One of the most expensive mistakes we see young physicians make is when they succumb to whole life insurance salespeople and buy a whole life policy. They are lied to about the insurance ‘being a good investment”, and “security for the future.”
Peter Lazaroff makes some good points in his WSJ article “The Case Against Permanent Life Insurance”
He notes right away:
Unlike fiduciary advisers, people who sell insurance don’t have to uphold the fiduciary standard. That means they’re under no obligation to work in your best interest. Instead, they can work in their best interest, or the best interest of the company. It’s a sales pitch when you talk to an insurance agent who wants to convince you that permanent life is something you need to buy.
Translate this: They lie, lie, lie.
Lazaroff goes on to debunk various sales strategies that these bottom dwellers use, such as:
- “With the growing cash balance, you can be your own bank and take loans from the policy.”
- “Permanent insurance is a form of forced savings.”
- “Look at those dividends in the policy. You can’t earn those in your portfolio. Plus, that growth is tax free.”
- “You already have some of your savings going to retirement accounts. Think of your policy as a form of diversification.”
The article is worth a read. But I’ll tell you simply-there are only two groups of people that should even consider whole life insurance (in any of it’s many names-universal life, variable life, etc.): those that need to cover estate taxes on a large illiquid inheritance (your parents left you a large factory) or some families that need to fund for a special needs child or other disabled individual. That’s it.
The most common scenario we see is a young physician sold perhaps 1 million dollars of a whole life policy, with a premium of 20K plus a year. This physician may either not need insurance at all (single), or may need a great multiple of this death benefit (three young children and a homemaker spouse). But the aforementioned whole life policy allows the greatest benefit to the salesperson.
We all learned some great truths in our medical education. Not buying whole life insurance is one of the great truths in our financial education.