses. But in fact, such agents are held to many of the standards applicable to conventional stockbrokers.

The prevalence of insurance products that function like securities has turned the process of dealing with life insurance agents into something akin to a walk in a minefield. Buying life insurance used to just be stressful and confusing. But these days, it actually can threaten your financial health. Insurance companies and their agents rarely tell the whole truth when selling policies. They might represent life insurance to be a retirement plan, or promise customers that premiums eventually will vanish thanks to the policy’s investment returns. They might engage in unfair comparisons in order to have policyholders needlessly cash in current policies to buy new policies, a sales abuse called “twisting” or “churning.” Or they might sell a policy they know or should know will be a money pit — a policy that will lapse in the near future as premiums unexpectedly increase.

At Hermann, Cahn & Schneider, our attorneys handle cases related to each of these different types of insurance sales practices”

“Don’t insurance companies care if their products fail?

Logically, one would ask why insurance companies and their agents, knowing that so many of these policies are doomed to fail, would continue to sell VULs. One would also ask why these companies and their agents don’t disclose the problems to buyers at the time of sale. The answer is simple. Commissions and fees earned on a variable universal life policy, especially in the first year of the policy’s existence, typically are enormous. The profit motive overrides all other considerations for insurers and many insurance agents.”

Underfunded Policies – Rolling the dice with Universal Life
(Mark Colbert – BadFaithInsurance.org – 2005)

“In the last 5 years, experts (including myself) have identified well over 23 million potential victims of Life Insurance Fraud in the United States.”

“Somebody mark my words, “Variable Insurance Fraud is the very next time bomb waiting to go off.” Within the last two years I have had intelligent policyowners tell me, “My agent told me that our money is somehow tied into the Stock Market and if nothing changes for the next 30 years, we’ll be millionaires.” Does anyone realize how hard it is to respond to a statement like that with a straight face? When is the very last time the Stock Market remained unchanged for 30 minutes – much less 30 years?”

Life Insurance: Bogus Bait To Make You Switch
(BusinessWeek – Nov. 26, 1995)

“Navigating replacement waters means swimming with the sharks. It’s notoriously difficult for nonprofessionals to analyze and compare policies. And considering the recent churning allegations against Metropolitan Life, Prudential, and other insurance companies, it’s hard to know who to trust for advice. “Some of the things being done are blatant thievery. Clients need to become educated,” says Richard Sabo, a former MetLife agent in Pennsylvania whose 1993 whistleblower complaints on churning and related fraud led to a state investigation, resulting in a $1.5 million fine plus restoration of old policies.”

Term Life Insurance vs. Cash Value Life Insurance
(Zander Insurance Group – No Date)

“In reality, you only need life insurance for as long as your premature death represents a financial strain to your family. If you are out of debt and have built your savings, then why do you need to continue to pay for any type of policy? By getting rid of debt and maximizing other investment opportunities, the need for life insurance for your “whole life” is eliminated.”

“Many will point out that term life policies pay fewer claims since they can expire while the insured is still alive. This is true . . . but does it matter if you don’t need the coverage any longer? Why is life insurance any different than home or auto coverage’s that only pay if there is a claim?”

“When cash value agents use mathematical data to prove their point, they often overlook other key issues. They never seem to take into account the cost of your continuing debt while saving in their plan. In addition, access to your savings requires a loan and interest paid to the insurance company or a withdrawal which reduces the policy amount if not repaid. They also overlook that only the policy death benefit is paid to the beneficiary . . . not the savings.”

Which is Better For You: Term or Permanent Life Insurance?
(U.S. News – Feb. 26, 2014)

“Term insurance often prevails, in theory. Both Daily and Steck believe term insurance is the best option for most consumers. Daily considers it the “default option” and says he “has to be convinced” that cash value insurance is a better one.”

What’s wrong with using insurance as an investment?
(CNN – No date)

“Agents may try to sell you a cash-value policy as a way to invest for retirement. They’ll tell you that the investing component serves as “forced savings.” (Sure, but retirement plans like 401(k)s force you to save too, once you’ve taken the initiative to sign up for them.) They’ll say the money you have building up in your cash-value policy can grow tax-deferred, but money in IRAs and 401(k)s does too. What they won’t tell you is that cash-value insurance is generally a poor investment.

It is a very costly way to invest. There’s the cost of the insurance protection itself – which, by the way, is usually more expensive than what you would pay for a regular term insurance policy. There are the marketing and sales commissions. There’s also the “surrender charge” that may be levied if you decide to drop your policy within the first 10 years or so. The amount of a surrender charge varies by insurer and type of policy, but it is not uncommon for it to exceed the total amount of your first-year premium.

And, on top of all that, there are annual investment fees. Those are not broken out in all policies, so it’s often hard to determine how much you’re paying.

The heavy fees involved with cash-value life insurance can really drag down your returns. Especially when you consider that index mutual funds often have annual expenses under 0.5%, and many actively managed mutual funds charge 1% or so. That’s a lot less than the 3% or more you’ll pay for the investment component on a cash-value policy.

The lesson: If you need life insurance, get term insurance.”

How To Buy Life Insurance Without Getting Screwed
(SquawkFox – May 8, 2008)

“Here’s how I bought life insurance without getting screwed:

1. Get Term Life Insurance

I’m about to save you billions of brain cells and thousands of dollars. Just buy term life insurance. The only exception is if you are an extremely high net worth individual, in which case you “have people” to discuss your privileged a$$ed-options and don’t need my blog anyways. Smile.”

Affordable Life Insurance Scams You Can Avoid
(Business 2 Community – March 29, 2013)

“If you’re in the 50-plus age range, don’t listen to someone who tells you that whole life is your only option.”

Seniors Scammed into Buying Insurance Policies They Don’t Need?
(Aging Care – Sept. 2, 2008)

“Seniors are inundated with a never-ending onslaught of insurance offers. Disability insurance, Medigap, supplemental, mortgage life, self-funded healthcare, long-term insurance, permanent life, term life…and the list goes on.

Salesmen use many questionable tactics to get seniors, who are often times too trusting and too easily fooled, to buy insurance policies they don’t need. For example, the pitch may offer a very low-cost first month premium, but the small type grants the insurer the right to charge your parent’s credit card at a greatly inflated rate every month.”

THE PERILS OF WHOLE LIFE INSURANCE
(Riscario Insider – March 24, 2012)

“Opinions on whole life insurance get fiery. Advisors who sell it tend to be older. Whole life was probably the first product they sold. They’ve learned how to position it and deal with objections. They’ve convinced themselves of the merits. Criticize whole life and you’re in for an argument.

Over the years, advisors have said that whole life pays higher compensation than any other life insurance product. Let’s ignore that. Let’s get to the core question: why do you buy insurance? To transfer risk to the insurer.

Whole life transfers risk back to you. Is that what you want?”

Fusty Insurance Lures Buyers Seeking Safety
(Wall Street Journal – March 26, 2009)

“But potential buyers of whole-life insurance should be aware of its downsides. Because it isn’t a transparent product, it’s difficult to assess what its actual returns are. Part of the policy’s returns may also include a partial return of premiums paid. In other words, you may be getting some of your own money back.”

“A whole-life policy can bind the owner to the fate of a single company for decades, with steep costs to get out early. Some insurers now struggling looked very strong as recently as two years ago.”

“Additionally, whole-life policies often must be held for 20 years to realize any actual gains because of stiff charges loaded in the early years of the policy — including commissions and administrative fees. Yet 44% of whole-life policies lapse in the first 10 years, according to Limra, the insurance industry research group — which means that policies terminate after people stop paying premiums.”

Honestly, What’s the Best Policy: Insurance Agents Are Pushing Pricey ‘Permanent Life’ Aggressively. Here’s What You Need to Know
(Wall Street Journal – May 28, 2011)

“While insurance agents are quick to tout permanent life’s virtues—in part because it carries high commissions—the factors driving the decision of which insurance to buy haven’t changed because of the financial crisis. For most people, term life still offers the best combination of coverage and cost. But for some wealthier folks looking to build tax-deferred savings, permanent life can be a good option.”

“In short, term life remains the best choice for most people, says James Hunt, an actuary with the Consumer Federation of America, a nonprofit advocacy group based in Washington. It is the lowest-cost way to get the most coverage for a shorter period, and it is easy to walk away from a policy if you find a better deal or your needs change, he says.

Permanent-life policies, in contrast, generally need to be held for at least two decades for the savings component to beat a bond-based buy-term-and-invest-the-difference strategy. That’s because the savings account expands so slowly in many of the policies pitched to consumers—thanks largely to big upfront commissions.

Many buyers underestimate how difficult it can be to keep up with the high premiums, and end up walking away from a policy early. According to the Society of Actuaries, which studied data from the early 2000s, 26% of whole-life policies are terminated in the first three policy years and 45% in the first 10 years.”

Buying Permanent Life

“Permanent-life policies vary widely across the industry and are hugely difficult for ordinary consumers to understand, much less compare.”

New York’s insurance regulator begins investigation on indexed universal life products (Sept. 22, 2014 – Regulatory and Risk)

“The insurance regulator of New York has reportedly commenced investigation on the sales of indexed universal life insurance products in the US.

A letter that was reviewed by Reuters reported that nearly 134 insurers were issued a document by New York financial services department superintendent Benjamin Lawsky earlier this month.

The insurers were asked to provide details about the marketing of life insurance policies connected to stock market indices, such as the S&P 500.

A person familiar with the matter said that regulatory officials were ‘seriously concerned’ that the illustrations were ‘wildly inaccurate’, and could have a serious impact on the clients.”

Finding Value in Cash-Value Insurance: A Guide to Picking the Right Policy
(Wall Street Journal – Dec. 8, 2004)

“I hate writing about cash-value life insurance. Sure, financial planners are a little touchy. Yes, brokers occasionally go postal. But insurance agents take the prize, forever filling my in-box with angry e-mails.

Still, like a masochist in search of his next fix, I feel compelled to write about these policies. The fact is, cash-value life insurance is a huge business, with individuals forking over more than $90 billion in annual premiums, according to the American Council of Life Insurers in Washington.

Thinking of purchasing one of these products? Here’s a buyer’s guide to cash-value life insurance.

Should I buy? My initial reaction: Don’t. Instead, get low-cost financial protection for your family by purchasing term insurance, which offers a death benefit and nothing more.

In fact, if you want a little fun next time you see your insurance agent, just mutter, “Buy term and invest the difference.” Most agents loathe this strategy.

Instead, they will push you to buy cash-value life insurance, which combines the pure insurance of a term policy with a tax-favored investment account. That will mean a fat commission for them — and much bigger premium payments for you.”

A Hot Job for Hard Times: The Life-Insurance Agent
(The Wall Street Journal – March 19, 2010)

“life-insurance agents’ mainstay product, known as whole life, suffered a black eye, both from a scandal over the way some agents sold it and from a widespread view that it wasn’t a very good investment.”

“Seventy percent of agents earn less than $35,000 in their second year, according to industry research firm Limra. Fewer than 20% of new agents are still on the job after four years.”

“Whole life, given its complexity, generally isn’t sold via the Internet, but needs an agent to explain it.”

“Though most new agents have potential customers among their friends, family and former work colleagues, to have a sustainable career, the agents must reach the point where those people refer their own friends. Some rookies never do.”

“Catherine Calise, 48, joined New York Life last June after the housing slump brought an end to her 18-year career as a real-estate agent in Connecticut.

She regularly hauls a card table to the loading dock of a freight company to greet workers with brochures. She fills her calendar with Chamber of Commerce and other networking events. She treks through shopping strips to meet storekeepers. She has even gone house to house knocking on doors.

“You have to step a little out of your comfort zone,” she says. “I’ll be in line at the grocery store, picking up dry cleaning, grabbing an iced tea at Starbucks, and I’ll be prospecting the person next to me” by striking up a chat.

Ms. Calise won the “rookie of the year” sales award for 2009 for her Southern Connecticut office, where some of the 22 hires she began with have quit. “Those who dropped out weren’t really applying themselves to the fullest,” she says. “They didn’t have the passion or the desire.””

Strategies for buying life insurance
(CNN – No Date)

“agents make much more money selling a whole-life policy than they do selling a term policy.

It’s no wonder, then, that agents push whole-life policies as if their livelihoods depend on it, because, well, they do. If whole-life policies were beneficial to consumers, our story would end here. The fact is the vast majority of those who need insurance should buy term.”

Why Is My Broker So Eager to Sell Me Whole Life Insurance?
(Daily Finance – Jan 27, 2014)

“Many insurance brokers push whole life policies because they provide them with the juiciest of commissions…But the vast majority of Americans would benefit more from term life policies.

So, if whole life insurance has inherent value and is more an investment than an insurance plan, why don’t more people buy it? Probably because life insurance is often a poor investment. While it produces a low but steady annual return, other types of long-term investments often outmatch the gains you can earn from it.”

Why Whole Life Insurance Is A Bad Investment
(Wealthfront – April 25, 2013)

“This analysis shows you why whole life insurance doesn’t generally make sense as an investment product, especially for families in Silicon Valley. Brokers and advisors who are paid high commissions on whole life insurance policies try to take advantage of your desire to protect your family in order to sell you whole life insurance. But, you don’t have to fall for their pitch.”

The truth about life insurance
(Dave Ramsey – Oct. 25, 2010)

“Sadly, over 70% of the life insurance policies sold today are cash value policies. A cash value policy is an insurance product that packages insurance and savings together. Do not invest money in life insurance; the returns are horrible. Your insurance person will show you wonderful projections, but none of these policies perform as projected.”

“Worse yet, with whole life and universal life, the savings you finally build up after being ripped off for years don’t go to your family upon your death. The only benefit paid to your family is the face value of the policy”.

Life Policies: The Whole Truth
(Wall Street Journal – June 8, 2012)

“The policies can make sense for people who need insurance and have maxed out contributions to 401(k)s and other tax-advantaged plans, advisers say. But many buyers underestimate how difficult it can be to pay the premiums year after year, and they end up canceling their policy before they break even.

In a study released in December, the Society of Actuaries found that 20% of whole-life policies are terminated in the first three years, and 39% within the first 10 years.

Early dropouts would have been much better off in cheaper term-life insurance, advisers say. “One needs to keep a cash-value policy at least 20 years to amortize the acquisition costs and produce a decent investment,” says James Hunt, an actuary at the Consumer Federation of America, an advocacy group.”

“And there isn’t an easy way to compare these costs across companies. “Cash-value policies are impossible for laypersons to penetrate,” Mr. Hunt says.”

“To find a reasonably priced policy, you could hire a fee-only life-insurance adviser, or use the policy evaluation service offered by the Consumer Federation of America at www.evaluatelifeinsurance.org. It typically costs $90 for the first analysis and $65 for each additional one.”

Why Whole Life Insurance Is a Bad Investment
(Mom and Dad Money – June 19, 2013)

“Reason #3: Positive returns take a long time to appear

In the rosy illustrations, beyond the guaranteed portion mentioned above, a policy that’s held for 40 years or so will show a return of around 4%. That’s not bad, although 10-year Treasury Bonds have historically returned 5.4%. The problem is that it takes a long time for the returns to reach that level. There will be many years at the start of the policy where your return will be negative, and many more years where the return will be only slightly positive. If you stick with it for a long time, you eventually get into a reasonable range of returns, but if at any point before that you decide you want to do something different, you will have spent many years and a lot of money getting very poor returns.

Keep in mind that this is very different from the possibility of poor returns from stocks and bonds. While stocks and bonds guarantee nothing and certainly might show poor performance over certain periods, whole life is almost guaranteed to have very poor performance for at least a decade and often upwards of two decades.

This is not the possibility of bad returns. It is the promise of it.”

“Reason #7: Lack of transparency in fees. Complicated terms and conditions.

Whole life policies include many fees that are never laid out for you. There is the commission to the salesman. There are administrative costs. There is the cost of the insurance. I challenge you to find an example of a whole life illustration that lays out these costs for you, similar to the way a mutual fund has to tell you the expense ratio, sales commissions, and other fees. They just aren’t transparent, which makes it impossible to understand what you’re truly paying for. And these costs can change over time, again without you knowing, and those changes can affect the return you receive.

There are many other terms and conditions that make these policies very complicated. One such example is the issue described above where borrowing too much from your policy can cause it to lapse. Another is the “guaranteed” interest rate that’s actually much lower than what they state. Even the salesmen selling them often don’t understand how it all works. One salesman, after I asked a number of questions he didn’t know the answer to, compared it to buying a watch. He showed me his watch and said that he didn’t know how it worked, he just knew that it worked. Whole life, he said, was the same way. Needless to say, I did not give him any business.”

Should You Buy Term Life Insurance or Whole Life Insurance?
(Term Life Insurance Saver – No Date)

“Many times the whole life policy costs you as much as 10 times more than term life. As bad as that sounds, it gets worse. Because it’s so expensive, people buy a lot less insurance than they need so their family goes unprotected. That is the worst part of this story and it’s something I’m committed to correct.

So why do life insurance agents sell permanent life insurance?

I think you already know the answer to this question. Money. Insurance agents get a huge commission when they sell you whole life or universal life insurance. And they collect significantly less when you buy term life insurance. Insurance companies make big bucks on whole life insurance and they indoctrinate their agents to sell it. Some agents might actually believe it’s a good deal. They point to the forced savings element and the guarantees as proof but they are misguided”

Beware of the Whole Life Insurance Rip-Off and Scam: Buy Term Life Insurance and Invest the Difference
(SubjectMoney – No Date)

“What is the truth about whole life insurance?

Ok, so now that we have explained the features of whole life insurance, and in a very undeserving and flattering way, we will also tell you some other features that the insurance salesman might not tell you. Did you know that with a whole life insurance policy, upon death the beneficiaries are paid the death benefit, but the “cash value” which is considered an “investment” is actually kept by the insurance company? That’s right! The insurance company keeps your “investment”, “retirement fund”, or whatever else the insurance company and salesman might advertise it as. What the “cash value” account actually is, is an account that the insurance company builds up to cover the death benefit that they will be required to pay when the insured individual dies. It really isn’t an investment at all but simply a way for the insurance company to get you to pay for your own death benefit. Really? Does this sound like a rip-off? It does; and that is because whole life insurance is a rip-off. Why do you think you don’t have to continue making premium payments once it reaches the value of the death benefit? Because the insurance companies have already made huge profits through fees and investing your “cash value” account for a much higher return than what they are paying you. When the “cash value” account equals the death benefit the insurance company has eliminated every little bit of risk that the policy held.

Another feature of the “cash value” is that for the first 3 years, the portion of the premium payments that are supposed to be deposited into the “cash value” account, are not being deposited at all. For the first three years this money is going directly into the pocket of the insurance salesman that sold the policy. After three years of investing, your “cash value” account is worth NOTHING! You would be better off buying a term life insurance policy for a much smaller premium and investing the difference in a jar. Talk about peace of mind. At least you will know the insurance company isn’t dipping their slimy hands into that jar the way they are you “cash value” account.

Something else that whole life insurance salesmen don’t tell you is that the returns offered to the “cash value” account are horrible. In fact, the return that the “cash value” will earn probably won’t even beat inflation meaning that you may not even experience a “real return.” Salesmen will try and paint a pretty forecast of returns but they are never nearly as pretty as their optimistic forecast. Yes, there may be a guaranteed interest rate, but there is also a guarantee that the insurance company is investing your money for a higher return than what they are paying you. The insurance company is basically stealing a portion of your returns. Why not just buy term-life insurance and invest the difference in an investment where you get to keep ALL of the returns. Now, the insurance salesmen like to press the issue of forced savings but honestly, what is stopping you from not making the insurance premium payments? Is it really forced? If you were to go through financial difficult and fell behind on payments, and then unexpectedly died, the policy would be void and your loved ones wouldn’t see a dime of the death benefit that you had been paying for. Term life insurance policies are much cheaper so it is unlikely that you would experience financial difficulties severe enough to keep you from making premium payments. Also, there are simply much better ways of forced savings such as rental property, paying down a mortgage or having money taken out of your paycheck and deposited into a retirement fund such as a 401k, a Roth IRA or a Traditional IRA.

Insurance salesmen like to use doom and gloom forecast to scare people into purchasing a whole life insurance policy that offers a guaranteed return. But remember, the return that the insurance companies are guaranteeing is coming from investments that they have made in the very securities they are trying to scare you away from. Also, Bonds and Mutual Funds may be volatile in the short-term but isn’t retirement investing a long-term investment? If you were to invest your money into a mutual fund for 30 years there may be periods where you lose money, but unless the world ends, I am pretty sure in the long-run you will have a decent average annual return that is much higher than the measly return offered by the insurance company for your “cash value.”

Finally I will tackle the tax benefits of the “cash value”. Yes, there are benefits in deferring taxes, but you do have other options that offer you the same or even better tax benefits. You can open a traditional IRA, a Roth IRA, or a 401K plan which offers you equivalent or better tax benefits than the “cash value” of a whole life insurance policy. Click here to check out our video on these types of retirement accounts to learn the tax benefits.

The point that this article is clearly making is that whole life insurance and every other kind of permanent “cash value” life insurance policy is a rip-off and a scam. Insurance companies are in the business of making money and these kinds of policies are the most profitable for them, NOT YOU! This is the reason why just about every insurance salesman pushes these kinds of policies. They are the most profitable because they are the biggest rip-off. Life insurance is protection, not an investment, and they should always be handled separately.”

The Life Insurance Industry’s Big Secret
(The Huffington Post – April 10, 2013)

“How do life insurance companies make money? When I ask this question of my friends, I get a variety of interesting answers — aside from a bunch of odd looks. One mathematically inclined acquaintance said insurance companies use complex actuarial tables which enable them to predict, very accurately, how long people will live and the insurers figure that, over time, they will collect more money than they pay out. To this answer, I nod in slight agreement. The latter part is true but not because of any actuarial brilliance. Insurance companies make money because a massive amount of all life insurance coverage lapses. (Note: In an earlier version of this post, we published a statistic regarding lapse rates. We removed it at the request of the source.)

Most people pay into a term or whole life policy for years, sometimes hundreds of thousands of dollars, and then allow those same policies to lapse — and the insurance company never pays out a penny. Yes, if the insured passes away, then the company pays a death benefit, but this is a fairly rare occurrence due to the high lapse rates. Some sources suggest that less than two percent of term policies ever result in a death claim.”

Should I buy term life or cash value insurance?
(The Motley Fool – No Date)

“cash value policies only work out well when they are held for life. Once you’re in, it’s tough to get out without a little financial pain.

The fundamental savings advantage of cash value insurance savings is tax-sheltered earnings. Most Americans, however, now have access to a wide variety of tax-sheltered savings plans, including employer-sponsored retirement plans, individual IRAs, education IRAs, and state-sponsored tuition savings plans. Moreover, the IRS has recently relaxed penalties on early withdrawals for things like first-time home purchases, educational expenses, and catastrophic medical bills.”

“Tax-efficient estate planning
This is not a big deal to most people. The federal exemption from estate taxes is closing in on $700,000 and, according to the current plan, will reach $1 million by 2005. Nonetheless, if you are planning to leave a multimillion-dollar cookie jar for your heirs (hello, my long-lost uncle!), and want Uncle Sam’s hands kept out of it, you may want to sit down with an estate planning specialist.

A specialist might recommend a cash value life insurance plan as a means of bypassing the tax man — we don’t know. In general, this is a very complicated topic and well beyond the scope of what we can easily cover here.”

$10,000 Lesson On Variable Universal Life (VUL)
(The Finance Buff – June 28, 2007)

“John [and his wife’s] options are still limited because the policies are designed to trap them…with high fees and various charges. John and his wife can:

Keep paying into the policies and get plucked by high fees (not good); or

Cancel the policies now and receive nothing back (not good); or

Stop paying premiums and let the policies wind down by themselves (not good)”

“I like what posterolemeph said on the Bogleheads forum:

> > “The only way you can benefit from this product is by dying fairly soon.”

Life Insurance For Children: Never Buy It – Here’s Why
(Wealth Pilgrim – March 23, 2011)

“Of course this is where the crafty insurance agent who sells permanent life insurance will sometimes step in. He’ll try to convince you to buy universal life insurance for your kids as “the best investment you can make.” Do not fall for this, please. If someone starts talking about this to you, just tell them to shut up and show them out. Say nothing. Fake appendicitis if you have to. Just get rid of them. They are snake oil salesmen and nothing more.”

“Don’t saddle yourself with crappy insurance for kids. It’s a complete waste. If anyone tries to tell you otherwise, they are insulting your intelligence.”

College Aid: Don’t Take the Bait
(Time – Jan. 14, 2013)

“In a follow-up e-mail, Austin’s NACFA associate Brian Kay urged prospective members not to miss out on “this obscenely profitable niche.” And they aren’t the only insurance pros positively giddy about the potential of the college market.

Hyperbole abounds on the websites of groups soliciting insurance agents and financial planners to join their forces and sell a combination of policies and advice to anxious parents: “Astounding results!” “A gold mine!” “Today’s hottest market!””

““There are good college planners out there, but also too many who think the solution to every family’s college funding problem is to buy an annuity or life insurance policy,” says Lynn O’Shaughnessy, author of The College Solution. “They are snake-oil salesmen, and no one is policing them.””

“Many advisers follow a formula, she says: “They buy a list of names of families. They send out postcards offering free college funding seminars, they do the seminar, they scare the s— out of parents and then offer them hope.”

NACFA training videos obtained by MONEY seem to follow this approach. In them, session leaders suggest that advisers use questions and information to lead parents into what the late marketing guru David Sandler coined a “pain funnel” to increase their desire to pay for relief.”

Is Universal Life Too Good to Be True?
(Time – March 27, 2008)

“Although they’re often referred to as retirement plans, in fact these are nothing more than insurance policies, specifically variable universal life (VUL) and equity indexed universal life (EIUL).”

“a portion of your retirement savings is going to life insurance, and the cost of that coverage is often higher than what you would pay for a regular old term insurance policy.”

The investment fees are less explicit in EIUL policies, but they’re there nonetheless, built into the formulas that are used to calculate returns.

“Speaking of those formulas, they’re typically so complicated and convoluted, it’s difficult for any average person to follow them, let alone understand whether or not you’re getting a good deal.”

“I think these policies are too expensive, too complicated and too much trouble to be worthwhile.”

Draining Away!
(Wall Street Journal – Nov. 16, 2012)

“In the next few years, millions of savers are in for a surprise that could cost them tens of thousands of dollars now—or hundreds of thousands later.

The reason: Universal-life insurance policies bought years ago when interest rates were high will face cancellation if policyholders don’t pay more.”

“If interest rates stay low, many policyholders will face the unhappy choice of kicking in more money, accepting a lower death benefit or walking away, possibly sacrificing years of premiums they already paid.

Many people are “sitting on a ticking time bomb,” says Kenneth Himmler, president of Integrated Asset Management, an advisory firm in Los Angeles. About 70% of the new clients whose insurance coverage he reviews are facing higher out-of-pocket costs because policies aren’t generating enough interest income to pay costs, he says.”

“An important caveat: “surrender charges,” which are fees levied when you cancel a policy, typically last from 10 to 20 years from the start of the policy, and sometimes are more than the first year’s premium. They can eat up a big chunk of savings if you try to try to cancel a policy or even lower the death benefit.”

Universal Life Policies Hurt by Low-Rate Era
(Wall Street Journal – Nov. 3, 2013)

“”Many of these policies are lying in drawers and lockboxes, and people don’t even know there is a problem” because they didn’t fully understand how the contracts worked, said Loren Coppock, chairman of insurance and financial strategies firm TrueNorth Cos. in Cedar Rapids. “Most of these policies will expire worthless unless big steps are taken now.””

The Great Life-Insurance Temptation
(Wall Street Journal – April 4, 2014)

“Variable universal life can benefit investors in the highest tax bracket who already have socked away the maximum allowable amounts in tax-deferred retirement accounts and similar savings vehicles.”

“Yet the products aren’t appropriate for many middle-class households, and even well-to-do consumers should be wary, according to experts and state regulators.

Insurance agents and brokers can collect rich commissions for selling variable universal life and indexed universal life, which means they can have a powerful incentive to promote the products.

Furthermore, the marketing materials can feature rosy projections of potential gains.”

“Many policyholders were counting on stronger gains to help cover the annual charges in their later years and some have been stunned by meager interest payments that have left them short of what they need. As a result, many face a dilemma: Pay more into the policies, cut the death benefit to reduce the annual charges, or drop coverage, experts say.”

“But many consumers don’t understand indexed universal-life policies, regulators say. Iowa Insurance Commissioner Nick Gerhart says he has “several complaints on my desk, as we speak.”

Customers aren’t the only ones who struggle to get it. “We’ve had situations where the agents don’t understand the product,” he says.”

A College-Savings Strategy That Could Flunk Out
(Wall Street Journal – July 2, 2011)

“Back in the 1990s, agents started pitching college savers on “variable universal life insurance,” a type of “permanent” insurance that is designed to be in force for the insured person’s lifetime.”

“The problem is that variable universal life is also a “particularly complex and difficult” type of life insurance that typically carries higher costs than other types, says Peter Katt, a fee-only life-insurance adviser in Kalamazoo, Mich.

The biggest flaw, advisers say, is the way the policies are sold. State insurance officials and the Securities and Exchange Commission allow sales representatives to show projections of possible earnings in the savings account as high as 12% a year—a rate of return that virtually no financial planner would consider realistic.

High hypothetical projections “are seducing people with the false expectation of what their potential return on investment could be,” Mr. Kantrowitz says. “If someone tells you that you can get a huge return on investment, some people might believe it. People don’t enter into financial decisions with a high degree of suspicion.””

“Their two policies had values of $48,180 and $48,129, respectively, as of their most recent statements—but according to the original 12% projections, the policies should have roughly $120,000 each, a total gap of about $144,000 between the two policies. The other children’s policies also have shortfalls, the family contends.”

Market Hits ‘Universal Life’ Policies
(Wall Street Journal – Oct. 11, 2009)

“if the clients, now age 65, don’t pay any more premiums, the policy could expire worthless when the clients reach age 78.”

Retirement Disaster Looms For Universal Life Policyholders
(Forbes – Sept. 13, 2012)

“The insurance industry has a dirty little secret that threatens the retirement plans of millions of unsuspecting families.”

“Hidden in those policies was this potential time bomb: if the projected investment returns fail to materialize, the insurance company can make up the difference by reducing the cash value—taking money out of your cash value savings account—right down to zero, if necessary. And when that’s exhausted, they can require the policyholder to make up the difference in the death benefit premiums, or risk the policy expiring worthless.”

“Universal life policyholders who faithfully paid all the minimum premium payments all those years are discovering that the cash values that were to be their retirement nest eggs are nearly exhausted, and many are having to cough up huge payments just to keep the death benefit from lapsing.”

“Most policyholders don’t realize they have a problem, until one day they need the cash value or discover that they will be left without even the life insurance.”

Life Insurance: Avoid Universal and Variable Policies – Why term policies are the best option
(US News – Nov. 1, 2011)

“A much better strategy is buying term life insurance and using the money you’d otherwise spend on variable life insurance to invest on your own. That way your life insurance costs will be much lower. And over time, you’ll be positioned to increase value in your own investment account, compared with a bundle of insurance and investments in a universal or variable policy. The reason: You won’t be paying extra fees that ultimately eat into your personal investment returns.”

Universal Life: The Inconvenient Truth about the “Other” Permanent Insurance
(Partners4Prosperity – Feb. 14, 2014)

“Attempting to be a hybrid between Wall Street’s promise of gains and the insurance world’s actuarial tables and slow but solid profits, UL has done neither well. But it succeeded in spades in the marketing department, giving consumers what they wanted. (At least, at first….)”

“Fueled by low interest rates, market losses, fine print that protects the companies over policyholders, and premiums that don’t cover actual costs, countless Universal Life policies are imploding or threatening to do so soon.”

What Mom Never Told You About Cash Value Life Insurance
(Huffington Post – Feb. 2, 2014)

“Account Value is NOT the same as Cash Value Heads up, quite a lot of folks miss out on the nuances of this one. You see it’s like this. If you take the time to look at your last statement , you will find three different values reported. One of these is your stated account value, another is the cash value and the third is the surrender value. Now pay attention here, this is where the details get a bit hairy.

You see, if you ever read the fine print on your cash value life insurance policy you will discover something called surrender charges built in. You can find out how much this number is by comparing your account value and cash value on your statements. In other words, the difference between the two numbers is the surrender charge. You can think of this as the penalty or fee you pay for canceling the policy.

Insider’s Secret Guess what? The amount mentioned above, the surrender charge is the preferred manner in which insurance companies bury the sales commission. So obviously, if your insurance carrier charges a lower sales commission, the surrender charge will be lower. At the same time, the lower surrender charge means the surrender cash value is higher. See how that works?”

Variable Annuities Inquiry Is Looking at Prudential
(New York Times – May 31, 2003)

“NASD, a securities industry regulator, and the New York State Insurance Department are investigating the sale of variable annuities by Prudential Financial Services, one of the nation’s largest insurance companies.

The agencies are looking into possible forgeries and other improper handling of sales documents; whether the performance of variable annuities, a combination of insurance and mutual funds, was misrepresented; and whether the investments were suitable for the customers who put their money in them, people who have been briefed on the situation said yesterday.”

“Over the last few years, much of the business in variable annuities has involved exchanging an old one for a new one. Many companies have been offering bonuses to customers to make an exchange, but the bonuses often amount to advances of money that the investor eventually pays back to the insurance company through higher fees.”

Is Scandal Brewing In Variable Life Sales?
(LifeHealthPro – May 6, 1996)

“The fact is, a variable life insurance policy may not capture the success of its underlying investment fund. In other words, the fund behind the product may be a spectacular success and the policy owner may get none of it.

Tell this to the people who sell variable life and they just get angry. Yet, in this litigious society, they are likely targets of the next sales practices investigations.”

What are the differences between term life and cash value policies?
(The Motley Fool – No Date)

“Insurance companies profit handsomely from folks who unwittingly buy into cash value plans and then drop them early. Agents make more in commissions when they sell these plans than they do from term life sales. These are not necessarily indictments of the industry, as cash value plans provide a valuable consumer service under certain scenarios. But they are reasons to be a very careful shopper when it comes to cash value insurance.

One common sales tactic is to stress that cash value policies are “permanent” and that a payoff is “guaranteed,” as opposed to those “temporary” policies in which your money simply “disappears.” Term life can be as “permanent” as you choose to make it, via guaranteed renewable policies. And equivalent amounts of money “disappear,” to pay for insurance, whether the policy is term or cash value. There can be benefits to a cash value plan, but these are not among them.”

Like a Bad Neighbor
(Forbes – Nov. 21, 2008)

“There are several ways for agents to cheat. In some cases they fail to pass along premiums to insurers. In others, they pilfer funds from the cash value of a policy or surrender a policy and keep the proceeds.

“Premium scams are a constant and widespread problem that likely will grow worse in this nightmarish economy,” says James Quiggle of the Coalition Against Insurance Fraud. “Most [agents] are honest, but bilking vulnerable clients can mean easy money some just can’t pass up.”

Indexed Universal Life Insurance: A Rip-Off with a Fancy Name
(Daily Finance – May 14, 2014)

“In the 21st year of the policy, the premium was supposed to be almost 100 times the first year’s premium, and it was only going to rise further, since term insurance gets more expensive as people age. This [70-year old] man closed the policy down, which meant he no longer would receive the death benefit, and even the pitiful gains his investment had realized were now taxable because he’d lost the umbrella of the insurance policy tax structure.”

“These dogs with fleas are generally sold to those with high incomes, such as doctors, as a way to put loads of money away in a tax-free environment instead of the limitations of an individual retirement account or 401(k). The illustrations are not realistic and fail to speak plain English as to what is going to happen with these policies.”

United Kingdom

The private hell of pensions: Of the six million who left Serps for the private pension train, more than 2.4 million were taken for a ride. Helen Kay looks at the selling of inappropriate savings products
(The Independent – March 27, 1994)

“They will be worse off because they do not earn enough for their pension contributions to outweigh the charges imposed by the life insurance companies operating their pension plans.”

“It is hard to avoid the conclusion that the real beneficiaries of the move to create an alternative to Serps have been the life insurers rather than the people whose interests they are supposed to be serving.”

“As early as 1991, a survey conducted by the SIB showed that between a quarter and a third of savers were terminating life assurance and pension policies within two years of starting them, even though the products were designed to run for 10, 15 or 25 years. Terminations after just one year ranged from nearly 14 per cent for with-profits life products to 22.3 per cent for unit-linked products (including endowment policies and savings plans) in 1990. Terminations over the first and second years rose to 23 per cent and 37 per cent respectively.

The picture for pensions was broadly similar, with nearly 30 per cent of with-profits and more than 36 per cent of unit- linked pensions terminated within two years of being taken out.”

“In January, it announced that those who sold life assurance products would have to disclose their commission on the sale after January 1995; they would be given the option of doing so from July 1994. The SIB also required that investors be given more information about surrender values on policies and that illustrations of a product’s performance should reflect the company’s own charges.”

“But there are plenty of people who believe that the SIB has skirted the fundamental issue. ‘The commission-driven system is at the heart of the problem,’ Ms Eaglesham says. She points out that it pits the interests of the client against those of the salesman.”

“With commission of 3-4 per cent on single-premium products and as much as 50 per cent on regular-premium products in their first few years of operation, the salesman has a vested interest in pushing regular premiums. And most customers are unaware that the bulk of the payments in the first few years are consumed by hefty up-front commissions.

‘The difficulty is, we have let customers believe such services are ‘free’,’ one industry insider argues. He believes that the provision of financial services on a fee-paying basis would result in a more ethical industry, and frankly admits that buyers must beware.”

“But the question remains, who is responsible for the mess? ‘It’s wrong to say that the problem comes down to an unscrupulous sales force. It’s the companies that encouraged them, the people who were employing them, that are to blame,’ Mr Denham argues. He believes the finger should be pointed at senior management.

In fact, several of the industry’s top figures have attracted criticism for their partin promoting the wonderful world of personal pensions. Sir Mark Weinberg, former head of Allied Dunbar, and Marshall Field, former general manager of Phoenix Assurance, were among the ‘retirement’ study group appointed to advise the Government. In other words, the industry was deeply involved in drafting the system of self-regulation under which it still operates.

Insult was added to injury recently when Joe Palmer was appointed to run the Personal Investment Authority, the newest regulatory body. Mr Palmer presided over Legal & General when it failed to comply with rules for which it was later fined pounds 180,000 by Lautro.

The evidence already suggests that ‘the industry cannot police itself’, Ms Eaglesham says. ‘It has a clear conflict of interest between the rule to give best advice and the profits it is generating from the sale of these products.’ But if the industry and its regulatory mechanisms are at fault, so too is the Government. Its ‘enthusiasm for private pensions, unfettered by common sense or a sense of responsibility, has led to a situation where the interest of the consumer has taken second place to the interests of those selling personal pensions’, Mr Denham says.

‘From the initial decision to encourage opting out of Serps, the Government actively promoted the move to personal pension plans,’ he argues. ‘The Government was responsible for a whole broadside of publicity, without any discrimination, in an industry that had no effective regulation.'”

The great annuity scandal
(Reuters – Sept 22, 2009)

“What concerns me a great deal is the number of people who are going to be living in poverty in 10 years’ time because they have bought an annuity. Or the number of widows forced into poverty because their husband had bought a single life annuity.”

FCA inquiry into ‘zombie funds’ hits industry but may help millions of savers
(The Guardian – March 28, 2014)

” The centrepiece of the FCA inquiry is likely to be millions of pension and investment policies sold in the 1980s and 1990s, in which savers are allegedly trapped by penalty charges of 10%-12% and, in some cases, more than 20% if they want to move their money. Many were sold by salespeople who earned commission of £1,500 to £2,000 a policy, with the first two years of contributions by savers sometimes taken out as charges, followed by annual charges of as much as 4% a year.”

” Patrick Connolly, a certified financial planner at Chase de Vere, said the inquiry was “not before time”, as many people were locked into inflexible products with “extortionate” exit penalties.

“While times have moved on and those taking out pensions more recently should have benefited from much lower charges, insurance companies have been reluctant to address their older contracts and offer a fair deal to policyholders,” he said.”

“The investments in question include personal pensions, endowment policies and “whole of life” insurance policies, and are all in funds that are now closed. The pensions under the spotlight are personal funds, set up by individuals, rather than workplace schemes.”

City watchdogs to investigate mis-selling scandal worth £150billion by the life insurance industry
(Mirror – March 30, 2014)

“City watchdogs are announcing a probe into a vast mis-selling scandal by the life insurance industry.

The Financial Conduct Authority is to investigate the selling of 30 million financial policies worth £150billion between the 1970s and 2000.”

“The FCA said the investigation into insurance policies will start in the summer amid claims customers who took out private pensions, endowments, investment bonds and life insurance were subject to rip-off fees and sub-standard service.”

Pension annuities mis-selling scandal ‘as big as PPI’
(Channel 4 – Nov. 18, 2013)

“Ros Altmann says: “For the bottom 5 or so companies you have to live till nearly a hundred before they’re paying you anything other than your own money… Having done the figures and worked through this research it seems to me that the mis-selling of annuities could be at least as big as the mis-selling of payment protection insurance.””

“The Pensions Minister Steve Webb has accused insurance companies of making “excess profits” from savers when they come to retirement.”

Whole-of-life insurance: Why complaints are rising fast
(BBC – Oct. 29, 2012)

” An increasing number of people have been complaining about the apparent mis-selling of “whole-of-life” insurance policies.

These are policies which promise to pay out a supposedly fixed sum to the policy holder’s inheritors when the customer eventually dies, with the payment coming from the investment proceeds of the person’s monthly premiums.

Some people have been aggrieved to find that many years down the line, the bank or insurer that originally sold them their policy has decided that things have changed.

Either the customer must pay more by way of monthly premiums or must accept that the eventual payout will be significantly lower than first thought.

The typical explanation is that investment returns have been much poorer than first anticipated many years ago, when the policies were first sold.”

The latest annuities scandal: The pensions that shrink to zero
(The Telegraph – Oct. 19, 2014)

“Hundreds of thousands of people relying on investment-linked pensions for their retirement income are facing the terrifying possibility that their payments might dry up.

These are pension savers who were encouraged to use their pension pots to buy “with-profits annuities” – policies where their future income would be linked to the investment performance of opaque and complex with-profits funds.”

The high price of unit-linked policies
(The Telegraph – April 22, 2001)

“The seeds of today’s problems date back to the invention of unit-linked policies in the 1960s, says Tony Bridgland in the last of his three-part series on the history of with-profits insurance”

Insurance mis-selling prompts 400 complaints an hour in U.K.
(The Globe and Mail – Oct. 23, 2012)

“Britain’s Financial Ombudsman Service is getting up to 400 complaints an hour from consumers who believe they were sold unwanted insurance products, pointing to a further rise in the compensation bill for banks.”

FCA Confirms Mis-selling Inquiry into ‘Zombie Funds’ as Insurance Stocks Bomb
(International Business Times – March 28, 2014)

“The Financial Conduct Authority has finally confirmed that it is looking into whether 30 million pension, endowment, investment bond and life insurance customers were ‘exploited’ and mis-sold products.

The regulator will determine whether policies, sold by doorstep salesmen between the 1970s and 2000, were mis-sold or moved onto platforms that benefited the firm but not the customer.”

India

Life insurance fraud continues with impunity
(Moneylife – Feb. 5, 2014)

“Fraudulent life insurance is being sold with impunity, often using IRDA’s name. Intermediaries have neither been penalised nor have they lost their license. There is a need for stern action from IRDA and insurers to curb the menace. Will the regulator act?

Moneylife Foundation Insurance Helpline has been receiving increased number of complaints regarding fraudulent calls to sell insurance policy. The modus operandi has been to fool a gullible person by playing with their greed. The offers can range from bonus offer by Insurance Regulatory and Development Authority (IRDA), interest-free loan from Reliance Capital, Airtel mobile tower rent, call to surrender ULIP without loss, investing ininitial public offerings (IPOs) of life insurance companies at attractive price, sharing of agent contest offer to sharing of commission given in form of gold, etc. The callers try to build trust by giving personal details of policyholders’ and their policies. Is your personal data freely available?

There are talks about such information being sold on CD/DVD in locations around Delhi. Imagine, a shady character getting hold of such data of different insurance companies and mis-using it to wreck you financially. Often, the trap is about making good of earlier bad investment by buying another insurance policy. The end result is that the customer is stuck with multiple policies from different insurance companies. Unfortunately, these products are regular premium policies with no option of single premium and hence, the customer is made to choose between a difficult decision to give up the one premium paid or to continue the premium payment each year for a crappy product.”

Compensate life insurance mis-selling victims
(Live Mint – Feb. 8, 2013)

“In a conversation with this reporter, an official from the Ministry of Finance, who did not wish to be identified, admitted that rampant misselling in the life insurance industry has been a matter of concern for the ministry for some time now. “Misselling has always been on our agenda and the kind of money that investors have lost is worrisome. I think it is deliberate on the part of the insurers to not publish how much the investors have lost but we will now take it up with the insurers,” he said. That insurance policies have been missold in the past years is a known fact. But this murky reality has always existed without a crucial link—the impact of misselling could never be quantified. For an industry that has been privatised for now 12 years and is still fighting the ills of misselling, it is unfortunate that it still does not publish the losses faced by investors. However, Mint in its research has estimated a loss of Rs.1.5 trillion to the investors from FY05 to FY12.”

“”The insurance regulator is extremely weak in penalizing the industry. Owing to a weak regulator and the legal system there is a sense in the industry that they can get away. It should not be so,” says Bejon Mishra, Consumer Online Foundation, an organisation that works in the field of consumer protection. The incentive structure has also encouraged misselling. “Investors don’t lose out because of insurance products, they lose out because of misselling. And this can be checked only if you incentivize the agent to sell for the long term. With front-loaded commissions what incentive are you giving an agent to service an insurance policy for the long term or even sell the policy for the long term?” asks Deepak M. Satwalekar, former managing director and CEO, HDFC Standard Life Insurance Co. Ltd.”

“the complaint mechanism needs to be strengthened. “There is already a consumer rederessal cell within Irda. That should be strengthened and wherever misselling can be proved, class action suits should be taken,” says Satwalekar. And it’s already happening in developed countries. The Financial Services Authority (FSA), regulator of financial services industry in the UK, has ordered major banks in the UK to compensate customers who have been missold financial products. This compensation goes into billions of pounds.”

Mis-selling of insurance policies still at large
(India Times – July 19, 2013)

“Mis-selling of insurance policies, it seems, is rampant even today. At least that is what the persistency rates — which reveal what percentage of customers continued to pay the premium after the initial years — of insurance companies say.

According to a recent research report from brokerage firm Espirito Santo, between 20 per cent and 35 per cent of the policies across life insurers lapse in the second year itself. Simply put, it means that many policyholders are abandoning their insurance policies mid-way.”

“Insurance agents switched to pushing traditional endowment plans after the tightening of guidelines for Unit-linked Insurance Plans, or Ulips, in September 2010. The age-old practice of selling these insurance products as insurance-cum-tax-saving-cum-secure-investment pitch would have got many gullible investors. “Many are talked into buying policies that only choke up their cash-flows without furthering their goals. They may be earning around Rs 15-17 lakh per annum, but if their cash-flow is limited to say, Rs 4-5 lakh and bulk of it is directed towards annual premiums, then there will be problems. This leaves them with little surplus to invest in other productive avenues to meet their goals,” says Suresh Sadagopan, certified financial planner, Ladder7 Financial Advisories.”

Why is mis-selling so prevalent in insurance sector?
(Money Control – Aug. 7, 2013)

“The practice of mis-selling is so common in India that even Finance Minister P Chidambaram is troubled. While talking to reporters earlier this year, he pinned mis-selling as “the reason why insurance is stumbling in India.”

Business has been booming for the insurance sector ever since it was privatized in 2000. But it has not been a smooth run, and it certainly has not been kind to investors. A recent study by a national newspaper revealed that investors lost more than Rs. 1.56 trillion over the span of a seven-year period that ended in 2011-12.

Insurance is supposed to protect, not trap investors. Yet, agents and insurers are known to be unscrupulous. Mis-selling is something most insurance buyers have experienced at some point. So what is it that makes insurance in India so susceptible to mis-selling?

1. Birth of Investment-cum-insurance Products

The unit-linked insurance plan (ULIP) was born in India in 2002. Reports of mis-selling are invariably connected with this product…

2. Agents’ Eagerness to Earn High Commissions

Unit-linked policies are known to pay higher commissions, which is why in the post-2002 period agents began to sell such plans at the cost of traditional ones. Moreover, now that more players had entered the insurance markets, agents no longer needed to maintain long-term ties with a single insurer—they could jump from company to company too.”

Govt wants to curb insurance mis-selling. But does it know where to begin?
(Moneylife – Sept. 10, 2014)

“What the government needs to know is no amount of discussion will achieve anything unless IRDA is made accountable for approving harmful products, mis-selling is clearly defined, there are exemplary punishment for those found selling wrong policies to bank customers.”

Fraudulent selling of life insurance – What are IRDA and insurers doing?
(Moneylife – Aug. 30, 2013)

Life insurance is being sold fraudulently with a corporate approach to defraud gullible people. Intermediaries have neither been penalised nor have they lost their license. There is a need for stern action from IRDA and insurers to curb the menace. Will the regulator act?

Mis-selling of life insurance is ubiquitous. It can be about giving wrong information about product features or exaggerated returns. The new trend is fraudulent selling of policies with offers that may just lure the greedy and the gullible by offers of “interest-free” loan, mobile tower rent, helping to get company bonus, surrender of a policy without loss, etc. If you happen to lower your guard, you may a royal run around after getting stuck with a policy of trivial value. We have written several stories detailing this fraud.

Moneylife spoke with senior officials from an insurance company to piece together this disturbing trend. The fingers point to a few brokers and corporate agents. They work with multiple distance marketing agencies who in-turn log the sales. The arrangement is convenient as the brokers and corporate agents can feign ignorance of the fraudulent selling due to business agreements with multiple agencies. Even if their own employee is involved, they can terminate the employment after passing the blame solely to them. It is unfortunate that insurance brokers who are supposed to represent clients by offering the best products for their needs are taking consumers to cleaners and that too without even meeting them in many cases. The insurance companywe spoke distanced itself from few brokers to avoid suspicious policies being sold.”

Insurance mis-selling our problem, too: RBI
(Business Standard – Dec. 31, 2013)

“The Reserve Bank of India (RBI) said complaints of mis-selling insurance products could impact the continuation of policies, affecting the cash flows of companies. In its Financial Stability Report, RBI said such complaints have been rising in recent years.

In 2012-13, there were 341,012 registered life insurance complaints as compared to 309,613 for 2011-12.”

“Mis-selling broadly means unfair or fraudulent practices in soliciting or selling policies not sought by a customer. Or, where customers feel the policy sold is different from what they wanted or were promised.

RBI said the increasing number of complaints could affect the public’s confidence in insurance products, intermediaries and insurance companies.”

Mis-selling to return as Irda takes a U-turn?
(Live Mint – Feb. 24, 2014)

“Yet, poor persistency has been a bane in India. A rough calculation of simple averages shows that in the previous three years, the industry reported an average 13th month persistency rate of less than 65%—this means that lesser than 65% policies were renewed for the second year.”

“Allowing insurers to set their own persistency threshold holds the risk of the industry slipping back instead of improving on its sales practices. “Mis-selling is a big concern. Poor persistency is often the outcome of mis-selling. That’s why it is useful to set a high benchmark across the industry.
There must be a rationale behind why the regulator has removed the uniform persistency requirement,” says Mehta. And it’s not the rationale alone that needs to be elaborated upon.

The other thing that has to be made available in the public domain is data on the persistency performance of life insurance agents—how many agents made the cut in the past three years, and how many didn’t.”

Insurance Misselling– A Real Life Conversation
(Your Pocket Money – Feb. 9, 2013)

“Misselling has been the backbone of selling financial products.”

Caller– Sir, I have called you for a wonderful savings product from an insurance company. Can I take your two minutes.

Me– Yes  (I was keen to hear the “wonderful“ )

Caller– Sir, we have a very good savings plan which guarantees you 13% return in three year’s time.”

‘Insurance policy mis-selling among top complaints’
(Zee News – Oct. 9, 2012)

“”There are maximum cases in which insurance customers have complained that they had been sold policies by saying that it was single premium ‘Fixed Deposit’ scheme with high returns.

“But to their utter shock, customers found from the policy (document) that they would now have to pay premium for several years, rather than paying once. Such kind of cases fall in the category of mis-selling,” official said.

It also came to notice through complaints that customers were deliberately being denied of the ‘free look’ period option by unscrupulous agents so that customers were left with no other option than continuing with the policy.”

Stories of Insurance Mis-selling
(Efinaza Consulting – No Date)

“Do you know that, on account of mis-selling, investors lost about Rs.1.5 Trillion (USD 28 billion) over 2004-05 to 2011-12?

Above mentioned estimates are according to paper published by Indira Gandhi Institute of Development Research (IGIDR), Mumbai (http://www.igidr.ac.in /pdf/publication /WP-2013-007.pdf).

Do you know that if you bought your insurance policy from agent, there is more than 85% chance that you have been mis-sold?”

Insurance companies have to be liable for misselling of policies
(Hindustan Times – Nov. 27, 2011)

“I get a number of mails from readers who have been tricked by authorised insurance agents into buying policies that are in no way meant for them. There are also complaints of agents making all kinds of false promises and enticing consumers into buying policies. Such practices are highly condemnable, besides the fact that they violate several regulations drawn up by the Insurance Regulatory and Development Authority. They also constitute unfair trade practice under the Consumer Protection Act. Yet, such violations continue and the worst part is that insurers often say that they cannot take responsibility for the actions of their agents.”

Life insurance industry needs to tackle mis-selling of policies
(The Indian Express – Feb. 22, 2013)

“The life insurance industry continues to face the menace of mis-selling. Even the finance minister publicly admonished insurers on the practice.”

“Training of agents has not brought any qualitative improvement in the agency, [i.e., commissions corrupt everyone, regardless of their level of education].”

“As per reports, companies thrive on lapses. For example, HDFC Life reported profits of 88.3% due to lapsed policies. This figure for Kotak Life is 80%. The higher the average premium, the greater the lapses. The link is proved by the fact that the average premium of HDFC Life is 54,473, while for Kotak Life, it is 73,762.”

“The bancassurance channel has been added to the already crowded list of sources of mis-selling. The free-look period expires due to manipulation in delivery of policy with the result that the clients feel cheated.”

“The incentives of foreign jaunts and expensive gifts must stop immediately as it proves to be big source of mis-s-selling;”

“When an agent sells a life insurance product in making payment of R1 lakh premium, he gets R40,000 and a mere R100 for pension fund product. Obviously, this is temptation to force-sell life insurance, which unfortunately has driven to malpractice of rebating.”

New insurance mis-selling trick is ingenious
(DNA India – April 19, 2010)

“With Ulip in focus, agents cluck-cluck about it and push endowments, which offer bigger commissions!”

“Chirag and Naina Joshi, who live in the Mumbai suburb of Malad, were recently visited by the neighbourhood insurance agent.”

“The agent convinced them that their investments in unit linked insurance plans (Ulips) might get into trouble in the days to come. And so it was best to redeem that investment and put that money into endowment insurance plans.

Worried at all the negative coverage against Ulips in the media, the couple decided to get out of their Ulip investment and put the Rs 5 lakh that they get into an endowment policy.

“There are insurance agents who are approaching clients and showing all the campaign against Ulips and getting them to buy endowment policies,” says Uday Kulkarni, an author, who brought this trend to the attention of DNA.

“These agents are getting policyholders out of Ulips sold to them by other agents and getting them to invest in endowment policies,” he adds.”

“Four out of five life insurance agents that DNA contacted tried to sell endowment products  when the reporters told them they already had Ulip policies.”

“Over and above this, endowment policies are not transparent at all.

“Traditionally,” says Shanbhag, “these policies have been quite opaque. Neither has the insurance company been declaring where and how the premium collected has been invested; nor has the investor been asking for any transparency in the matter.”

Agrees Sadagopan “Nothing is disclosed — not the charges, nor where they are going to deploy the funds. Ulips are far better in this regard.”

Since these charges are hidden, people think there are no charges at all in such policies, something the insurance agents make use of.”

MISSELLING IN INSURANCE AT A NEW HIGH – FRAUD IN THE NAME OF MINISTRY OF FINANCE (Bimabazaar – March 11, 2013)

“The Indian insurance industry is suffering a lot due to mis-selling of insurance products. Due to short term gain some scrupulous advisers, Brokers, lead generating agencies, websites are mis-selling life insurance policies with a bang.”

Complaint of mis-selling of Life Insurance Policies via Cold Calling and forging of signature
(Consumer Court – Aug. 4, 2013)

“I am writing on behalf of my father who has been GROSSELY CHEATED FOR A MASSIVE AMOUNT TOTALLING NEARLY 12LACS for Multiple life insurance Policies (by BIRLA SUNLIFE & RELIANCE) by 3 different Insurance Broker Agencies”

Don’t Fall for Insurance Mis-selling Trap
(Market Express – May 6, 2013)

“The reason why insurance is stumbling in India is because of mis-selling of products and complex products.”
~ P Chidambaram, Finance Minister+

“Getting calls from insurance companies/agents is a common feature these days. No matter how hard you try, it’s almost impossible to avoid such unsolicited insurance marketing calls. However, you can, rather should, definitely avoid being cheated by the insurance mis-sellers. We are sharing a real life case study to make you aware of their modus operandi.”

The Lesson
It was a trap to target uninformed investors by confidently highlighting features of the plan which don’t actually exist. By the time the investor will realize that he/she has been mis-sold the policy, it will be too late.

The caller provides very lucrative investment offer verbally using ‘according to IRDA guidelines’ multiple times in the conversation to generate trust amongst the prospects. Then a special limited-time offeris provided to hit upon the prospects psychologically by statements like ‘sir, this offer is available for today only. Where should I send our representative?’”

5 SHOCKING mis-selling tricks used by insurance agents
(Rediff – Sept. 28, 2012)

Beware of insurance agents and the tricks they use to mis-sell policies that benefit only them.

A scary looking man grins at the camera, benignly shaking his head with utmost sincerity. An animated devil like creature, although way less scary than his grinning human counterpart, disappears with a poof behind the grinning face. One of the prominent insurance companies in the country flashes its logo with an attractive jingle and some tagline about honesty.

Once I get past my mortification at the aesthetics (or lack of it) of this advertisement, I realise that this ad may well have been an unintended satire on the perceived ugliness (literal and figurative) of all the insurance agents in the country combined. The underlying message is well meaning — that the agents of ‘X’ company are honest. But, the ad is also representative of a very disturbing reality of the insurance industry — the unruffled acceptance of dishonest, mis-selling tactics. So much so that a particular company deemed it fit to project the absence of these tactics as its USP.

I may not have gone so far. Every week, hundreds of mis-selling and dishonest insurance agents-related complaints land on our desks at Akosha. The sheer number and magnitude of these complaints in itself is a proof of the extent to which this racket is flourishing in the country.

IRDA or the insurance regulator has been constantly trying to curb these practices with all sorts of measures and regulations and is all set to come up with revised guidelines for life insurance industry. The efforts have met with reasonable success. And yet, an industry that thrives on innovation in ways to cheat continues to do what it does the best — cheat.”

Mis-selling still prevalent in insurance segment, imbedded costs too high
(Financial Chronicle – Aug. 22, 2014)

“These products [traditional life policies] are also opaque on the many fees and charges imposed by insurance companies.”

“Driven by high commissions, the insurers created large tied agency sales forces and other distribution tie-ups which lead to these [unit-linked] products out-competing mutual funds in the retail and high net worth segments. Given the high acquisition costs, the returns offered by [unit-linked policies], at least in the first five years, were highly impaired.

This triggered a turf war between the market regulator (Sebi) and insurance regulator (Irda) and culminated in regulatory changes in the product design and on commission rates for insurance products.”

“In our experience [at Waterfield Advisers], we have encountered almost all of our clients having been mis-sold unit linked and other insurance plans.”

“We have found that many of our clients are underinsured and need to buy more cover.”

Insurance companies seek lower fine in bill to curb mis-selling
(Economic Times – Oct. 27, 2014)

“Insurance companies have sought relaxation in the hefty penalties proposed in the insurance bill for ‘mis-selling’ and demanded that they should not be held liable for any ‘act of omission’ by their agents. In a representation to the select committee of Rajya Sabha, which is examining the bill, insurers have argued that an “exorbitant increase” in penalties will not only discourage regulated entities but also affect voluntary compliance.”

Canada

Universal Life Insurance Scams and Complications
(DiscussEconomics – Nov. 8, 2011)

“So you get a call amidst your decision from someone hawking universal life insurance. Should you buy in? All prudent financial advisers unanimously say no.”

“Avoid Universal Life Insurance At All Costs”

“Whereas premiums in a typical term policy are about a third of a percent (1/3 of 1% = .33%) of the death benefit, in universal life they are 1% or more. Over many decades that can be costly.”

“The management expenses are always higher than a non-registered identical investment outside a universal life policy. This is odd because there are no extra management requirements, or active management in either index segregated funds. They are all clones of other investments. As one observer put it they charge custom prices for an off the shelf product. Would you pay prime rib prices for a single patty fast food hamburger?”

“Policy owners will build up their investment accounts over a period of time. However, did you know that in the first 10-15 years of a universal life policy if they wish to access their own money in that account they must pay a fee called the surrender charge. These fees can be up to or exceed the value of the account. For example: After 5 years an investment account is $8409. The surrender charge is $9450. Another example: After one year the investment account is worth $5244. The surrender charge is $12, 500. We all know life has speed bumps and hurdles along the way. These could include relationship breakdown, layoff, or sickness. How many of you know anyone who over a period of a decade and a half has not had an adverse financial event? How would it feel lose your money and on top of that pay up to double?”

“But the crucial question is: why buy an inferior investment that is very costly and that you cannot control? Why pay ocean front prices for a one room shack on a busy highway?”

“UL policies combine high fees and conservative investments leaving investor with nothing.”

“The high-school drop outs who sell universal life insurance will cry foul over RRSPs and the recent TFSA instruments. Fact is, educated financial advisers and market executives would never recommend UL for fear of being ridiculed by their peers.

To put into perspective, the advent of the Tax Free Savings Account (TFSA) should render universal life obsolete because its supposed tax benefits have been replaced by an investment vehicle with less restrictions and cost.”

Universal Life: A scandal in the making? UL insurance seen as fantastic by some, a fiasco by others
(National Post – April 20, 2002)

“Universal Life is both the Canadian insurance industry’s biggest cash cow, and the most controversial.”

“More than one speaker warned UL could become the insurance industry’s next “vanishing premium” scandal.”

“The ambivalence about UL was evident in sessions entitled: Universal Life: Fiasco or Fantastic? and UL: A Dangerous Tool?”

“Problem is, high commissions and sky-high management expense ratios (MERs) on the underlying investments make the investment side of UL of dubious merit. And even the tax advantages were questioned”

“Porter says UL is so complex it’s not understood by 98% of the brokers and agents who sell it, let alone their clients”

Important Questions to Ask About Universal Life ‘Insurance’
(DiscussEconomics – March 24, 2014)

“If you still INSIST on looking at UL here are crucial questions you must ask:

I understand that there is flexible and accelerated funding but if I make only the minimum payments over a period of time what happens?

Can I get money from my investment account at anytime?

How useful are the illustrated values in the early years if I can’t access them?

Is it a contradiction to fund a need for income security with variable investments and a variable rate of return?

Would the company lower the cost of insurance in the future?

What happens to the parts my policy if there is a bear market?

Whose property are the dividends from the linked investment?

Is there anytime I would have to pay tax on my rate of return?

Why would I give capital gains & dividend credits for a non registered investment inside universal life which may in future be taxed as income?

Why should I pay a higher management fees for the same investment I could get for less outside a universal life policy

Can you show me how the higher management fees would affect my investment return over 2-4 decades?

Are all expenses guaranteed and where is that stated in the policy?

Can you tell me the difference in commissions you would receive between term and UL?

“If this person had bought term insurance and invested the difference in premium from universal life insurance in a [Tax Free Savings Account] what would have happened in 2 or 3 decades?”

“Investing the $49 over 10 years at even 4% rate of return would give her $7,312 (9 times more than the investment in the universal life policy). After 20 years and 4% interest the TFSA would produce $18,140 (more than 10 times the universal life investment) and after 30 years she would have $34,122.”

Universal Life; The Answer or the Problem? A quite mathematically detailed and negative critique of Canadian Universal Life Insurance programs
(Hard Consulting – June 5, 2014)

“it’s just fine for a client to choose to purchase any investment they wish, based on full and truthful disclosure. However, it is fraudulent to imply that an inferior investment is actually superior, and thus cause the client to make an incorrect choice! This is what is wrong with selling UL policies as an investment, a “tax shelter”, a “Leveraged or Insured Retirement Plan”, or even as “term insurance with a savings plan”. It is simple to show that UL policies with certain types of extra fees cannot outperform a separate term policy + the identical investment. Their internal cost structures simply do not allow them to! To imply otherwise is to perpetrate a fraud. This particular word was very carefully chosen:”

“The impact of an excess annual compounding fee can be estimated by using the rule of 72; if the net after-bonus extra fee is 2%/year, then the client will have half the assets after 36 years, as compared to the identical investment in an open investment account! If the net after-bonus extra fee is 3%/year, then the client will have about half the money in 24 years!”

“MER on this policy’s S&P 500 index fund is 3.00% per year… you can obtain the identical investment outside of this UL policy for about 0.1% per year. (Yes, you read that right”

“Now, the whole-life insurance agent is going to say “but, I’m not licensed to sell them an ETF!” and they’re right. However, since when did it become an excuse not to not DISCLOSE a client’s options, just because you aren’t licensed? Doesn’t one decide first what the right thing is to do, and then obtain the appropriate licensing to do that? If you have decided, as a professional, that “I believe stock market indexes are my client’s best option.”, then wouldn’t you get the licenses that allow you to give your clients those indexes without ruining them financially?”

“What client would knowing have “goals and objectives” involving knowingly losing half of their assets in 24 years, or having one quarter of the money they could have had (in the identical investment, remember) at retirement in 48 years? That seems like financial suicide to me…”

“Obviously, no client would knowing opt for such a product if it was fully disclosed, would they? So, why isn’t the Alberta Insurance Council, which purports to extol the virtues of “full disclosure”, not interested in forcing the thousands of agents who propose this product using policy projections to practice full disclosure? In fact, the policy projection sheets used to illustrate the product show the exact opposite of the math within the policy document; that the investment portion of this UL product, with its extra fees, will actually outperform the same investment outside the UL account!! How is that possible? Supposedly, by returning you a small portion of the extra fees in the form of a bonus!?!”

“All you have to do is misrepresent these vital facts, and voila!, you’ve sold a lovely high-commission Universal Life program; and the best thing about it, the client won’t know he’s been shafted for several decades (if ever!); certainly, only long after you’ve retired to Arizona.”

“Simply put, proposals involving UL “wash loans” to fund retirement income are the most treacherous, damaging, insulting fraud being perpetrated on the Canadian population today. The combined financial damage of tens of thousands of these contracts on the retirement income generating capacity of this nation’s aging population, so far as I have been able to determine, dwarfs any other fraud in living memory, in scope, hubris, and sheer intellectual malignancy. With combined losses measuring in the tens or even hundreds of billions of dollars of lost capital and income, it is destined to be the life insurance industry’s Waterloo.”

Conclusion.

Any way you slice it, UL is brutal for the owner, and awesome for the salesman — it will generate a far greater commission than selling the straight term insurance with a separate investment. It is great to sell to anyone not interested in figuring out the math, by any salesman not interested in whether or not his/her clients are being shafted. The proofs against it are independent of rate-of-return assumptions, are are easily grasped by even mathematically disinclined clients and agents. Therefore, there is no excuse for the apparent lack of action against these abuses by the regulatory agencies responsible for protecting the interests of life insurance clients.

Worst yet, there are droves of young agents being misled into selling these contracts to their friends and family, by whole-life insurance agency owners slavering over the fat overrides and agency commissions generated by all these Universal Life insurance sales within their agency. Do you reallythink that most new, young agents understand these facts about how UL works? Not likely. Do you think that an agency owner understands them? Of course — they are not stupid! They can do the same basic arithmetic that I can!”

New Zealand

The hidden sales scandal
(Sunday Star Times – Aug. 12, 2007)

“Customers of insurance and investment advisers are being sold expensive products not knowing that hidden incentives have distorted the advice they receive.

The undisclosed deals often take the form of extra commissions for reaching volume sales targets, and luxury overseas holidays are offered to advisers with the best sales.

The incentives are so generous that commissions in New Zealand are among the highest in the developed world, adding as much as 30% to the cost of some insurance products.”

“Insurers run league tables for the competitions so advisers know where they are in the rankings, and how many policies they need to sell to win a trip.”

“Detractors say advisers shouldn’t liken themselves to salespeople and soft commissions tarnish the image of the industry and undermine the quality of advice.

Allan Morris, a director of insurance adviser Triplejump, said: “To avoid conflict of interest, soft commissions, performance (volume, profitability) bonuses/over-riders should be ruled out, overseas and domestic holidays should be ruled out. Equally, paying for in-house training and in-house systems development should be ruled out.”

“Currently, weak consumer protection laws mean financial intermediaries are required to disclose fees and commissions only when asked, and only then on certain types of products, and there’s no policing of what they are telling clients.”

“There’s a huge conflict of interest. Advisers have to choose whether they give advice that’s in the best interests of their clients or which pays them commission, and they choose commission every time.”

“Whitely said the only way to turn what was in effect a sales channel for product producers into an independent professional advice channel was to change the law to require financial intermediaries to act in the best interests of their client.

Overnight, commission as a form of remuneration would disappear, he said, though he admitted the Australian government was not a supporter of such a move.”

“Fee-based financial planner Robert Oddy fears intensive lobbying by powerful industry groups could result in a watering down of tough disclosure proposals which would require volume agreements, hidden margins and soft-dollar commissions to be fully disclosed, as well as advisers of all kinds setting out in dollar terms the impact on returns of their commissions and fees. Advisers would have to provide “health warnings” on the limitations of the advice they gave.”

Korea

Measures to Reduce Mis-Selling of Insurance Products
(Kim & Chang – Aug. 2014)

“In order to accommodate various opinions from academia and businesses with regards to possible measures to reduce the mis-selling of insurance products, the Financial Supervisory Service (“FSS”) held a seminar on January 21, 2014 in collaboration with the Korea Life Insurance Association and the General Insurance Association of Korea.  Also, on April 10, 2014, the FSS announced its plans to enforce the resolution plan to reduce the mis-selling of insurance products based on the main points discussed at the seminar.”

Japan

Japanese life insurance: Another fine mess.
(The Economist – Apr. 15, 1999)

“Yet one neglected financial sore still festers: the life-insurance industry.

Its troubles are every bit as big and dangerous as the more publicised woes of the banking system.”

“Japan’s life-insurance market dwarfs even America’s, making up more than 40% of worldwide premiums. One reason is that the Japanese are big savers who, until now, have had little choice of investments. But the insurers themselves give most of the credit to their unique sales force of “insurance ladies”. Recruited first from second world war widows, then housewives, insurance ladies had no training and were paid strictly on commission. Often they would sell policies to their families and friends and then quit. But more would join each year, and they spread locust-like through Japan. More than 90% of Japanese families now own a life-insurance policy.”

Singapore

Whole-life insurance: what a ripoff
(Josh Reviews Everything – March 26, 2009)

“Whole-life insurance is huge in Singapore; god knows why. It’s pitched as “investment PLUS savings PLUS protection!”, sure, and it plays on people’s fears of not being able to provide for their family.

But whole life insurance is almost always a disgraceful ripoff, compared to buying term and investing the difference.”

“By opting for whole-life instead of doing it himself, the guy is giving up $1.4 million in returns; if anything, he’s writing that cheque to the insurance company, because he’s letting them (mis-) manage his money.”

“And then there’s the punitive early-withdrawal fees. The massive sales charges. Every fee gouge you can imagine will be in there.

This is why people say “buy term and invest the difference”.”

Ireland

OMBUDSMAN MUST REVIEW SALE OF WHOLE OF LIFE ASSURANCE POLICIES
(Fianna Fail – Aug. 15, 2014)

“Fianna Fáil Finance spokesperson Michael McGrath has expressed concern over possible mis-selling of whole of life assurance. These are policies where customers purchase cover that provides a lump sum in the event of their death as well as purchasing units in an investment fund. The policies typically have a premium review clause after an initial 10 year period and then each subsequent 5 years up to age 70 and annually thereafter.

Deputy McGrath stated, “People have been shocked to find that, when the review takes place, the premium can, in some circumstances, be increased by 100% or more. In many instances, it is apparent that it was not made clear to customers at the time they first took out the policy that they could be subject to massive increases in the monthly cost. Customers are then faced with the dilemma of whether to pay the higher premium or cancel the policy and forego the benefit of the premia they have already paid. They may end up with inadequate or no life assurance coverage at all.””

Germany

Germany: Landmark Decisions in the Mis-Selling Of Unit-Linked Life Insurance Policies
(Norton Rose Canada – Aug. 8 2012)

“In a series of landmark decisions, the German Federal Court (BGH) held for the first time that unit-linked life assurance policies often qualify as investment products, and are therefore retroactively subject to much more stringent case law rules developed by German courts over recent years.

As a result, a large life insurer is likely to be liable for hundreds of millions of euros…in mis-selling charges”

UAE

Beware of mis-selling of financial products
(Gulf News – Sept. 21, 2013)

“A new research suggests that millions of people could have fallen victim to mis-selling in the financial services industry. The conclusion was reached based on the findings by claims management company EMCAS that two-thirds of respondents surveyed in the UK are not aware that mis-selling of investment products is even possible.”

“Considering that a lot of investors in the UAE don’t have strong investment knowledge and often invest without proper professional advice, there is a strong likelihood that many consumers in this market have also been mis-sold to.”

“[An IFA] noted that there are no status requirements of the salesman stating whether the advice is from a single company, a restricted advice company, or from the entire market place. “All these things and more have been mandatory in the UK for some 20 years. In the UAE, the principle of Caveat Emptor applies – buyer beware,” he adds.

Mis-selling is one of the most complained about by consumers. Between April and June this year alone, close to 160,000 new complaints were lodged at the Financial Ombudsman in the United Kingdom. A huge chunk of the consumer complaints were about mis-sold insurance.”

Switzerland

Financial Mis-selling to expats
(English Forum Switzerland – Jan. 9, 2010)

“So, what is the scenario here?
You are an expat, usually from the UK, working in Switzerland.
You receive a call at work or home by a plausible character offering a free financial consultation. You show up, and are sold a tax efficient offshore savings plan that offers tax free growth and is a life assurance plan to boot!
Usually there will be a seemingly high interest paying bond with a bank paying 10% or more!
Also, you do not pay the advisor any direct commission at all!
Sounds too good to be true? Well, you are correct, it is too good to be true.”

“these policies are heavily front loaded with the charges and can take up to 8 years to break even or even longer.
Indeed, the first two years of payments to the assurance company goes to pay the commission to the salesmen who sold you the policy in the first place.
So after two years you do not have a penny banked. Then your money flows into the funds, and starts to ‘grow’. However, the yearly admin charges are running at approx 5-6%, so even if your funds perform miracles and gets 8-9% return, your real return is 2 or 3%. This is why it takes so long to break even.”

German Court Rules that ILAS Is an Investment Product, Not Insurance—SFC Should Do Likewise

Letter to the SFC (#3)

In 2009, Hong Kong’s Securities and Futures Commission (SFC) issued a circular in which it bizarrely denied the indisputable fact that ILAS is first and foremost an investment product, which usually has only a negligible amount of insurance attached to it. Incorrectly believing that ILAS is primarily an insurance product, the SFC concluded that people who sell ILAS need not be SFC-licensed, and thus, they need not comply with SFC’s higher ethical standards and stricter regulations.

The SFC’s circular made no remarks about whether individuals who already hold an SFC license are required to comply with SFC’s Code of Conduct when selling ILAS. SFC’s Code of Conduct mandates that licensees fully disclose commissions when selling investment products:

SFC Rule on Commission Disclosure

Many insurance brokers who sell ILAS hold an SFC license. At Convoy Financial Services, the largest insurance brokerage in Hong Kong, more than half of brokers are SFC-licensed (see below), and nearly all of them sell ILAS. Presumably, these brokers should comply with SFC’s Code of Conduct when selling ILAS or any other investment products, even if those products are issued by insurance companies. However, most brokers have never disclosed commissions paid by insurance companies.

Convoy Consultant Licensing Record June 2014

Source: Page 20 of Convoy’s 2014 Interim Report

Investment products issued by insurance companies include whole life, universal life, endowment policies, and other so-called “cash value” policies. Only a small fraction of these policies’ premiums pay for life insurance, and the rest of the premiums are for investment. Thus, all of these products are first and foremost investments—not insurance—and they are sold as such by financial intermediaries (see the South China Morning Post’s undercover investigation of investment advice offered by eight Hong Kong banks).

On Oct. 20, I had meeting at SFC’s office with two representatives to discuss several issues, including whether or not SFC-licensed insurance brokers must comply with SFC’s Code of Conduct when selling ILAS and other investment products issued by insurance companies. Those gentlemen told me that the SFC would provide an answer within two weeks.

That was one month ago.

I hope the SFC is taking the issue seriously and is planning to announce a decision soon.

In its deliberations, the SFC should take into consideration recent landmark decisions made by the German Federal Court regarding the classification of ILAS products. According to an article published by the law firm, Norton Rose Fulbright:

“In a series of landmark decisions, the German Federal Court (BGH) held for the first time that unit-linked life assurance policies often qualify as investment products, and are therefore retroactively subject to much more stringent case law rules developed by German courts over recent years.

As a result, a large life insurer is likely to be liable for hundreds of millions of euros…in mis-selling charges”

When and if the SFC faces the fact that ILAS is an investment product, it’s likely that many players in Hong Kong’s insurance industry will be liable for billions of dollars in mis-selling charges. Guilty individuals will undoubtedly howl in protest, but their howling should not prevail over justice. Ripped off consumers deserve to have their money back.

Insurance Industry Finds New Ways to Rip Off Consumers after Regulators Crack Down on ILAS

As regulators crack down on investment-linked assurance scams (ILAS), commission-hungry rip-offers are turning to alternative ways to fleece consumers. The preferred method appears to be whole life investment policies, as these products can extract excessive, secret commissions comparable to ILAS.

Whole Life vs ILAS stats

Data obtained HERE from OCI’s website.

The above chart shows that between 2010 to 2013, sales of whole life policies increased by almost 50%, while sales of ILAS were nearly cut in half. This is happening because financial institutions are recommending whole life policies in situations where they previously recommended ILAS. Their change in behavior is motivated by the fact that it’s now easier to rip off consumers using whole life, as opposed to ILAS.

Sales of term policies dropped by more than 25%, even though term is the only type of life insurance product which most people need. This is likely a sign that the overall quality of financial advice in Hong Kong is swiftly deteriorating, and institutional greed is growing increasingly out of control.

Hong Kong Banks Dump ILAS for Whole Life

The aggressive promotion of whole life was first reported more than one year ago in the South China Morning Post. Reporter Nicky Burridge went undercover and visited eight different banks to find out what type of advice the banks would give her. In seven of her eight visits, the banks pitched investment products issued by insurance companies, usually whole life plans. According to Mrs. Burridge:

“This reflects the fact that insurance plans are more profitable to banks than straight investments such as mutual funds, and certainly more than exchange-traded funds or single stocks or bonds.

The mystery shopping also revealed a trend for banks to sell whole-of-life insurance before they sell investment-linked assurance schemes, as ILAS plans are getting a lot of regulatory scrutiny these days.

Generally the banks seemed focused on the cost pressures of their business. They tended to recommend the high-profit products, and they cut out the time-consuming steps to financial advice.

For example, banks are supposed to know their client before selling a product. But none did a financial needs analysis, less than half administered a risk-profile questionnaire, and advisers typically failed to find out about basic issues like the shopper’s financial situation.”

After Mrs. Burridge’s series of eight articles were published in the Post, International Adviser also released a report:

“Local sources estimate that up to three-quarters of high street banks in Hong Kong have either slowed sales or are no longer offering ILAS products to retail investors, but rather are offering whole of life insurance products on which the compliance requirements are less stringent.”

Independent experts agree that both whole life and ILAS are ripoffs. Honest financial institutions don’t push these products. Sadly, the number of honest financial institutions in Hong Kong can probably be counted on one’s fingers.

Brokers Ramp up Sales of Non-ILAS Life Investments

Insurance brokers have begun to jump on the banks’ bandwagon. Convoy Financial Services, the largest insurance broker in Hong Kong, recently stated in its latest semiannual report:

In the past, we relied heavily on ILAS products. In the first half of this year, with our diversification strategy and the growth of new businesses, the contribution of ILAS revenue is steady but has decreased as a percentage of total revenue. We are now providing our customers with insurance products such as annuities, retirement savings plans, critical illness plans, general insurance, medical insurance and universal life insurance plans. Compared with the first half of 2013, these non-ILAS insurance products have doubled in revenue, contributing 6.7% of revenue in 2013 and 13.9% in 2014. This significant increase proves we have adapted to the changing markets successfully. With our professional front-line consultants and experienced management team, our diversification of product sales is continuing strongly.”

Later in the report, Convoy states that the motivation behind its push into non-ILAS life investment products is “to counter the change in ILAS business and its stringent regulatory environment.” Its new business strategy apparently has little to do with providing better service for clients. Convoy is primarily concerned about keeping big commissions rolling in at the expense of deceived consumers, who foolishly believe the company’s fraudulent advertising:

Why Convoy

Ban Commissions to Eliminate Conflicts of Interest

If Hong Kong regulators crack down on whole life policies, the insurance industry will likely just shift to selling some other type of financial booby trap.

History shows that most financial intermediaries always flog whichever toxic product is easiest to sell and generates the biggest instant paycheck, even if that means their clients will be exploited for decades by the product issuer.

The only way to effectively deal with this socially corrosive form of white collar theft is to forbid product issuers from corrupting intermediaries via payment of commissions, bonuses, or any other type of remuneration that biases advice. Hong Kong must shift to a fee-based advisory model. Insurance companies must be forced to compete by making their products more transparent and fairly priced, not more opaque, deceptive, and exploitative.

Jim Dahle: The Doctor Who Debunked the Life Insurance Industry’s Lies

Jim Dahle

Jim Dahle, Hero of the Life Insurance Industry

In addition to being a full-time doctor, Jim Dahle has managed to find enough time to write one of the most popular personal finance blogs on the internet: The White Coat Investor.

Nine months ago, he published a bestselling book by the same name.

Jim’s target audience is his fellow doctors, but he has inadvertently attracted a much larger readership. His articles about life insurance have gone massively viral and have awakened countless policyholders to the fact that they were ripped off, which has created an unpleasant situation for insurance salesmen across the United States (and soon maybe even Hong Kong).

Jim says, “95% of the ‘hate email,’ ‘hate comments,’ and criticism leveled at this site and at me comes from those who benefit financially from selling cash value life insurance.”

The School of Hard Knocks

As a doctor-in-training, Jim personally got ripped off by a whole life insurance salesman and a series of other financial hucksters.

He told The Daily Interview, “At that point, I was so mad that I decided I either needed to learn about personal finance and investing myself, or my life would be one long story of being the sucker for financial professionals. I started reading like mad and eventually met many of the few “good guys” in the industry. After a few years, I realized that nobody was teaching any of this to doctors, either formally in school, or informally via a blog or website. Voila, The White Coat Investor was born.”

Six months ago, Jim mused in a blog post:

“For a few hundred dollars of ill-gotten profit, Northwestern Mutual Life is partially responsible…for unleashing The White Coat Investor on the world. I wonder how much they would love to pay now to get me to take down the whole life posts on this blog given that 80,000 people are coming here every month now, and the most popular posts are about whole life insurance.”

According to Jim’s bio on Amazon.com, the White Coat Investor is now getting 200,000 hits per month.

Jim’s Advice on Insurance

Jim’s analysis of cash value life insurance is scathing. As an asset class, he likens it to horse manure. He thinks cash value policies are dangerous, overpriced, purposely complex, and impossible to compare. He believes people are better off avoiding them.

When a reader asked him about the best way to buy life insurance, he answered, “This is surprisingly simple for 98% of us.  All you need to know about life insurance can be summed up in this sentence: Buy the cheapest, long-term, level-premium term life insurance policy from a reasonably-reputable company that you can find on Term4Sale.com.”

Term4Sale is a website for Americans and Canadians, but Hong Kongers can use it to determine approximately how much they should be paying when buying term insurance locally. (To use the Term4Sale website, one needs to enter a US zip code, such as 94305.)

Hong Kong does not have a comparable website, but according to a source, iFAST may be introducing one in the near future. iFAST tried to add a life insurance platform to its Fundsupermart website in Singapore last year, but iFAST was swiftly driven out of the market by an illegal cartel of insurance brokers. Hopefully Hong Kong regulators will prevent this from happening here.

A Collection of Jim Dahle’s Greatest Quotes

“Most finance people don’t choose their field for the same reasons as kindergarten teachers, social workers, and nurses.  When they apply to school (if they went to school at all) they most definitely do not put in their essay that they “just really want to help people.”  They are in it for the money, and as a general rule, their training is in sales, not finance.”

“The ethical bar for financial advisers is so low, most of them wouldn’t trip over it by stealing from their own grandmother.”

“If you begin with the assumption that the main goal of any stock broker, insurance agent, financial adviser, wealth manager, mortgage broker, lender, realtor etc that you meet is to separate you from your hard-earned money, you won’t end up far from the truth.”

“The next time you hear an advisor’s sales pitch, ask yourself if you’re hiring a trained professional like a doctor, or someone like a very expensive house cleaner.”

“95% of advisers out there are not very good, and many are likely to be harmful to your financial health.”

“Unlike in medicine, where a basic level of competency is generally present and most doctors are very qualified, most financial advisers are crappy.”

“These products are purposely made to be very complex.  They are NOT simple to understand, and when an investor points out issues with it, the salesman will quickly move on to another feature of the product.  The complexity always favors the issuer, not the buyer.”

“If you have no way of determining what the insurance cost should be, how will you know if you’re being ripped off?  You won’t, and you are.”

“When a whole life insurance policy is sold (and they’re always sold, never bought), the buyer and seller generally focus on the investment portion of the policy, not the insurance policy.  The silly buyer just naturally assumes he’s getting the insurance portion at the going rate (such as what he would pay for term insurance.)  Fool.  Like any business, they charge what they can get away with.  If you’re not paying attention, you’d better believe the price gets jacked up.”

“After a while, people figured out that whole life insurance was a rip-off.  So to disguise that fact, the companies just made the products so complex that only their actuaries could figure them out.  Even those who have spent a great deal of time trying to figure these policies out don’t understand them.”

“Some agents believe that insurance companies can somehow get investment returns that you or I cannot find elsewhere and pass those great returns on to their policy owners…There are no magic investments that insurance companies can invest in that you cannot without the company.  Every additional layer between you and the investment just increases expenses and lowers returns.”

“You can call anything you want an asset class.  Horse manure can be an asset class, but that doesn’t mean you should invest in it.”

“Whole life insurance is a terrible investment if you don’t hold on to it to your death.  Since the vast majority of people surrender their policies prior to death, it is a terrible investment for the vast majority of those who purchase it.”

“You’ve got to ask yourself why so many people who were apparently intending to hold this product for the next 40 or 50 years suddenly changed their mind.  I’m sure it has nothing to do with it being inappropriately sold to the financially unsophisticated by insurance agents facing a terrible financial conflict of interest with their clients.”

“Whole life insurance is a product made to be sold, not bought.  It is a solution looking for a problem that exists for very few, if it exists at all.”

“The worse the financial product, the higher the commission a company must offer in order to get it sold.”

“For nearly every use of whole life, there is a better product to meet that need.”

“All you need to know about life insurance can be summed up in this sentence: Buy the cheapest, long-term, level-premium term life insurance policy from a reasonably-reputable company that you can find on Term4Sale.com.”

“Complexity in financial products always benefits those who sell them more than those who buy them.”

“Those who sell these commissioned products are highly trained, but not in finance. Their training is in sales, and they are generally very good at what they do.”

“You may have noticed that the best products in life generally sell themselves. If a highly-trained sales force is the only way to sell something, buyers should probably wonder why.”

“95% of the ‘hate email,’ ‘hate comments,’ and criticism leveled at this site and at me comes from those who benefit financially from selling cash value life insurance.”

“Imagine the medical advice you would get from a physician who only got paid as a percentage of the cost of the tests he ordered and the medications he prescribed and you will quickly realize the dilemma that insurance agents are in.”

“If Wall Street with its high fees and slimy ways is an ogre, and cash-value life insurance salesmen are trolls, variable life insurance is what you get when they mate—the worst of both worlds.”

“Every policy is different, and it borders on impossible to compare them all.  Luckily, you can ignore all of them and still do just fine financially.”

“The managers know the people buying these policies aren’t very smart to begin with.  If you knew much about investing, you surely wouldn’t be invested in this thing.  So they just go to the local steakhouse for their three-martini lunch and make fun of you all the way to the bank.”

“Some of us find it interesting to dive into these things, just to see how bad they are.  If that’s you, great.  If it’s not, here’s the bottom line:  Don’t buy cash-value life insurance, ESPECIALLY variable life insurance.”

“The problems with investing in a VUL are basically three-fold—the investments suck, the insurance is too expensive, and insurance policies aren’t designed to be retirement savings accounts.”

“Don’t be so afraid of taxes that you let the tax tail wag the investment dog.”

Quoting Steve Weisman: “Variable universal life insurance policies are like luggage and herpes—once you get them, you have them for the rest of your life.”

More Jim Dahle Quotes with Links to Sources

Jim Dahle’s Biography on Amazon.com

“James M. Dahle, MD, when not out skiing, mountain biking, or rock climbing with his wife and three children, practices emergency medicine in suburban Utah. As a medical resident, he grew tired of being ripped off by unscrupulous financial professionals including mutual fund salesmen, insurance agents, realtors, mortgage lenders, and stock brokers and began educating himself on the ins and outs of personal finance and investing. In 2011, he started The White Coat Investor, now the most widely read, physician-specific personal finance and investing blog in the world, with nearly 200,000 page views per month. His writing helps doctors avoid the mistakes he made and get a “fair shake” on Wall Street.”

How a Doctor Dominated a Super Specific Blogging Niche

“Interviewer: Tell us a bit about your background and the origins of The White Coat Investor. How did an emergency physician become interested in blogging about personal finance?

Jim Dahle: The short answer is that I got ripped off one time too many. The long answer is that my story is pretty typical of most doctors. First I was ripped off by a “friend” who sold me a tiny whole life policy instead of the big 30 year level term policy I needed. Then I was ripped off by a realtor (also a “friend”) who not only encouraged us to spend too much on a house she knew we’d have trouble selling, but encouraged us to buy a house when we should have rented.

Then, a mortgage refinancer tried to rip me off by sneaking in a prepayment penalty when he knew we would be selling the house we never should have bought within a year or two. Finally, a financial adviser put me into loaded mutual funds after telling me I would be paying him via a flat fee for his advice.

At that point, I was so mad that I decided I either needed to learn about personal finance and investing myself, or my life would be one long story of being the sucker for financial professionals. I started reading like mad and eventually met many of the few “good guys” in the industry. After a few years, I realized that nobody was teaching any of this to doctors, either formally in school, or informally via a blog or website. Voila, The White Coat Investor (http://whitecoatinvestor.com) was born.”

About the White Coat Investor

“Most finance people don’t choose their field for the same reasons as kindergarten teachers, social workers, and nurses.  When they apply to school (if they went to school at all) they most definitely do not put in their essay that they “just really want to help people.”  They are in it for the money, and as a general rule, their training is in sales, not finance.  When they graduate they do not stand and recite their version of the Hippocratic Oath.  Physicians, accountants, and yes, even attorneys, have a duty to their clients that few financial advisers and asset managers even consider.  As professionals, they have a duty to put their client’s needs first.  I’m not saying that attorneys or even doctors always have impeccable ethics.  You know as well as I do that they don’t.  But the ethical bar for financial advisers is so low, most of them wouldn’t trip over it by stealing from their own grandmother.  Now there are a few “good guys” out there in the financial world, but they are so vastly outnumbered that if you begin with the assumption that the main goal of any stock broker, insurance agent, financial adviser, wealth manager, mortgage broker, lender, realtor etc that you meet is to separate you from your hard-earned money, you won’t end up far from the truth.”

Financial Advisors Aren’t Doctors

“We’ve discussed previously how financial advisors don’t generally ascribe to the Hippocratic oath.  People don’t go to work on “Wall Street” for the same reasons that other people become firemen and kindergarten teachers.”

“You don’t hire someone to pick out your groceries, select a restaurant for you, pump your gas, clean your house, shovel your driveway, plunge your toilet, organize your garage, plan your vacation, or pick out your furniture.  All right, it’s possible you DO hire someone to do some of these things for you, but only because you feel your time is better spent doing something else.  Unfortunately, when it comes to your finances, YOUR TIME IS NOT better spent doing something else.  It takes so little time to design, implement, and manage a simple yet successful portfolio, that the amount you save/earn by doing it yourself, make these the most profitable hours of your year.”

“The next time you hear an advisor’s sales pitch, ask yourself if you’re hiring a trained professional like a doctor, or someone like a very expensive house cleaner.”

12 Things You Should Know About Choosing a Financial Adviser

5) Realize that 95% of advisers out there are not very good, and many are likely to be harmful to your financial health. 

“Unlike in medicine, where a basic level of competency is generally present and most doctors are very qualified, most financial advisers are crappy.  If you haven’t yet read my post on What Advisers Think About Doctors, you may find it eye-opening.  You should also realize that most advisers, even those who carry the weighty certifications discussed above, may demonstrate an appalling lack of knowledge of what actually works in investing. ”

Don’t Mix Insurance and Investing

“These products are purposely made to be very complex.  They are NOT simple to understand, and when an investor points out issues with it, the salesman will quickly move on to another feature of the product.  The complexity always favors the issuer, not the buyer.”

“Everyone markets themselves as a financial advisor or a financial planner these days, no matter what their qualifications.  Insurance salesmen…like to take advantage of the fact that they know just a little more than you.  Unfortunately, most of their training is in sales, which means they can make whatever product they happen to profit from look extremely attractive to you.”

“Each of these products have some type of an insurance component.  The insurance company can charge whatever it wants for that.  If you have no way of determining what the insurance cost should be, how will you know if you’re being ripped off?  You won’t, and you are.”

“The expense ratios on these variable annuity “funds” are some of the highest I’ve seen.  They can range from 1.5% to 3% or even higher.  That’s 10 times what you’d pay for a mutual fund at Vanguard, even an actively-managed one.”

“One of the biggest downsides of these insurance products is the lack of liquidity.  A pretty good rule of thumb in investing is to never buy something that you can’t look the price up in the Wall Street Journal every day.  Stocks, bonds, and mutual funds can generally be sold any day the market is open.  You can “go to cash” any time you want.  This allows you access to your money to invest it elsewhere, spend it, or give it away.  Insurance products always limit your liquidity…Liquidity has a value, and far too often insurance product investors give it away for nothing.”

How to Buy Life Insurance

“I received a question today about the best way to buy life insurance.  This is surprisingly simple for 98% of us.  All you need to know about life insurance can be summed up in this sentence: Buy the cheapest, long-term, level-premium term life insurance policy from a reasonably-reputable company that you can find on Term4Sale.com.”

8 Reasons to Avoid Whole Life Insurance

“A Note From The Author: This is the most visited post on this blog.  If this is your first time here, welcome!  This post has generated more hate mail and hate comments than all of my other ones combined.  There are over 700 comments on it, which may take you over 4 hours to read.  However, after two years of arguing with whole life insurance salesmen in the comments section of this post, I did a series of posts called Debunking The Myths Of Whole Life Insurance that quite frankly is better written than this post.”

“Whole life insurance has been a pillar of income to life insurance salesmen for years.  It is often recommended, particularly to high earners, as a guaranteed investment with some wonderful tax benefits.  Alas, its flaws generally outweigh it’s advantages.”

1) The insurance costs too much. 

“When a whole life insurance policy is sold (and they’re always sold, never bought), the buyer and seller generally focus on the investment portion of the policy, not the insurance policy.  The silly buyer just naturally assumes he’s getting the insurance portion at the going rate (such as what he would pay for term insurance.)  Fool.  Like any business, they charge what they can get away with.  If you’re not paying attention, you’d better believe the price gets jacked up.  A bigger problem is that young people can’t afford enough whole life insurance to cover their actual need for insurance, so they end up buying a separate term policy anyway, or worse, they don’t and walk around under-insured.”

2) The fees are too high.

““But you don’t pay the commissions, the company does” argues the salesman.  Where do you suppose the company gets the money from?”

3) You don’t need a middleman for your investments.

“Consider what the insurance company does.  It takes your premium each month, pockets its profit, puts a certain percentage of the premium into a pool to pay the benefits of those who die, and then invests the rest in a relatively conservative portfolio, such as bonds.  You can invest in bonds directly.  Which return do you expect to be higher- the one where they shave off some profit before investing, or the one where you invest your entire lump sum?”

4) Complexity favors the issuer. 

“After a while, people figured out that whole life insurance was a rip-off.  So to disguise that fact, the companies just made the products so complex that only their actuaries could figure them out.  Even those who have spent a great deal of time trying to figure these policies out don’t understand them.  Even the guys selling them don’t completely understand them, but you better believe they understand the commission structure.  Suffice to say, the more complex it gets, the worse a deal it is for you.”

Debunking the Myths of Whole Life Insurance

“A whole life insurance policy, like other types of permanent life insurance, is really a hybrid of insurance and investment.”

Myth # 3 Whole Life Provides A Great Investment Return

“I recently analyzed a policy for a healthy 30 year old male with a 53 year life expectancy.  The guaranteed return on the cash value was less than 2% per year AFTER 5 DECADES.  Even if you use the insurance company’s optimistic “projected” values, you’re still looking at a return of less than 5%.  In reality, you’ll probably end up with a return of 3-4%.  Considering you have to hold on to this “investment” for 5 decades, that doesn’t seem like much compensation. If you have decades to invest, it is far wiser to take more risk with your investments and earn a higher return.  An investment in stocks or real estate is likely to provide a return over decades in the 7-12% range.”

Myth # 4  Insurance Companies Are Great Investors

“Some agents believe that insurance companies can somehow get investment returns that you or I cannot find elsewhere and pass those great returns on to their policy owners…There are no magic investments that insurance companies can invest in that you cannot without the company.  Every additional layer between you and the investment just increases expenses and lowers returns.”

Debunking the Myths of Whole Life Insurance Part 2

Myth # 5 Whole Life Is A Great Asset Class

“You can call anything you want an asset class.  Horse manure can be an asset class, but that doesn’t mean you should invest in it.”

Myth # 6 Whole Life Is A Great Way To Save On Taxes

“Whole life isn’t the best way to lower your investment tax bill, retirement accounts are.”

Myth # 8 You Need Whole Life For Estate Planning

“The fact is that the vast majority of Americans, even physicians, and even including physicians with an “estate tax problem”, don’t need whole life insurance to do effective estate planning.”

Myth # 9 Whole Life Is A Great Way To Pay For College

“Parents generally save for college over a period of 5-20 years.  By investing that money aggressively, they can expect a return of 7-10%.  Whole life insurance has very poor returns for time periods of less than 20 years.  In fact, many times the cash value return on your “investment” in whole life is negative for at least a decade.  It’s important to make sure your money works as hard as you do, and your money is on vacation for the first decade in a whole life policy.  Whole life advocates will point out that if you died, the death benefit could still pay for Junior’s college, but it is far cheaper to cover that risk with term life insurance.”

Debunking the Myths of Whole Life Insurance Part 4

“Whole life insurance is a terrible investment if you don’t hold on to it to your death.  Since the vast majority of people surrender their policies prior to death, it is a terrible investment for the vast majority of those who purchase it.”

Debunking the Myths of Whole Life Insurance Part 5

“Now, if you really understand how whole life insurance works and you think its unique features outweigh its significant downsides, then feel free to run out and purchase as much as you like.  It truly does not bother me. I do not make any money if you buy whole life, nor if you decide to buy something else. However, if you are like most, once you understand it, you won’t buy it and in fact, if you already have, you’ll probably be looking for the best way to get out of whole life insurance. Don’t feel bad.  80% of those who purchase these policies surrender them prior to death, 36% within just five years.  You’ve got to ask yourself why so many people who were apparently intending to hold this product for the next 40 or 50 years suddenly changed their mind.  I’m sure it has nothing to do with it being inappropriately sold to the financially unsophisticated by insurance agents facing a terrible financial conflict of interest with their clients. Whole life insurance is a product made to be sold, not bought.  It is a solution looking for a problem that exists for very few, if it exists at all.”

How to Dump Your Whole Life Policy

“For a few hundred dollars of ill-gotten profit, Northwestern Mutual Life is partially responsible (along with a mortgage lender, a realtor, and a mutual fund salesman) for unleashing The White Coat Investor on the world. I wonder how much they would love to pay now to get me to take down the whole life posts on this blog given that 80,000 people are coming here every month now, and the most popular posts are about whole life insurance.”

Whole-Life Insurance Is Not an Attractive Asset Class

“WL is difficult to sell. It is expensive and complicated and possesses a terrible reputation. It is rarely recommended except by those who benefit from its sale. Recognizing this, insurance companies offer substantial commissions to those who are able to successfully sell it. The typical commission for WL ranges from 50–110 percent of the first year’s premium. That means if you buy a WL policy with a premium of $30,000 per year, your “adviser” will receive a commission in the neighborhood of $15,000–$33,000. Given that insurance agents have a median income of $47,000 per year, that monstrous commission becomes an incredible conflict of interest.

Commissioned salespeople generally make for poor financial advisers. The worse the financial product, the higher the commission a company must offer in order to get it sold. The higher the commission, the more likely the salesperson is to recommend it to you. Even highly ethical people will struggle with this insanely huge financial conflict of interest.”

“Unfortunately, for nearly every use of WL, there is a better product to meet that need. If you need to protect your family prior to retirement, term-life insurance works better. If you actually need a permanent death benefit, guaranteed no-lapse universal life works better. If you need your money to grow, investments like stocks and real estate are likely to provide a much higher return.”

“Sometimes agents recommend you purchase WL to mix in with the other asset classes of your portfolio. They argue that because the projected long-term returns of WL are similar to those of bonds (especially in our current environment of historically low interest rates), you should include WL as an asset class in your portfolio. Keep in mind you can call anything, including horse manure or Beanie Babies, an asset class. The real question is, “Should I include this asset class in my portfolio?” With WL, the answer is usually no. If I offered you an asset class with the following characteristics, would you want to invest in it?

  1. 50 percent front load the first year
  2. Surrender penalties that last for years
  3. Requires ongoing contributions for decades
  4. Difficult to rebalance with other asset classes
  5. Backed by the guarantees of a single company (and whatever you can get from a state guaranty association)
  6. Requires you to pay interest to use your own money
  7. Guaranteed negative returns for the first decade
  8. Low returns (3–5 percent) even if you hold it for many decades
  9. Must be held for life to provide even that low investment return
  10. Excluded from the investment (or lower returns) for poor health or dangerous hobbies

“Once you step back and think about the significant downsides of WL as an asset class, the right decision becomes obvious. Don’t mix investing and insurance. Complexity in financial products always benefits those who sell them more than those who buy them. According to joint reports from the Life Insurance Marketing and Research Association and the Society of Actuaries, 80–90 percent of WL policies are surrendered prior to death. This dire statistic suggests that the vast majority of WL purchase decisions eventually lead to serious regret.”

The Statistic Whole Life Salesmen Don’t Want You To Know

“Is a 33% lapse rate in the first 5 years and an 80% lapse rate in the first 30 years acceptable?”

8 Reasons Whole Life Insurance Is Not Like A Roth IRA

[Note: A Roth IRA is a tax-advantaged retirement savings account for Americans.]

2) Excessive Fees Lower Returns

“The insurance policy not only has a number of “garbage fees,” but since these things don’t sell themselves, the insurance company has to compensate its salesmen with large commissions (typically 40-80% of the first year’s premium) in order to get any business at all.  The more you pay in fees, the less that goes toward the investment, and the lower your returns.”

3) Insurance Costs Lower Returns

“Since whole life insurance is a hybrid insurance/investing vehicle, it requires you to purchase insurance, whether or not you want it.   All the money that goes toward the cost of that insurance by definition cannot go toward your cash value, so your investment will grow slower, producing lower returns.”

4) Complexity Favors The Issuer

“I run into physicians every week who have been sold one of these policies who really didn’t understand what he was buying.  In general, complex financial instruments favor the issuer over the purchaser.”

5) No High Rate Of Return Investments Available

6) You Cannot Stop “Investing”

Thoughts on Permanent Life Insurance “Returns”

“The more you mix investing and insurance, the worse the deal seems to be.  Most readers of this blog need life insurance temporarily, and should cover that need with a 20-30 year level term policy.  A few may need a permanent death benefit, and should use a guaranteed no-lapse universal life policy to meet this need.  I see little reason to use a traditional whole life policy.  You’ll end up with one of two things: A life insurance policy that costs twice as much as it had to or an investment that ties your money up for decades to provide you with a guaranteed return under 2% (with a possible return of up to 5%).”

Modified Endowment Contract—a term you shouldn’t have to know

“In the 1980s a lot of people, including physicians, were using life insurance policies as a tax shelter.  They’d dump a big chunk of money into a policy, then borrow it back tax-free to use for other purposes.  Interest rates were quite high, and the upper marginal tax brackets were atmospheric, so it was working out pretty well for some people.  Congress decided it wasn’t fair for people to use a life insurance policy just as a tax shelter, especially since some of the resulting policies didn’t even resemble a traditional life insurance policy, term or permanent.  In 1988, they changed the rules to prevent this abuse.  I suspect some people wanted to outlaw cash-value life insurance all together, but given the strength of the life insurance lobby, what they ended up with was the concept of a modified endowment contract (MEC.)”

5 Reasons Not To Buy Indexed Universal Life Insurance

“Indexed universal life insurance (IUL) is an insurance product that seems to promise you can have your cake and eat it, too. Unfortunately, as with most things in life, there are no free lunches. The devil is in the details, and when you really examine them, it becomes clear that these are products designed to be sold, not bought.”

1. You don’t need a permanent death benefit

“The vast majority of Americans, and especially high-income Americans like physicians, will, at some point, no longer depend on their earnings from work in order to live. This is called financial independence. Once you reach this point, you generally no longer have a need for life insurance.”

2. Complexity does not favor the buyer

“Like any insurance/investing hybrid product, you need to hold a IUL for the rest of your life to achieve even a low return, and you are far less likely to do this when it turns out you bought something that isn’t what you thought it was. Those who sell these commissioned products are highly trained, but not in finance. Their training is in sales, and they are generally very good at what they do.

You may have noticed that the best products in life generally sell themselves. If a highly-trained sales force is the only way to sell something, buyers should probably wonder why.”

Adding It All Up

So how can IULs offer “market returns” while still guaranteeing you won’t lose money, at least on a nominal basis? They don’t.

You simply don’t get anywhere near the market returns due to the costs of the insurance, the additional fees, the loss of the dividends, the cap rates, and the participation rates. These products don’t pass the common sense test.

How can an insurance company give you most of the upside of investing in stocks while eliminating the downside? They don’t have any magic investments; they have to invest like anybody else. In addition, they have to generate enough money for profits and to pay hefty commissions to their sales force.”

A Serious Reply – More Arguing About IUL

“Although on this blog I write about a myriad of subjects…95% of the “hate email,” “hate comments,” and criticism leveled at this site and at me comes from those who benefit financially from selling cash value life insurance.”

“Some of the issues inherent in the insurance industry are:

  1. People can be licensed as insurance agents with minimal if any real financial education
  2. Most of the training agents do receive is from their own company, and primarily consists of sales techniques
  3. Insurance agent compensation is almost entirely commission-based, meaning they face serious conflicts of interest that even the most ethical have difficulty overcoming. Imagine the medical advice you would get from a physician who only got paid as a percentage of the cost of the tests he ordered and the medications he prescribed and you will quickly realize the dilemma that insurance agents are in, through no fault of their own.”

What Happens When Ogres and Trolls Mate – AKA Variable Life Insurance

“If Wall Street with its high fees and slimy ways is an ogre, and cash-value life insurance salesmen are trolls, variable life insurance is what you get when they mate-the worst of both worlds.”

“There are so many moving parts with these policies, a typical buyer has no chance in being able to keep them all straight, much less comparing them to other policies.  He is forced to rely on his adviser to do so.  Complexity always favors the issuer (and his representative.)  Every policy is different, and it borders on impossible to compare them all.  Luckily, you can ignore all of them and still do just fine financially.”

“Why are these funds so bad?  They suffer from outrageous fees, but most importantly, there’s no incentive to fire bad managers, hire good ones, or even close bad funds.  The money is captive inside the policy.  They don’t have to compete with mutual funds, much less good, low-cost, index mutual funds.  If you want an actively managed large cap fund, there’s only one.  Take it or leave it.  And the managers know the people buying these policies aren’t very smart to begin with.  If you knew much about investing, you surely wouldn’t be invested in this thing.  So they just go to the local steakhouse for their three-martini lunch and make fun of you all the way to the bank.”

“Some of us find it interesting to dive into these things, just to see how bad they are.  If that’s you, great.  If it’s not, here’s the bottom line:  Don’t buy cash-value life insurance, ESPECIALLY variable life insurance.”

Could There Be a “Good” VUL Policy?

“The problems with investing in a VUL [variable universal life policy] are basically three-fold—the investments suck, the insurance is too expensive, and insurance policies aren’t designed to be retirement savings accounts.  Imagine the worst possible mutual fund, and that’s typically what you’ll find in a VUL sub-account—poor performance, high fees, and maybe even loads.  The worst part is you have nowhere else to go.  Instead of having thousands of funds to choose from, you may be stuck with only 5-10, although most newer policies over 50 or even 100+.

The insurance is also too expensive, mostly due to fees.  These suckers are typically loaded up with so many fees it’s almost impossible to have a positive return.  Aside from the ongoing fees, there is usually a surrender charge for the first few years (sometimes for as long as a decade.)  The insurance company doesn’t want to lose money even if you surrender the policy, and since it’s already paid the commission to the salesman, it has to get that money back somewhere.  To make matters worse, since every policy is different, it isn’t a particularly efficient market, and the insurance itself simply isn’t sold at a competitive price.

In order for a VUL to qualify for the tax-free growth and tax-free loans, it has to at least masquerade as life insurance.  That means you can’t cash it out without paying taxes on the gains. There has to be a death benefit.  There are limits as to how much you can contribute for any given death benefit.  You must pay interest on any loans you take out etc.  Insurance isn’t free, and money used for the insurance portion can’t be invested on your behalf.

When you consider all of these issues with a VUL policy, the tax, insurance, asset protection, and estate planning benefits just can’t make up for all the costs and you end up with a severely under-performing investment that becomes even worse if you want to get rid of it.”

The Truth About Buying Annuities – A Review

Quoting Steve Weisman: “Variable universal life insurance policies are like luggage and herpes–once you get them, you have them for the rest of your life…The bottom line is that comparing variable universal life insurance policies and variable annuities is comparing two types of complex investments, where the best choice may well be to choose neither of them.”

8 Reasons Why You Should Invest With Mutual Funds Instead Of A Variable Annuity

“Variable annuities (VA) are an insurance product that is best described as a mutual fund wrapped in an insurance wrapper and covered with fees.” [Note: VAs are an American version of ILAS.]

“It isn’t uncommon to hear arguments that “a doctor in a high tax bracket should invest in a VA instead of in mutual funds in a taxable account.”  That argument, of course, is almost always made by someone who sells VAs for a living.”

“You will likely be better off not mixing insurance with investing.  Don’t be so afraid of taxes that you let the tax tail wag the investment dog.  There are far worse ways to invest than in tax-efficient asset classes within a taxable account.

What About Cheap Variable Annuities?

“Most investors, including high tax bracket investors like physicians, probably shouldn’t invest in even the low-cost Vanguard variable annuities over a taxable account.  However, an exception can be made if you value the asset protection benefits highly, don’t have any room in your tax-protected accounts for a highly tax-inefficient asset class that you feel you really want to hold in your portfolio, don’t mind the loss of liquidity, don’t mind the loss of tax-loss harvesting ability, don’t mind the loss of the step-up in basis at death, and you have a long investment horizon.  Since most doctors aren’t even maxing out their available retirement accounts, there’s little reason for them to consider even inexpensive VAs.”

Brian Fechtel: The Life Insurance Industry Is Built on Fraud

Brian Fechtel

Brian Fechtel, Hero of the Life Insurance Industry

“Financial problems should not need to have to drive our country to the edge of a financial abyss to warrant fixing; forty years of documented but unindicted frauds ought to be sufficient.”  -Brian Fechtel

Most insurance agents are poorly educated, but that can’t be said of Brian Fechtel. He’s a CFA and has a degree in economics from Georgetown.

Fechtel worked as an insurance agent for one of America’s largest insurance companies, Northwestern, for 21 years.

During his time at Northwestern, Fechtel witnessed and documented the company’s agents systematically fleecing their clients. He had spoken out against this for years, but the company’s executives always ignored him and tacitly sanctioned his colleague’s unethical, greedy behavior.

In 2008, after the misconduct of Northwestern’s agents received media exposure, Fechtel wrote to his company’s president to urge him to institute company-wide reforms before being forced to do so by regulators or the courts.

Less than two months later, Fechtel was fired.

If Northwestern’s executives were aiming to silence Fechtel, they failed miserably. His unjust termination galvanized him to become one of the most outspoken advocates for reform that the life insurance industry has ever seen.

Fechtel set up his own company, Breadwinners’ Insurance, with the aim of setting new standards for honesty and transparency in the industry. Fechtel wrote countless articles and letters to regulators, consumer groups, insurance companies, and the media, many of which are posted on his company’s website. All of the articles and letters are infused with the same purpose: exposing fraud and promoting transparency in the insurance industry.

In 2012, an industry body honored Fechtel with an award for “Regulatory Advocacy”, in recognition of “his relentless drive to improve transparency in insurance pricing.”

Impossible to Perform Due Diligence on Life Investments

Fechtel says that most cash value life insurance products (life investments) are so opaque that its impossible for a broker to perform due diligence. Brokers are necessarily selling blind, which means consumers are buying blind. To demonstrate his point, Fechtel invites people to answer the following questions:

  1. What was the total rate of return on your insurer’s investment portfolio over the last year? Over the past five years and ten years?
  2. What is the composition of your insurer’s investment portfolio? How does its risk profile measure-up with your risk preferences?
  3. How much are your insurer’s investment management costs? And its investment-related tax costs?
  4. What are your life insurer’s mortality costs? What are its costs per million dollars of coverage provided? How competitive are the life insurer’s average mortality costs, and what are the implications of uncompetitive costs for you? Also, what are your insurer’s reinsurance costs? How do companies that understand risk view your insurer’s existing and new business?
  5. What are your insurer’s general operating costs? How efficiently does your insurer operate?
  6. What are your insurer’s sales/distribution costs for both new business and existing business?
  7. Of the life insurer’s block of cash value policies a) what share was underwritten during the past five years, and b) remains on the books even ten years after being issued?
  8. What does the information on your insurer’s sales growth and persistency indicate and portend?
  9. What has been the rate of return on the insurer’s capital? And what are the components of such?
  10. How well, or to what extent, does your policy participate in your insurer’s financial performance? How does its ROR on life policy reserves compare with its ROR on capital? How fairly does the life insurer distribute its earnings?”

All of the above questions are difficult, if not impossible, to answer.

Full Disclosure for Consumers and a Level Playing Field for Investment Product Providers

In interview with Bob Veres, Fechtel says, “My hope is that as…cost and performance information gets into the mainstream, life insurance companies will be forced to show their real numbers, and provide disclosure the way mortgage and mutual fund companies do with their financial products and transactions. I believe if we can ever get to real openness, the life insurance industry would enter a golden age. This should be a product that people feel good about buying, and right now I don’t think that’s usually the case.”

Phasing Out the Poisonous Commission-Based Sales Model

Fechtel says, “The evidence of agents’ recommendations having been motivated by their own financial interests is irrefutable and overwhelming.”

He has devoted numerous articles to explaining the different frauds and misrepresentations that agents use to con clients into buying the crappiest, high-commission policies, as opposed to term insurance or low-commission “blended” policies. During Fechtel’s 21 years at Northwestern, he saw that nearly all of his colleagues, driven by self-interest, systematically ripped off clients:

“Northwestern agents, using company approved sales literature and presentation scripts, recommend policies with large sales loads [i.e., commissions] rather than policies with small sales loads. Virtually none of the company’s 7000+ sales force routinely recommend and sell Northwestern’s best value cash-value policies, a policy an informed consumer would demand – a policy a consumer, trusting in the company’s compliance with its own rules, IMSA, and state regulations, would expect that he or she would at least be shown. Northwestern agents not only do not show the best value policy, they often disparage it should their prospects actually have heard about it.”

Fechtel believes full commission disclosure would deter agents from behaving so badly, but he admits to Bob Veres, “I think ultimately, this has to be a fee business.” 

Whole Life Investments Are a Ripoff

According to Fechtel, “Whole life is a complete rip-off…especially considering how the policies are sold…with excessive commissions. I recommend term insurance, probably 99% of time. And even when there is a desire for cash value accumulation, it would not be straight whole life. It would be a max blended cash value policy, which means it would be mostly term insurance with a cash value investment account.”

Mary Rowland describes “blending” as “an exercise that mixes term insurance and whole life in a way that both decreases the agent’s commission and enhances the policy’s value.” Fechtel claims that blended policies are potentially attractive to wealthy Americans, because of certain tax advantages. 

These tax advantages do not exist for Hong Kongers.

A Collection of Fechtel’s Greatest Quotes

“The life insurance marketplace has always been and continues to be awash with misinformation, deception, fraud, and worse.”

“With both some levity and sincerity, I believe that several Insurance Commissioners ought to have to “stand in the corner” and then write on the blackboard a thousand times, “I will never again betray my public trust and responsibilities.””

“If Insurance Commissioners could be charged with dereliction of duty, they would all be in jail, having repaid their salaries, and forfeited their pensions.” 

“Inadequate life insurance policy disclosure is a regulatory “gap” virtually the size and age of an intergalactic asteroid.”

“Consumers trust regulators to protect them, to protect them [from] misleading sales representations, but insurance regulators wait until consumers tell them there’s a problem. And, yet it has been known for decades that consumers typically find cash value life insurance products practically unfathomable. In light of this, the regulators’ inaction/performance reminds me of the circus rodeo act where two trained stunt male donkeys chase each other’s tail. The trained jackasses, of course, are putting on an amusing show; what excuse the 50 state NAIC Commissioners offer for their continuous 40+ year ‘performance,’ I do not know.”

“The life industry’s chief regulators have never been known for their initiative nor for their willingness to rock the boat, even when the boat is in clear need of righting.”

“Financial problems should not need to have to drive our country to the edge of a financial abyss to warrant fixing; forty years of documented but unindicted frauds ought to be sufficient.”

“Industry data clearly show that some life insurers are really just commission generating enterprises as it can be statistically known at time of sale that their policies are much more likely to financially harm, than benefit, consumers.”

“No other consumer financial products provide comparable rewards for misrepresentations, nor have a marketplace where the pervasiveness of misinformation is as extensive.”

“If a manufacturer’s baby carriages functioned with the same statistical destructive certainty [as cash value life policies], thousands of toddlers every year would be crippled.”

“Certainly, there are lots of public policy scandals, but quite possibly no others that have literally spanned generations more destructively and disgracefully than those of the life insurance industry. This industry though, is a newsbeat essentially or effectively uncovered by any investigative journalists.”

“The general life insurance marketplace has always been and currently remains awash with absolutely pervasive and mind-boggling problems and frauds, and yet there have been no Pulitzer Prize winning series of articles on the industry. Good coverage by financial journalist could have long ago solved the fundamental problems in the life insurance marketplace.”

“Quite simply, the current life insurance marketplace is built upon sales presentations that rely upon half-truths, innuendos, misrepresentations and worse and which prey upon consumers’ misplaced trust, gullibility, irrational wishes (seeking to avoid costs that can’t be avoided) and faulty decisions.”

“This failure to provide proper disclosure creates myriad and pervasive problems best measured in billions of dollars and millions of individuals harmed every year. The industry’s inefficient, ineffective, and – to put it mildly – unsavory practices harm everyone.”

“While some might recognize the problematic representations or half-truths, no one should doubt that the…sales language and deceptive analytical tools are effective. Agents, after all, come from a breed who can assert to regulators that financial incentives have no impact upon their recommendations, and not only assert such but do so when the evidence of agents’ recommendations having been motivated by their own financial interests is irrefutable and overwhelming.”

“Mutual funds can’t do it, so why can insurance policies?…No financial advisor would illustrate how a mutual fund would grow using a current rate of return.  That is essentially what cash value life insurance illustrations do.”

“All life insurance…is fundamentally composed of term insurance. Whole life is called whole life because it was originally called “level payment term for your whole life.”…Different policies, in fact, are nothing but slightly different peas from the same pod.”

“The truth, in fact, is that the fundamental difference between whole Life and term, or permanent insurance and term insurance, arises from cash-value policies’ tax privileges.”

“Many within the industry have “fought” to retain life insurance’s tax privileges by, among other things, denying its policy’s investment character.”

“Misrepresentations are an essential part the current sales practices of agents because there is nothing about whole life that justifies the excessive sales compensation that the industry and its agents have always extracted from consumers. Whole life is nothing but term insurance and a tax-advantaged side-fund.”

“There can be and, of course, is some misinformation in all markets, but the difference between the misinformation in most markets and with that of the life insurance marketplace is like the difference between strolling in a neighborhood park and wading through the alligator-infested Everglades. The life insurance marketplace is a swamp of misinformation with pits of quicksand created by inadequate disclosure and with creatures poised to seize upon any and all. The proof of such is readily apparent by examining the very products life insurers and their agents sell.”

“While a select few cash-value life insurance policies can provide excellent competitive value, perhaps 95% of such policies sold provide value no informed consumer would accept.”

“Whole life is a complete rip-off…especially considering how the policies are sold….with excessive commissions. I recommend term insurance, probably 99% of time. And even when there is a desire for cash value accumulation, it would not be straight whole life. It would be a max blended cash value policy, which means it would be mostly term insurance with a cash value investment account.”

“Straight whole life insurance products are a rip-off.”

“I think that [long term care insurance], often privately referred to by its devoted agents as long term scare insurance, might really, with its widespread 20, 30, and 40% premium increases, heretofore have been called long term scam insurance.”

“For insurers and agents, however, the essential difference between whole life and term is the quantum difference in the sales commissions…The industry’s age-old compensation differential of paying commissions 5-9 times larger on whole life than on term cannot be sustained in a competitive marketplace; that is, it cannot be sustained in the face of informed consumers.”

“New agents are recruited by the thousands each year with enticing recruitment pitches built on compensation unobtainable if products were properly disclosed. Poorly trained and supervised, more than 4 out of 5 recruits within a few years fail, although not before wreaking much financial havoc.”

“The American life insurance system has been known to be terribly dysfunctional for generations, if not centuries.”

“White collar financial crime, although arguably the most destructive crime we face, goes virtually unpunished in America.”

“Life insurance policies may initially seem complex to the ordinary consumer, but that does not mean that their operations and mechanics cannot be readily and succinctly explained and understood.”

“Industry executives have for years acknowledged that no one would buy many of their companies’ products if they were appropriately informed.” 

“I think ultimately, this has to be a fee business.”

More Fechtel Quotes with Links to Sources

[Note: The quotes below were all pulled from articles written by or written about Brian Fechtel. Click on the titles to see the full articles.]

Life Insurance: An Industry Built on Fraud

“Belth has stated, “Life insurers have never provided the necessary and appropriate disclosure of their policies, in fact, they are categorically opposed to such.” Hunt, who is the Consumer Federation of America’s life insurance adviser and who in that role over 25 years has consulted with thousands of consumers has stated, “It doesn’t take long in the work I do to realize that hardly any policyholders understand how a cash value policy works.” This failure to provide proper disclosure creates myriad and pervasive problems best measured in billions of dollars and millions of individuals harmed every year. The industry’s inefficient, ineffective, and – to put it mildly – unsavory practices harm everyone.”

“Several years earlier, at a Society of Actuaries meeting, a Northwestern actuary, John Keller, had explained the company’s aversion to checking-on its agents’ sales presentations by stating, “I’ll respond briefly to the suggestion that we use focus groups to get the consumer point of view. We did consider that early on in our work and rejected it for a couple of reasons. One was the time constraints we were under and the cost of doing focus groups. But probably the most important reason is that if you get 15 people in a room who are recent purchasers of life insurance and then spend an hour or two dissecting the sales process and the use of their illustrations in that sales process, you’re likely to have 13 people coming out slightly or greatly disillusioned over what they just did. We found that our field force and our marketing department didn’t like that idea at all. So if somebody could think of a way to get to the consumer without causing real problems among recent buyers, who are our most fragile customers, we would like to hear it.” Such isolated incidents, where an industry executive has spoken some real truth about the problematic nature of the industry’s sales practices, however, have never led to any substantive reform. The life industry’s chief regulators have never been known for their initiative nor for their willingness to rock the boat, even when the boat is in clear need of righting.”

“Northwestern agents, using company approved sales literature and presentation scripts, recommend policies with large sales loads rather than policies with small sales loads. Virtually none of the company’s 7000+ sales force routinely recommend and sell Northwestern’s best value cash-value policies, a policy an informed consumer would demand – a policy a consumer, trusting in the company’s compliance with its own rules, IMSA, and state regulations, would expect that he or she would at least be shown. Northwestern agents not only do not show the best value policy, they often disparage it should their prospects actually have heard about it.”

“Former Northwestern actuary Scott Witt, who has also joined the ranks of the very few fee-only life insurance advisers in the nation, has stated that “agents are in a perpetual conflict of interests where they have to choose between their own best interest and the clients.” Fellow fee-only adviser Glenn Daily says he “can’t believe that there haven’t been lawsuits about this issue.””

“Agents’ misleading statements and innuendos regarding the whole life and term dichotomy come in countless variations, but they all have the same objectives – 1) to create an allure of whole life/permanent insurance based on invalid reasons, and 2) to prevent an accurate examination of a cash-value policy’s annual costs. Agents’ ultimate objective is to sell a whole life or other cash-value policy with their significantly larger commissionable premiums.”

“When challenged about their acquiescence of such problematic sales tools/materials, regulators typically respond that they have not heard any complaints from consumers about such (a classic catch-22 situation)”

“While some might recognize the problematic representations or half-truths, no one should doubt that the above sales language and deceptive analytical tools are effective. Agents, after all, come from a breed who can assert to regulators that financial incentives have no impact upon their recommendations, and not only assert such but do so when the evidence of agents’ recommendations having been motivated by their own financial interests is irrefutable and overwhelming. Agents’ presentations can be very effective, especially in the typical one-on-one selling that occurs in home and offices across the country. Every individual who has ever been an agent has seen first-hand and heard from fellow agents about the effectiveness of various sales presentations’ misrepresentations time and again. Such presentations are effective even among those who one would think would be financially, fairly-sophisticated. For instance, a leading Northwestern agent, who built his business calling on financial professionals, would explain the term versus whole life dichotomy as a way to transform an expense into an asset. Gosh, doesn’t that sure sound good? If only it were true. If only it were possible. But his sales presentations were exceptional effective. In fact, this Northwestern agent’s financial abracadabra of turning expenses into assets was so very effective that some years he was among the company’s top ten agents in its Eastern Region. Quite simply, the current life insurance marketplace is build upon sales presentations that rely upon half-truths, innuendos, misrepresentations and worse and which prey upon consumers’ misplaced trust, gullibility, irrational wishes (seeking to avoid costs that can’t be avoided) and faulty decisions.”

“The truth, in fact, is that the fundamental difference between whole Life and term, or permanent insurance and term insurance, arises from cash-value policies’ tax privileges. Tax privileges, though, are a free and non-proprietary input. Economic theory demonstrates that businesses in a competitive marketplace cannot extract value from consumers for a free, non-proprietary input.”

Fixing the Life Insurance Marketplace

““The life insurance market is characterized not only by an absence of reliable price information, but also by the presence of deceptive price information…the deceptive sales practices found in the life insurance industry constitute a national scandal.” So testified Professor Joseph Belth, an expert on the life insurance industry, before Congress in 1973. Can this statement, from almost 40 years ago, still be as true today? And is it possible for such deplorable industry practices to be occurring without being in the spotlight of public attention?

The short answers are yes. To this day the life insurance industry relies on inadequate product disclosure, misinformation, and fraudulent practices, thereby costing consumers billions of dollars annually. Industry executives have for years acknowledged that no one would buy many of their companies’ products if they were appropriately informed.”

“Empirical proof of the life insurance market’s dysfunction is readily apparent by examining the very products life insurers and their agents sell. While a select few cash-value life insurance policies can provide excellent competitive value, perhaps 95% of such policies sold provide value no informed consumer would accept. This marketplace’s dearth of information also afflicts tens of millions of policyholders at annual renewal, a large percentage of who, if properly informed, currently could readily obtain much better value.”

“Belth…has reported: “One company executive told me that companies could not survive disclosure of yearly prices,” and, “Yearly prices [of cash-value policies] are so revealing that the companies took extraordinary action to prevent disclosure of the information.” While the first statement is clearly hyperbole, the second is practically an indictment of the state regulators, as they have never confronted such matters and fulfilled their regulatory duties.”

“A cash-value life insurance policy’s unique intrinsic economic advantages arise from its Congressionally-granted tax privileges, not its highly touted permanence…These tax privileges, which are given directly to policyholders, however, are not a basis for which insurers can charge consumers. No one pays thousands of dollars to set-up an IRA.”

“Financial problems should not need to have to drive our country to the edge of a financial abyss to warrant fixing; forty years of documented but unindicted frauds ought to be sufficient.”

Letter to Federal Insurance Office – December 2011

“The life insurance marketplace is awash with misinformation. Without good disclosure, this should hardly be surprising. Life insurers actually run misleading advertisements and conduct training in deceptive sales practices. Evidence of such has been repeatedly submitted to state regulators. Moreover, given the industry’s commission-driven sales practices (commissions – which can make those of mortgage brokers, now notorious for their own misrepresentations – look tiny), sales misconduct is pervasive.”

“Data shows that over an eight year period approximately 40% of all the cash values policies of many life insurers are discontinued…Such lapses are especially financially painful to consumers, as the typically-sold cash value policy has huge front end sales loads; sales loads about which agents are trained to make misrepresentations.”

“Cash value life insurance policies that are sold to be lifelong products have extraordinary high lapse rates. Data shows that over an eight year period approximately 40% of all the cash values policies of many life insurers are discontinued…Such lapses are especially financially painful to consumers, as the typically-sold cash value policy has huge front end sales loads; sales loads about which agents are trained to make misrepresentations.”

“It is very important that all readers fully understand that contrary to pervasive misconceptions and misrepresentations, cash value policies do not avoid the increasing costs of annual mortality charges as a policyholder ages. The fundamental advantages of cash value life insurance products arise from the product’s tax privileges. Tax privileges, though, are essentially a free, non-proprietary input. In a competitive marketplace, firms cannot charge consumers or extract value for a free, non-proprietary input. No one pays thousands of dollars in sales costs to set-up an IRA.”

“Inadequate life insurance policy disclosure not only prevents consumers from being appropriately informed, it also is a main factor in their avoidance of the very product they so often need.”

“Admittedly, regarding their past purchases, disclosure could now well lead to litigation over agents’ and insurers’ prior misrepresentations. As I think you may now understand, inadequate life insurance policy disclosure is a regulatory “gap” virtually the size and age of an intergalactic asteroid.”

“Regulation of life insurance agent licensing is incredibly deficient. Agents should truly be financial doctors. Yet, state’s agent licensing requirements fail to make sure consumers are served by financially knowledgeable professionals; the licensing exams are a joke. While there are many competent agents, it is quite possible that the overwhelming majority of agents – many of whom are new and inexperienced, as more than 4 out of 5 recruits fail in the commission-based environment within the first few years – do not possess the basic knowledge necessary to accurately assess consumer’s needs or to properly evaluate different companies’ policies.”

The Life Insurance Industry Is Built on Fraudulent Practices

“No other consumer financial products provide comparable rewards for misrepresentations, nor have a marketplace where the pervasiveness of misinformation is as extensive. New agents are recruited by the thousands each year with enticing recruitment pitches built on compensation unobtainable if products were properly disclosed. Poorly trained and supervised, more than 4 out of 5 recruits within a few years fail, although not before wreaking much financial havoc. Those who “succeed” though, give proof to Upton Sinclair’s adage, “It is difficult to get a man to  understand something when his job depends on not understanding it.””

Fixing the Monolith

“Fechtel starts by explaining what you probably already know: that term and cash value life insurance are essentially the same thing: cash value products all have a lifetime term policy embedded inside them. “Cash value policies are nothing other than term with a tax-advantaged side fund,” says Fechtel.”

“With term, you know what you’re paying for your mortality expenses each year.  With cash value policies, the investment account is paying the premium on the embedded term policy on the other side of a closed door.  And Fechtel says that a lot can go on behind that closed door, including the insurance company raising the cost of coverage.

Understanding these basic principles is a good start, but it’s only a start; the problem with the life insurance marketplace, in Fechtel’s view, is that consumers never have enough information to comparison shop or know exactly what they’re buying.  You can walk into a hardware store and buy a hammer, and it’s not hard to compare prices and evaluate the quality of the various products.  But what if you paid for the hammer based on a 30-year projection of scheduled payments, and part of the transaction was giving the hardware store additional money that it would manage on your behalf and deduct a proportional cost to pay for the hammer every year?”

“Fechtel is licensed with a variety of companies, and although he no longer works with Northwestern Mutual, he sometimes recommends that his clients buy blended policies from them–at greatly reduced commissions.  He prefers to work for fees rather than commissions.  “I think ultimately, this has to be a fee business,” he says.  “When somebody retains me, I get paid a retainer, and that covers the cost of prodding them occasionally to get them through the process of buying,” he adds.  “If the commissions come to more than the retainer or hourly fee, then the client or advisor can specify the charity they want me to donate the excess to.”

Crashing Through the Insurance Industry’s Wall of Silence

“Let’s say a new client asks you to evaluate her portfolio and make recommendations. The funds and ETFs are easy; you can turn to Morningstar or Lipper and get the performance (for any time period) and yearly expense ratios out to two decimal places. Sales loads and 12(b)‐1 costs are right there in black and white.

But when you look at the client’s cash‐value insurance policy, all of that disclosure goes away. The policy is essentially a mutual fund investment account that pays annual term‐insurance premiums on behalf of the policyholder each year, so theoretically you should be able to get the same disclosure on the funds and on yearly payment for life insurance protection, the way you do on any of the term websites.

Good luck. The insurance company never discloses the sales load paid to the agent, or the expense ratio on the investment account, or even the long‐term track record of the company’s investment portfolios. The cost of the embedded term – insurance policy is a secret, and few consumers realize that it can be adjusted annually at the company’s discretion.”

“The other goal is a bit larger. Fechtel hopes to prod insurance companies into providing full disclosure similar to the way mutual funds do today. “My hope,” he says, “is that as this cost and performance information gets into the mainstream, life insurance companies will be forced to show their real numbers, and provide disclosure the way mortgage and mutual fund companies do with their financial products and transactions. I believe if we can ever get to real openness,” he adds, “the life insurance industry would enter a golden age. This should be a product that people feel good about buying, and right now I don’t think that’s usually the case.””

The Disclosure Solution to the Problems Consumers Face in the Life Insurance Marketplace

“In 1973 Belth testified before Congress, “The life insurance market is characterized not only by an absence of reliable price information, but also by the presence of deceptive price information. In my opinion, Mr. Chairman, the deceptive sales practices found in the life insurance industry constitute a national scandal.””

“Elsewhere Belth has continued, “One company executive told me that companies could not survive disclosure of yearly prices. I disagree. I think companies would prosper if price disclosure were routine. However, if he is right and I am wrong, and if companies cannot survive price disclosure, they should leave the business. Companies that can survive only by concealing the price of their product do not deserve to survive.””

“In their 2008 book on personal financial planning Professor Laurence J. Kotlikoff and financial columnist Scott Burns declare, “Life insurance agents have a well-deserved reputation for being hucksters.””

“There can be and, of course, is some misinformation in all markets, but the difference between the misinformation in most markets and with that of the life insurance marketplace is like the difference between strolling in a neighborhood park and wading through the alligator-infested Everglades. The life insurance marketplace is a swamp of misinformation with pits of quicksand created by inadequate disclosure and with creatures poised to seize upon any and all. The proof of such is readily apparent by examining the very products life insurers and their agents sell.”

“For insurers and agents, however, the essential difference between whole life and term is the quantum difference in the sales commissions. Anyone who thinks whole life and term are somehow drastically different types of life insurance with the former somehow magically solving all the alleged disadvantages agents cite regarding term ought to be reminded that ‘whole life’ acquired its name because it was originally called ‘level payment term for your whole life.’ The industry’s age-old compensation differential of paying commissions 5-9 times larger on whole life than on term cannot be sustained in a competitive marketplace; that is, it cannot be sustained in the face of informed consumers.”

“The American life insurance system has been known to be terribly dysfunctional for generations, if not centuries.”

“the NAIC’s and everyone else’s copy of the Society of Actuaries’ 1991 journal, The Record, contains a statement by a leading life insurer’s actuary that his company could not conduct focus groups with recent policy purchasers because approximately 90% would leave very dissatisfied with what they learned about their recent purchase – its woeful value – and the company’s agents were stridently opposed to such focus group research.”

“Life insurance policies may initially seem complex to the ordinary consumer, but that does not mean that their operations and mechanics cannot be readily and succinctly explained and understood.”

The Right Blend

“One of the favorite tools of this group is  “blending,” an exercise that mixes term insurance and whole life in a way that both decreases the agent’s commission and enhances the policy’s value. These consultants have carved out a niche for themselves. Many of them are fee-only insurance consultants or agents who made the decision to put the interest of the insured first. They offer blended policies with lower commissions and with a substantial cash value at the end of the first policy year, as opposed to nothing.”

“Glenn Daily, a fee-only insurance consultant in New York, says he’s had a number of clients come to him with very large whole-life policies in which the part of the policy with the largest commission makes up most of the policy. Daily defines blending as “taking money from the agent’s pocket and putting it back into the policy.” Daily says he “can’t believe there haven’t been lawsuits about this,” because the option of giving the customer a better deal is right there, whether the agent chooses to use it or not.”

Unrightable Wrongs?

“I’ll certainly be among those who won’t be the least bit surprised if it turns out that the insurance industry is mired in sleaze. Top to bottom. Stem to stern.”

“It’s not all that easy to find a smart, credentialed insurance professional who works for the company considered the gold standard in insurance circles and is willing to question sales tactics. This marketplace encourages insurance agents to rip off their customers, says Fechtel. “An agent can look you in the face and tell you it’s the best product for you when he knows it isn’t.”

“These three [Glenn Daily, Peter Katt, Joseph Belth] have grown cynical about the possibility of change. They’ve fought misinformation for so long that the struggle is starting to wear them down. But Fechtel is still swinging.”

“Agents who have pledged to abide by the golden rule, he says, do not even show prospective customers the policy that is best for them. That’s because what’s good for the consumer is bad for the agent. The industry opposes full disclosure because it’s convinced it would put agents out of business. “The argument against good disclosure is that you’re not going to exist as an agent, because you won’t make enough money,” says Fechtel.

That’s a danger that makes the status quo pretty hard to budge. When I write about insurance, Bloomberg Wealth Manager gets angry letters and e-mail from insurance agents who suggest that perhaps if I tried selling an insurance policy, I would realize what hard work it is and stop picking on agents for raking in 100 percent of the first year’s premium as a commission. The problem is simple enough to explain: Agents get more money when consumers get a rotten deal. Bad disclosure is good for agents. Insurance policies are absurdly complex because the simple truth is bad for business. And business is not that great to begin with. “The average agent barely sells one policy a week,” Fechtel says. “There are probably 40 hours of manpower invested in selling a product.”

Fechtel has approached some of the companies in the financial-services business known for their integrity and competitive prices. They’re household names. He’s offered to build a great no-load policy for them. No deal. They don’t want to touch life insurance. It smells. It would taint the firm’s reputation.”

“The insurance industry is engaged in “the same kind of cartel-like behavior carried out by organized crime,” Spitzer told the Wall Street Journal.”

““The fact that people don’t understand the cost of what they buy strikes me as a profound inadequacy of the marketplace,” he says. But the insurance marketplace has little to do with economics. It’s about how to gain an advantage—and not necessarily for the consumer.”

Letter to Society of Actuaries – January 2011

“Echoing a famous historian’s words, that ‘the road to Auschwitz was paved with indifference,’ it is time for the SOA [Society of Actuaries] to speak up against the practices that have enabled the life insurance industry to deceive and impoverish American families.”

“Industry data clearly show that some life insurers are really just commission generating enterprises as it can be statistically known at time of sale that their policies are much more likely to financially harm, than benefit, consumers.”

Intro to Breadwinners

“With both some levity and sincerity, I believe that several Insurance Commissioners ought to have to “stand in the corner” and then write on the blackboard a thousand times, “I will never again betray my public trust and responsibilities.””

“Unfortunately, today, hundreds of thousands of individuals, trustees, and advisers, buy and/or recommend uncompetitive new policies every year, and millions of others hold on to uncompetitive policies because of misinformation and misconceptions.”

Letter to the National Association of Insurance Commissioners (NAIC) – 2012

“competitors, such as Mutual Trust Life, have such high lapse rates of their purportedly permanent cash value policies that these insurers know when issuing these policies that approximately 70% will lapse within the policy’s first 15-20 years, leavings so many policyholders so terribly disappointed in the value they received (or really didn’t receive). If a manufacturer’s baby carriages functioned with the same statistical destructive certainty, thousands of toddlers every year would be crippled.”

“Certainly, there are lots of public policy scandals, but quite possibly no others that have literally spanned generations more destructively and disgracefully than those of the life insurance industry. This industry though, is a newsbeat essentially or effectively uncovered by any investigative journalists.”

Life Insurers’ Financials Analyzed

“participating cash-value life insurance policies are “priced” after, not before, the consumer has purchased it.

Everyone knows that to make good recommendations or decisions require appropriate and relevant financial information. And yet, if knowledge about such performance is inadequate, then demonstrating that anything akin to the due diligence requirements of selling, buying, or renewing a policy have been fulfilled may be difficult if not impossible. To evaluate your specific knowledge and understanding of life insurers, consider the following questions.

  1. What was the total rate of return on your insurer’s investment portfolio over the last year? Over the past five years and ten years?
  2. What is the composition of your insurer’s investment portfolio? How does its risk profile measure-up with your risk preferences?
  3. How much are your insurer’s investment management costs? And its investment-related tax costs
  4. What are your life insurer’s mortality costs? What are its costs per million dollars of coverage provided? Also, what are your insurer’s reinsurance costs? How do companies that understand risk view your insurer’s existing and new business?
  5. What are your insurer’s general operating costs? How efficiently does your insurer operate?
  6. What are your insurer’s sales/distribution costs for both new business and existing business?
  7. What does the information on your insurer’s sales growth and persistency indicate and portend?
  8. What has been the rate of return on the insurer’s capital? And what are the components of such?
  9. How well, or to what extent, does your policy participate in your insurer’s financial performance? How does its ROR on life policy reserves compare with its ROR on capital?

Answers to such questions are not currently standard parts of the life insurance policy selling, buying, and reviewing/renewing process.”

The Life Insurance Industry Needs Better Disclosure

“Mutual Funds Can’t Do It, So Why Can Insurance Policies?…No financial advisor would illustrate how a mutual fund would grow using a current rate of return.  That is essentially what cash value life insurance illustrations do.  Illustrations use current dividend rate assumptions to show a hypothetical future scenario.  No one can predict the future and an illustration is worth nothing more than the piece of paper it is on.”

“Here are five questions that come as a natural starting place for anyone considering cash value life insurance policies:

  1. What is the life insurer’s rate of return earned from its investments, and credited on its policies?
  2. How efficient are the life insurer’s home office and agent operations?
  3. Of the life insurer’s block of cash value policies a) what share was underwritten during the past five years, and b) remains on the books even ten years after being issued?
  4. How competitive are the life insurer’s average mortality costs, and what are the implications of uncompetitive costs for you?
  5. How fairly does the life insurer distribute its earnings?”

[At the bottom of this article, one commenter remarked, “These are great questions. As a licensed agent I could not answer any one of them, and suspect that finding answers directly from the insurer would be difficult.”]

“I am a believer that life insurance does not need to be sold. Most of the selling stems from agents looking to make excessive commissions from permanent life insurance. The insurance companies know that so they can dangle a carrot in front of hungry salesman or saleswoman to get more premium dollars into the company.”

“Whole life is a complete rip-off…especially considering how the policies are sold….with excessive commissions. I recommend term insurance, probably 99% of time. And even when there is a desire for cash value accumulation, it would not be straight whole life. It would be a max blended cash value policy, which means it would be mostly term insurance with a cash value investment account. The cash value investment account earns a guaranteed interest credit of 4%. The growth in the cash value investment account is not subject to taxes – so long as the policy does not lapse or is surrendered to basis. That doesn’t stink, especially if you are in a high income tax bracket. Especially now considering the recent changes to taxes for high net worth individuals.”

“As I mentioned in a prior comment straight whole life insurance products are a rip-off. I agree with you on that!”

“many within the industry have “fought” to retain life insurance’s tax privileges by, among other things, denying its policy’s investment character.”

Study on the State of the Life Insurance Industry

Sales, marketing, and business textbooks routinely emphasize ways of differentiating one product from another in order to try to obtain more sales and/or a better margin from selling a product seen as different from a basic product or commodity. All life insurance, though, is fundamentally composed of term insurance. Whole life is called whole life because it was originally called “level payment term for your whole life.” The ways in which life insurance products have been and still are described in the marketplace not only create confusion for consumers, but also actually impair consumers’ inclination and ability to directly and meaningfully compare products. Different policies, in fact, are nothing but slightly different peas from the same pod.”

Elizabeth Warren, We, too, May Need You!

“If Insurance Commissioners could be charged with dereliction of duty, they would all be in jail, having repaid their salaries, and forfeited their pensions.”

Northwestern’s Deceptive Advertisement and Marketing

“the NY department and its NAIC affiliates have never properly regulated life insurers, their agents, and policy disclosure practices. That is the reason the life insurance marketplace has always been and continues to be awash with misinformation, deception, fraud, and worse.”

“Consumers trust regulators to protect them, to protect them precisely from such misleading sales representations, but insurance regulators wait until consumers tell them there’s a problem. And, yet it has been known for decades that consumers typically find cash value life insurance products practically unfathomable. In light of this, the regulators’ inaction/performance reminds me of the circus rodeo act where two trained stunt male donkeys chase each other’s tail. The trained jackasses, of course, are putting on an amusing show; what excuse the 50 state NAIC Commissioners offer for their continuous 40+ year ‘performance,’ I do not know.”

New York Life’s Fraudulent Advertising

“Furthermore, that such a blatantly misleading ad was produced by a large and heretofore positively-regarded life insurer, ought to cause all to wonder just how pervasive and rampant fraud is in the life insurance marketplace. It is rampant beyond your wildest imagination, but that argument can’t be completely proven in a paragraph. For the moment, let it therefore suffice to note: While such allegations of rampant pervasive financial fraud can also often times be viewed askance or greeted by some with incredulity, especially when one believes that an industry regulated by 50 states and covered by presumably knowledgeable financial journalists could not possibly be so dysfunctional, a marketplace without appropriate disclosure is a marketplace primed for fraud. And, to this day, life insurance consumers have not been appropriately informed.”

“White collar financial crime, although arguably the most destructive crime we face, goes virtually unpunished in America.”

“The general life insurance marketplace has always been and currently remains awash with absolutely pervasive and mind-boggling problems and frauds, and yet there have been no Pulitzer Prize winning series of articles on the industry. Good coverage by financial journalist could have long ago solved the fundamental problems in the life insurance marketplace. These problems largely arise from inadequate and misleading information, and journalists, after all, are supposed to be in the information, not the corporate public relations, business.”

“As you know, I have been a critic of IMSA [an industry self-regulatory body] since its inception in 1996, because despite its melodious sounding Golden Rule principles, its enforcement of such has always been a sham. In fact, during my July 2008 testimony at the NY State Department of Insurance Hearings on Compensation Disclosure I declared, “IMSA is a fraud.” Do you now agree, or is it that you recognize that IMSA’s principles, although unenforced, constitute a legal noose around Northwestern’s corporate neck virtually beckoning class-action attorneys, given the field-force’s pervasive misrepresentations? Indeed, when the chapter of our industry’s recent history is written, do you think that anyone will assert that IMSA, the brainchild of either a most duplicitous or absolutely incompetent group of corporate counsels, should ever have seen the light of day?”

Thanks for the Misrepresentation, Ms. Cicchetti

“Misrepresentations are an essential part the current sales practices of agents because there is nothing about whole life that justifies the excessive sales compensation that the industry and its agents have always extracted from consumers. Whole life is nothing but term insurance and a tax-advantaged side-fund. Consequently, to hide its huge sales loads agents routinely need to make misrepresentations.”

“due diligence reviews of LTCI [long term care insurance] policies cannot presently be performed. Given such, it hardly seems unwarranted to say that state insurance commissioners have been, euphemistically speaking, totally out to lunch on LTCI regulation. It would be interesting to know what SEC [Securities and Exchange Commission] Chair Mary Schapiro, FINRA [Financial Industry Regulatory Authority] Chairman Rick Ketchum, and other financial product and planning authorities think about long term care insurance as it is presently sold in the United States.

In summary, I think that LTCI, often privately referred to by its devoted agents as long term scare insurance, might really, with its widespread 20, 30, and 40% premium increases, heretofore have been called long term scam insurance. Consumers in general will only begin to receive significantly better value from LTCI once they with their friends in the media (the “Fourth Branch” of government, purportedly) demand solutions to the serious problems with the currently marketed LTCI policies. That such an inadequately disclosed product as to be the life insurance industry’s Blackest Box and a policy that can hold consumers hostage and shot like fish in a barrel has been so strongly endorsed by so many of America’s financial journalists is more than a little baffling; but that’s a story for another day.

Until then, LTCI Buyer: Beware! Ask Questions and Demand Value.”

The Corvair of Financial Products: Long Term Care Insurance

“In fact, without knowing the LTC insurer’s investment management practices and principles, consumers don’t know how they participate in the insurer’s investment performance, they have been, and basically are, buying LTCI BLIND. If anyone disagrees and/or thinks it’s good to buy investments or financial security blindly, then the new off-shore, hedge fund being operated from behind bars by Bernie Madoff could be a big success.”

“As Vanguard’s founder, Mr. Bogle, might be tempted to remark, there’s something incredibly wrong with what is fundamentally an investment product – an annuity, admittedly with some extra legitimate costs upon payout – when the croupiers extract over 30% of the value of consumers’ hard earned dollars.”

A Very Popular Annuity Sales Presentation

“This is not a good situation. It is not merely that consumers do not obtain what they thought they had bought (which is pretty bad), it is also that society as a whole has excessive resources ,i.e., agents’ and consumers’ time, engaged in, respectively, selling and evaluating such products that would otherwise not be engaged in if the product were properly disclosed. This conclusion is irrefutable. And the total societal costs of such financial crimes are enormous and extensive.”

Suze Orman: Whole Life Insurance Is One of the Biggest Ripoffs Out There

According to Suze Orman, “Whole life insurance is…in most cases, one of the biggest ripoffs out there.” Most academics and fee-only advisers agree with her.

If Suze and all the experts are correct, then how does one interpret the fact that Hong Kong insurers collected over $82 billion in whole life premiums in the year 2013 alone?

Whole Life In-Force Premiums 2013

An $82 Billion Annual Ripoff?

The Rape of Hong Kong has spoken with at least one local insurance broker (a Chinese) who confirms that, yes, Hong Kong’s whole life “investment” market is a colossal ripoff.

So why haven’t regulators done anything? Are they corrupt? Incompetent? Why is no one holding them accountable?  

Thousands of people continue to occupy Hong Kong’s streets, demanding real democracy. A key attraction of democracy is the ability to throw out legislators who fail to legislate in the public interest. The Insurance Companies (Amendments) Bill 2014 is a key piece of legislation currently being written, which will provide an opportunity for Hong Kongers to determine which of their legislators deserve to be kicked out.

The local media should be watching closely, and reporting responsibly.

More Suze

Earlier this week, I posted eight video clips in which Suze Orman explained why cash value life insurance (i.e., life investments) are exploitative and disastrous for consumers. Those clips elicited positive responses from readers of this blog. Those readers will be pleased to know that I found a few more:

Exposed: Same Insurers Systematically Swindle Millions of Canadians, Americans, and Hong Kongers

Prudential, Sun Life, Manulife

This post is divided into four sections. Each section contains a short video about insurance scandals that rocked Canada and America in the 1990s. The guilty insurers were hit with numerous class actions lawsuits, many of which were settled, resulting in compensation for the victims.

The fraudulent sales practices exposed in the videos are the same types of practices which are rampant in Hong Kong. Unfortunately for Hong Kongers, their undemocratic, corporate-controlled legislature has resisted introducing class action lawsuits. As a result, millions of ripped off consumers have no affordable, practical way to access justice through the legal system.

Part I

Manulife Exposed for Pushing a Ripoff Life Insurance Product and Destroying the Retirement Savings of Countless Canadians

The Hong Kong government set up the MPF system to encourage people to save for their retirement. The Canadian government introduced RRSPs for the same purpose. An RRSP, Registered Retirement Savings Account, is a tax-advantaged account which allows Canadians to invest in mutual funds, stocks, bonds, and certain other assets.

In the documentary below, produced by CBC Market Place, Manulife—a Canadian insurer with a big office in Hong Kong—is exposed for pushing a ripoff cash value life insurance product named “The Investor”.

“The Investor” is an RRSP, but unlike other RRSPs, it combines an investment account with life insurance and has a huge surrender penalty. If a policyholder tries to exit anytime before 10 years have passed, she could lose up to 100% of her investment. If a policyholder dies, the insurance company keeps her investment and only pays out the insurance coverage to the beneficiary.

According to Bill McCleod, a business professor interviewed by CBC, “I can’t believe that anybody that understood a contract like this would sign it.”

According to Bob Barney, former president of the Independent Insurance Brokers of Canada, “The agent wants to sell it [“The Investor”] because it pays a whopping big commission by contrast to other RRSP programs, and the company wants to sell it because it has a fat overpriced insurance policy in it that’s going to be very profitable.”

The documentary later reveals that the commission for selling “The Investor” is 40%. The commission for selling other RRSPs is 1.5%.

CBC obtained an advertisement directed at brokers, which stated, “Because the Investor offers protection (or insurance) as well as savings, it gives you [the broker] the type of return you’d expect only from a life (insurance) sale.”

“The Investor” may be attractive to brokers, but according to Bob Barney, “I have never found a product that put life insurance together with savings that did better for the consumer than an insurance policy and a savings program that were separate.”

He says if you put $1,000 in a regular RRSP, you can transfer the money, take it out, whatever you want. But if “you put that same $1,000 in ‘The Investor’, you can kiss it goodbye”.

CBC obtained an internal Manulife document that advised agents on “how to sell surrender charges”. The document stated, “Most of the time, you won’t even discuss surrender charges with your client.”

In other words, you defraud them.

Part II

Sun Life and Manulife Hit with Class Action Lawsuits for Mis-selling “Vanishing Premium” Life Insurance

The documentary below, produced by CBC Market Place, tells the story of how several Canadian insurers mis-sold “vanishing premium” life insurance policies to hundreds of thousands of Canadians.

The sales pitch was this: You pay premiums for a fixed number years, and then, the earnings on the cash value account will be so much that those earnings will pay the premiums for you. The policy becomes self-funding. The premiums “vanish”.

Many buyers later discovered (often as they were retiring) that the returns on their cash value account were so pathetic that they’d have to keep pumping in more money after the “fixed period” in order to keep their policy from imploding. Premiums had not “vanished” as promised.

Sun Life and Manulife—Canadian insurers with large offices in Hong Kong—were hit with class action lawsuits. Both companies agreed to compensate as many as half a million policyholders.

A CBC reporter states, “What’s surprising is that after thousands of complaints and two class action lawsuits, [CBC] Market Place found that these kind of policies are still for sale”.

CBC set up hidden cameras in a house and invited in an insurance agent from London Life to sell a “vanishing premium” policy to one of CBC’s undercover reporters. The insurance agent was caught on video misrepresenting the policy, trying to make it seem less risky than it actually was.

Sometime after CBC’s documentary aired, London Life was hit with a class action lawsuit.

In June 2001, CBC reported, “A class action lawsuit on behalf of 500,000 people who bought [vanishing premium] policies from London Life Insurance between 1980 to 1995 has been settled at $180 million.”

Part III

Prudential Busted for Systematically Defrauding Americans, Slammed with Class Action Lawsuit

Headquartered in London, Prudential is one of the largest insurance companies operating in both America and in Hong Kong. 

Below is a segment from a documentary aired on ABC News on Dec. 11, 1996, two days after Florida’s insurance commissioner threatened to ban Prudential from selling life insurance in the US state of Florida.

The documentary features interviews with ex- Prudential agents who say they saw deception on a daily basis, an embarrassing interview with one of Prudential’s executives, and excerpts from Prudential training videos that teach agents how to misrepresent insurance policies as non-insurance investment products, in order to facilitate sales.

Shortly after the documentary aired, Prudential was faced with a class action lawsuit, which Prudential agreed to settle. The lawsuit alleged that Prudential’s agents “persuaded customers to needlessly exchange life insurance policies for more expensive ones from 1982 to 1995.”

The Baltimore Sun reported, “As many as 10.5 million customers were victims of the practice, known as churning, which is designed to boost commissions.”

According to the Los Angeles Times, Prudential would eventually pay victims at least $410 million and as much as $1.2 billion.

[Note: A local Chinese victim of Prudential’s Hong Kong office has been in contact with The Rape of Hong Kong. The victim was mis-sold a 25-year ILAS policy.]

[Another Note: The full version of the documentary below could not be located online. However, there is a transcript. See HERE.]

Part IV

Canadians Go Dangerously Underinsured Due to Greedy Insurance Agents Flogging Exploitative, High-Commission Whole Life Products

The below documentary, produced by CBC Market Place, shows how millions of Canadians end up scandalously underinsured, due to the greed of insurers, who incentive their sales force to flog exploitative whole life products, rather than term life.

The impact of the scandal is made tragically clear through interviews with two widows. When their husbands unexpectedly died, they received death benefits which were inadequate to provide for themselves and their children. Their financial hardships wouldn’t have been nearly as severe if their husbands had been sold a term life policy with much higher coverage—for the same price—rather than a whole life policy that combined a ripoff savings plan with low coverage.

According to Professor Bill McLeod, “Most people who have whole life are badly underinsured, and the average death claims every year show that…There are two companies as we talk that are paying average death claims of less than $3,000. Can you imagine taking a check for $3,000 to a widow with a couple of kids?”

Broker Bob Barney, who sells term insurance, says, “I’m sick and tired of being considered a snake oil salesman. Life insurance agents are generally considered right there at the bottom of the barrel as far as people who conduct a profession in the public eye. And unfortunately, these selling practices [pushing whole life] really reflect negatively on it.”

[Note: At the end of the documentary, a CBC reporter states, “If you just can’t manage to save money and need a forced savings plan, then maybe whole life insurance is for you.” This is a stupid, dangerous remark. Whole life is a disaster for anyone who has trouble saving money. Such people (in fact, most people) inevitably cash in their policy early and face losses.]

Dave Ramsey: Cash Value Life Insurance Is GARBAGE

Dave Ramsey

Dave Ramsey, Hero of the Life Insurance Industry

Dave Ramsey is a famous American radio and TV host and author of several bestselling books. Each week, 4.5 million people listen to The Dave Ramsey Show. Dave’s focus is on teaching people how to manage their personal finances.

Dave does not sugarcoat his views on cash value life insurance. He bluntly states that it is “garbage”, a “ripoff”, and “the payday loan of the middle class”. He advises people to buy term life insurance and to do their investing “anywhere but in an insurance product”.

Dave briefly summarizes his views in an article titled, “The Truth about Life Insurance“.

Notably, he points out that, with many cash value life insurance policies, the insurance company only pays a death benefit when the policyholder dies, and it keeps the policy’s cash value—i.e., the insurance company keeps all the savings that the policyholder has built up after “being ripped off for years”.

In contrast, if a person bought term life and invested the difference in low-cost index funds, upon death, the person’s family would get both the death benefit from the term policy as well as all the savings accumulated in the index funds.

Dave concludes that people are better off buying term and investing in a cookie jar than buying whole life and giving their savings to an insurance company.

Below are four video clips from Dave’s radio and tv show. In two of the clips, he has a heated argument with insurance salesmen.

Suze Orman: If An Adviser Tries to Sell You Cash Value Life Insurance, Find a New Adviser

Suze Orman

Suze Orman, Hero of the Life Insurance Industry

Suze Orman is a famous American financial adviser, bestselling author, and host of The Suze Orman Show

She is also one of the few Americans (maybe the only American) to be licensed to sell insurance in 49 out of 50 US states. Her views about life insurance are unquestionably authoritative.

Suze has a top ten list of investment products that she most hates. At the very top of the list is variable life, variable annuities, universal life, and whole life insurance. (Variable life and variable annuities are types of ILAS.) She says these products do nothing for investors and everything for the people who sell them. She calls the products “ripoffs” and advises investors to find a new financial adviser if their current adviser tries to sell them one.

Suze believes that the only type of life insurance that people should own is term life insurance, which is usually about 10 times cheaper than other insurance products. (The commission is also about 10 times smaller.) With the money that is saved by buying term instead of a “cash value” life insurance product, Suze recommends investing in funds directly (in a tax-advantaged retirement account, if applicable).

Below are eight different clips from her TV show. In each clip, she briefly analyzes a different person’s life insurance investment and explains why it is crap.