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.”

2 thoughts on “Jim Dahle: The Doctor Who Debunked the Life Insurance Industry’s Lies

  1. The White Coat Investor

    Wow! And I thought I wasn’t a fan of investing in cash value life insurance. An entire website dedicated to it! Best of luck helping out those in Hong Kong get the financial information they need before getting locked into life-long “investments” that are often regretted.

    Reply
    1. Lindell Lucy Post author

      Thanks! I suspect more than a few Hong Kongers will find your articles on life insurance to be useful resources.

      Reply

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