Why Is My Broker So Eager to Sell Me Whole Life Insurance?

Insurance policy and claim form, focus on words

A friend of mine recently complained about an old college roommate who was trying to pressure him into buying a whole life insurance policy. He was having trouble figuring out how to tell him no, because they'd been so close back then.

This is an all-too-common occurrence for young professionals in their late 20s and 30s. This is the time when friends and family are test-driving new professions -- like sales gigs, for example.

Many insurance brokers push whole-life policies because they provide them with the juiciest of commissions.

Several governmental surveys suggest that the average American will change jobs more than 11 times in his life. For many of us, it's only a matter of time before we take a sales job that pays on commission.

Why Are Your Friends Turning on You?

For many people starting off in the financial services industry, the mantra is "you eat what you kill." They have to sell their product, insurance policies, investments, brokerage services, etc., because the lion's share of their paycheck comes from commissions on the sales they bring in.

But when people take that first sales job, they're not likely to have a big, established client base to sell to. So they turn to the contacts they do have -- friends, family and coworkers -- whom they bombard with pitches to buy products that might not always be the best fit for them.

Understanding the Difference Between Whole Life and Term

Whole life and term life insurance are two very distinct and different types of insurance and financial products. In fact, whole life is more of an investment for many people who buy those types of policies.

Whole life insurance builds cash value while you're paying those premiums. Eventually, after years of premium payments, you build up a cash value in the policy that often gives you many options.

The cash value becomes an asset itself. It can grow, increase in value, and even pay dividends in some cases depending on the type of policy you purchase. Many whole life insurance policies let you borrow against the cash value you've built up, cash out completely, or even build up enough cash value where it can make your premium payments for you. And your would-be broker will mention all of these fine features when he tries to convince you to buy a policy. It's not just insurance -- it's an investment.

This accrual of cash value is the primary reason that whole life insurance policies are more expensive than term life insurance policies, which do not build any cash value. Term life insurance only covers you for the length of the term you've bought the policy -- and for as long as you make the payments. When the term is over (or you stop paying), you have nothing to show for it. Unless you die and your heirs collect the policy, it simply expires, and you would have to purchase new coverage if you want it.

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 Gets a Bad Rap

Most Americans are just fine with a term life insurance policy -- a relatively low-cost safety net to to protect the people who depend on your income and other contributions should you die prematurely.

How much you need depends on the expenses you expect it to cover -- if you're responsible for mortgage payments, or expect your income to fund your children's college tuition, you'll need more. But when those needs are in the past, you often don't need much life insurance.

A whole life policy is with you for your entire life as long as you make the insurance premiums. But what do you need that money for if your kids are grown and your mortgage is paid?

A 20- or 30-year term life insurance may be a better option for many families. And it's a whole lot cheaper. A $100,000 whole life policy for a healthy 20- or 30-something may cost about $150 per month. But the same person can often get a 30-year term-life-insurance policy that pays out $500,000 upon death for as little as $20 a month.

Many insurance brokers push whole life policies because they provide them with the juiciest of commissions. And of course, every family's situation is different. For example, there are a few interesting uses for whole life insurance that make it a good deal for wealthy individuals. But the vast majority of Americans would benefit more from term life policies.

We Don't Want to Disappoint Our Friends

Our friends mean well. And it's hard to tell them that we don't want to buy the whole life insurance they're selling. That's the problem my friend recently ran into. How do you tell someone you've known all your life -- someone who was a groomsman in your wedding -- that you're not interested?

Most of our friends are just trying hard to make a living. They want to succeed. And we want them to succeed in their new professions, but not at the expense of our own financial security.

So, no, I don't want to buy whole life insurance, nor a life insurance policy for my new baby, who, though adorable, has no income to replace. Far too often, it feels like a multilevel marketing pyramid scheme where the brokers and those at the top are making money feeding off those of us at the bottom.

My brother-in-law recently joined the ranks of investment managers at a large national brokerage house, where he'll have to sell the brokerage services in order to earn a commission and a paycheck. It's only a matter of time before he approaches his sister and me for a sale.

So How Do You Tell an Old Friend No?

We've known these people for years -- even decades. How do you tell an old friend you don't want to buy the product he's selling? The longer you indulge your friend, the more trouble you'll have. Like a Band-Aid, it's best to simply rip it off fast and say no.

My friend made the mistake of stringing his buddy along. He kept telling him that he wasn't sure or that he needed to talk to his wife. Deep down he knew that whole life insurance wasn't a good deal for him.

I recommend being open and honest. If your would-be financial product salesperson is truly your friend, he'll understand that you're not interested. It's not personal; it's just business.

Have you had to face a friend selling you a financial product that wasn't right for you and your family? How did you tell them no? What tactic did you use?

Hank Coleman is a financial planner and the publisher of the popular personal finance blog Money Q&A, where he answers readers' tough money questions. Follow him on Twitter @MoneyQandA.

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Righton Time

There are so many fallacies in this article and in the comments I almost don't know where to begin. I always recommend whole life policies to my clients because it is a GUARANTEED way to get a return on your investment. Robert-Lawson35 stated a client won't have to worry about wasting a big portion of their money on commission if they don't go through an agent. I am very passionate about what I do. I have a Master's degree and I am a licensed counselor I have several ways to earn a living. It was after me counseling thousands of people due to grief and financial loss that I decided to become a Life and Annuities agent BECAUSE THERE IS A NEED. I should not be expected to work for free in either profession.

The truth of the matter is when you purchase a policy whether it is online or face-to-face commission is always involved. Someone behind the screen IS earning a commission...but why should you care? As long as you get a policy that works for you and your family. A licensed agent is a professional and commission does not drive up the cost of the policy. The commission is based on how your premium is invested by the insurance company. Whole life policies earn cash value. Whole life insurance can be purchased to fund future endeavors i.e. college, car, down payment on a house to list a few.

Term insurance does not increase in value and MOST people outlive the term policy. So you know what happens? The 20yr term policy that John Doe bought when he was 50 is completely useless when he turns 71. Then is he is out of insurance his health has changed yet he seeks to find a new policy at the same $50 a month premium for $150,000 20 yrs. later at 71. But it does not exist! He is shocked that at age 71 he now has to pay $275/monthly for the same coverage. All the money that he paid over a 20 yr period is for naught.

Whole life insurance always pays a death benefit. Term insurance? hardly ever pays a death benefit (less than 2%) because most people outlive the term period. This is what I tell my clients because there are plenty of seniors looking for term insurance and they simply cannot afford the premiums for the coverage they want and you CANNOT get a new term policy after age 75. There are some creative ways to use term but it should never be the only type of insurance that you have. I can tell horror stories of people that did not bother to get any insurance. Right now as I speak there are funeral homes in my city that are still holding bodies FOR MONTHS because their families could not cover funeral expenses. Families are arguing and there is division about how to handle expenses this is not something any family should have to worry about during such a great loss. So instead of worrying about insurance commissions which is something you cannot control, invest in yourself and your family while you still can.

February 09 2016 at 9:41 PM Report abuse rate up rate down Reply

The truth is that whole life insurance earns agents wayy more money. It is completely unnecessary for most Americans to own. Unless you have a lot of money and you have an estate tax possibility, or if you need to break up your assets fairly among your kids you don't need insurance past retirement age. Cheap term can be found online at places like LifeAnt, and you don't have to waste a big portion of your money on someone else's commission. Whole life has a use, but for most people it shouldn't even be in the discussion.

March 23 2014 at 6:17 PM Report abuse +2 rate up rate down Reply
Jesse Fernandez

Life insurance is very important to have but how do you know which one is right for you?

I have worked in the Banking Business for over 7 years. After years of working for a company/corporation, I decided to start my own business in the same business field. I am now a Financial specialist with New York Life Insurance Company for almost 2 years. I get to do the same thing as before but now I’m running my own business. Trust is everything and I make it my mission to earn my clients trust.

Whole Life can get very confusing but it doesn’t have to be. It does have A LOT of advantages and yes it does create a TAX FREE income when you retire.

I have to say that Whole Life is not for everyone but neither is Term. The only way to truly find out is to which one is right for you is to….

1. Sit down with a financial planner/professional/specialist and do a financial analyst of your current financial situation.
2. Go over your financial goals and needs for the future.
3. The Specialist will then create a plan that fits your financial goals and needs.
4. Go over the plan that was created for you, ask a lot of questions until you know it (don’t be timid) and then decide if it’s a plan that with help you reach financial success.

You should never have to be sold into buying something your not sure of. You should know everything there is to know about what you’re getting and feel 110% satisfied of the service that you are provided.

Knowledge is power…(do your research)…. but if you don’t do anything about it, then you’re powerless.

I hope this helps.

March 11 2014 at 12:31 AM Report abuse rate up rate down Reply
Carl A Logan

The real question is "Why do you need Whole Life Insurance for your whole life, and is the cash value really yours or your beneficiary should you die prematurely or when it is suppose to happen, If you borrow from it, do you have to pay it back and why?
If you are disciplined to save the difference on a Term Life Insurance, the savings is yours whenever you need it and you never have to pay it back. When you retire, and you are disciplined, you are Financially Independent. Do you really need a life insurance policy or you need the cash to live. Your estate is established and can afford to pay for you funeral.

January 29 2014 at 12:41 AM Report abuse rate up rate down Reply
2 replies to Carl A Logan's comment

The reasons:
1. most don't save the difference
2. Many whole life plans can and do pay up in less than 20 years.
3. Most Term plans expire at 70
4. The vast majority of American's are NOT financially sound at retirement.

January 29 2014 at 1:22 AM Report abuse rate up rate down Reply
Elden Charles

The problem is most people are not disciplined and even if they were there are not many ways to grow tax free income. Permanent life insurance is one way. I think whole life is garbage. It is an outdated product but term can put you in big problems. Why not own your policy. Look up IRC code 7702 and go with a better permanent policy.

March 24 2014 at 3:28 AM Report abuse rate up rate down Reply

Whole life is good for younger folks because in addition to life insurance they also have a ready credit source where they can set their own payments (aside from the annual interest). 'Course credit cards these days are dime a dozen, but "back when" credit could be hard to come by anytime you moved or changed jobs. Interest is also set based on what they pay you "plus" about 3% -- so it is always cheaper than CC interest. If dividends go to buy paid up insurance the cash value also bumps up faster. 'Course with todays interest rates it may not be so hot ... but my "oldie" is paying the equivent of 5.21% (including dividends). That loan thing alone though saved my tail a few times early on. Like they say though, at some point it may not be as good as term (or annuity that'll pay to bury you) -- unless the return (as in my case) is better than any other investment I have, sadly. :-)

January 28 2014 at 5:57 PM Report abuse rate up rate down Reply

I was in this business right out of college, and I learned a lot! Especially that those selling insurance make out a hell of a lot better than those buying. At 23 years old I was taught to lie, cheat, and look at prospects as simply a number and a dollar sign. Needless to say I exited this industry and at age 50 have done all my own investing and have done quite well. Insurance is a necessary evil, but most of these guys cant be trusted. Lastly, the whole life policies I sold were great, why? because I made the most $ on them!

January 28 2014 at 5:48 PM Report abuse +2 rate up rate down Reply

Ask any professional life insurance agent (at least 5 years in the business) what product they own and 95% will tell you whole life or a comination. Whole life elimanates the uncertainty as you grow
older. I agree with Jakett. The old buy term invest the differnce has been around since 1972 (or longer) when I entered the business. Only a small percentage of term ever pays off and people do not invest the differnce so they end up with no insurance and no cash.

January 28 2014 at 4:48 PM Report abuse rate up rate down Reply
1 reply to bsurface1's comment

Small percentage, according to AL Williams 1% end up paying a death benefit.

January 29 2014 at 1:25 AM Report abuse rate up rate down Reply

After reading this JAKEYETT says it best when he makes the comparison of HIS profession to that of a used car salesman snake. When people come to you looking for advice all you see is a healthy commission don't try to bullshit us..The first thing your taught to sell is what's best for you not the client..that's the mind set of 92% of these scam artist that's a fact.. Buyers beware. Insurance companys are the next blow up...

January 28 2014 at 3:36 PM Report abuse +2 rate up rate down Reply
1 reply to Tom's comment

It is true that the broker makes a living on a sell. But like others, I brought at 19, and in 70s now. The company went from a mutual to a stock market company. They gave me over 50 shares that have gone up, making me a stock owner . The quarterly dividend is over 20.00 a quarter,not much, but coffee money. The trust shares give me ownership whether I sell the shares or not-forever as long as the company does not sell ownership. The yearly dividend is nearly $200. Not much, but over the years , it has given me money to reinvest in the market, so the wife could not complain about my using house money to gamble. As a small citizen investor , I paid through the nose for many years for that little coverage, but it gave me solace as a baby daddy in my youth when I struggled to get an education-that policy had my children as benefactors. Had I died, they could burn, cook, throw away my body--my children would f
Have known that I cared for them. Yes I've paid a fortune for that small policy, but it gave me money for three college loans , investment money to buy other stocks -mutual funs-bond funds-household loans as a new marry. The loans have been re-paid , my portfolio has grown , my family has been protected, I've reinvested in more shares of the company when the housing debacle brought down the world economy. The company will soon tell me I am to old to be covered and I guess send me the face value. The moral of this story is that the only thing that has gone with me since 19 has been my insurance policy which has served many purposes and given me the ability as a small investor to make independent financial decisions. I have paid a lot for this privilege , but it has given me independence of thought.

January 29 2014 at 7:58 AM Report abuse rate up rate down Reply

Almost every decade, a few so called financial experts rear their ugly heads to make disparaging remarks about WL insurance. It usually occurs after the market has rallied. They practice journalistic shenanigans and drink from fracked wells of slanted viewpoints. Most of the article above is fraught with a disturbing bias, and riddled with old material. Imagine having to inherit a deceased parent’s 401K or IRA invested in “no load” equities – in March of 2009. Talk about a financial double hit !! Life insurance beneficiaries (yes, there are many) – care less whether the insurance death benefit was from a Term or WL policy. All they know, the claim check is generally income tax free, pays out fairly quickly, and usually a WHOLE lot more than premiums paid in. Since everyone dies, the probability of a death claim is 100%. The problem - did that very cheap 20 Year Term “expire” years ago, or is that old WL contract finally going to pay off? With health care expenses eating away at older retiree’s savings like termites at a wet lumber yard, and baby boomers being relabeled as the “sandwich generation”, you’d think the incredible benefits of many WL contracts would be explored and noted by the author. Juicy commissions? Multi-level marketing? Only for the wealthy? Come on, you can provide better information than that? Don’t be afraid to practice balance.

January 28 2014 at 2:22 PM Report abuse +1 rate up rate down Reply
1 reply to mj4600's comment

How long have you been selling these policies?

January 28 2014 at 4:19 PM Report abuse +2 rate up rate down Reply
James Zahner

I agree with Jakeyett....I just retired as an insurance agent for 25 years. The financial people who push term and invest the rest are doing many a disservice...I don't know how many people have contacted me in their later years, after retiring and losing their employers life insurance...or people who after losing their homes, jobs etc, need life insurance later in life for many reasons, and cannot afford it or qualify for it....meaning that you pay for life insurance with money, but you buy it with your health...I have had to tell many people that because of their current health condition..no life insurance company will offer coverage....let alone could they afford it, especially if they were older....life insurance still pays tax free benefits on a death claim...of course with the current administration in Washington that could change....I am 63 and my wife is almost 60.....she lost a kidney to cancer 3 years ago....she cannot buy life insurance....but I bought whole life policies for her and I early in my insurance career....have paid in alot more money than an initial term policy, but the policies are still in force...I am in the drivers seat. If we need the death benefits I have....if I want to cash out I can. Term Life insurance like Jakeyett is saying below, "is designed to expire before the insured expires." So take that you financial wizards, Term Life and investing the rest is not the right answer for everybody.....when I sold Life insurance I took this into account for people, explained things and gave choices....did not worry about a small or larger commission.....of course I could not predict the future for people. I could not predict how long they would live, or become ill later in life and need life insurance but would not qualify for it. I recommend whole life ins if affordable in one's budget. Provides coverage if funded properly for a much longer period of time than term insurance, and one would not have to re-qualify again to purchase with ones health when the initial term expires (10 or 20 or even 30 years) and then have to repurchase again and qualify for it with their current health condition....like me if the whole life is not needed, cash it out. If the death benefit is still needed for whatever financial purpose it will be there. We need to do the right thing for people....we need to present both sides properly...again the problem is predicting the ever changing future, and most people think they are invincible....

January 28 2014 at 2:07 PM Report abuse -3 rate up rate down Reply