Whole Life Insurance Is A Scam Review @RichonMoney

Whole life insurance is a scam. In today's video, we're going to be doing a review by a gentleman named Richard. Shout out to Richard and his YouTube channel called Rich on Money. I recently saw a video that he put together calling whole life insurance a scam. And what I decided to do in this video is actually break down the numbers that he shared in the video. So I want to thank him in advance for giving us numbers to show the other side of where whole life insurance is not a scam. So really debunking whole life insurance being a scam and opening up the opportunity for Richard and I to potentially have a conversation. So this is a shout out to Richard, his YouTube channel, and all the good work that he's doing helping people with their finances and also an invitation that we can have a healthy dialogue discussion. Someone like myself and Richard sounds like a very reasonable guy to potentially learn something that he may not know and could also be very helpful to his audience that there could be a place in someone's financial portfolio for whole life insurance and if set up properly and used efficiently, can produce totally different results. So with that being said, let's take it to the whiteboard and show what he presented. So I recommend you all watch the video so you get even more context. I'm summarizing it here. He shows a 30 year old healthy male purchasing a $1 million term life insurance policy, 60 bucks a month and having that for about 30 years. He used Aflac as his resource. And then he showed a whole life insurance policy $920 a month with a $1 million death benefit and showed how drastic the cost is for a whole life policy at $1 million versus a term policy at $1 million. His argument is that the growth and performance in a whole life insurance policy with Aflac is terrible, worthless, a scam compared to owning a 30 year term insurance contract for $1 million, 60 bucks a month and basically investing the difference. In the video he made, he showed $920 a month investing in the S&P 500. At 8%, your money would have grown to 1.3, almost $1.4 million by the time you're 60 years old. And then the term would fall off. So you no longer have the million dollars because you've created 1.3 million of wealth inside of some sort of retirement account, brokerage account. That was his word. So some kind of retirement account, brokerage account. Now what we don't know is the type of account, obviously whether it's a locked up retirement account where I can't touch it till I'm 59 and a half. We don't know if it's a tax free account like a roth for our 401k or if it's a standard brokerage account. Either way, what the numbers do not account for when you're investing at, let's say 8% over 30 years. It doesn't account for taxes, fees or the asset allocation. So we're going to assume 100% of that $920 every month. Bought the S&P 500 in his example, most of the time in every single portfolio I've ever looked at, for every single client I have ever worked with, for over 1,000 plus plus clients I've been able to serve and have spoken to thousands of people in my seven year career and have served tens of thousands of people on my YouTube channel along with other content creators that I'm in partnership with and those tens of thousands of people that they've served. I've never seen any financial portfolio that is a hundred percent allocation to the S&P 500. I've never seen that before. I've seen 90, 10, 80, 20, 70, 30, 60, 40, 50, 50. What I mean by that is maybe someone's portfolio of that $920, maybe 10% is in bonds, cash, CDs, safe fixed growth accounts, and then the other 90, 80, 70, 60% is say in different indexes, S&P 500, QQQ, mutual funds, index funds, things like that. So with that being said, your $1.3 million is going to be a lot different in reality when you factor in asset allocation. If I'm investing $920 a month, but I'm not putting it 100% at risk to get that potential 8% return or higher, the number is going to be different. So If I have 30% sitting in bonds now, I'm earning far less. So I just wanted to put that point out there. The second is whole life insurance is not an investment. When we are comparing one strategy with another, you ideally you want to create an apples to apples example here. So when it comes to whole life insurance, it's not an exam, it's not an investment. So why compare it to an investment strategy? Rather when looking at someone's portfolio, the way I like to do it is compare a whole life insurance performance to someone else's fixed assets, safe returns, whether that be bonds, cash, CDs, high yield, savings, money market account, anything that is fixed or safe money in someone's portfolio and let's say that allocation was 10, 20, 30%. I'm going to take that number, put it in a whole life policy, structure it properly and show the performance and then present my argument that someone that has a portfolio of whole life insurance plus investing rather than whole life versus investing. There's a world where if you did both whole life and investing that that entire portfolio you would have more wealth. So means that I'm not going to do that. I'm going to show what it would look like if you designed a properly structured whole life insurance contract for max cash value performance and max death benefit over the same 30 years using the $920 a month example. Let's see how the numbers fare out. The final three points that I'll just make here for more context is Aflac is not the right company to use for a whole life insurance company. You know, to use for a whole life insurance contract is what I'm trying to say. It doesn't make sense. So I don't know why he picked Aflac. The other thing is in his video he did not account for cash value use. So when you're contributing dollars into a whole life insurance contract, there's a living benefit called cash value. That cash value is going to grow over time. So the performance inside of that cash value is one thing. And you can compare that growth in his case, he compared it to the growth of the S&P 500. A non investment compared to an investment. Obviously the investments can perform better. No doubt. I'm not even disagreeing with that. But what he did not account for is what if I had that cash value grow in that account and then I borrowed against it to then go and invest, what then? What is that going to look like? So I'm going to show that on the whiteboard here as well. And the final thing is when set up properly, that $1 million death benefit, if set up properly, the death benefit can increase. So by the time we're 30 years out, I'm no longer at $1 million. I'm actually higher. So come over to the right hand side of the board. I'm going to use a company called MassMutual, which is a company that's been around since the mid-1800s that has paid guarantees on all that time, that has paid a non guaranteed dividend consecutively since the mid-1800s all the way to 2025. So they never missed a beat. Is a private mutually held life insurance company where I get to participate in the profits of that insurance company. I'm a policy owner and there's no stockholders in the company. So the only people that get paid are the policy owners and the owner of the company. After they pay their expenses, the profits get distributed to the policy owners and the owner of Massmutual, obviously, and how they structure their entire setup. So I get to benefit in the living benefit of my whole life insurance contract. So what I went ahead and did was designed $920 a month, $11,040 per year going into a properly structured whole life insurance contract designed for max cash value where day one, or I should say at the end of year one funding 920amonth, 11,040 per year, I'll have somewhere around $10,182 in cash value and my starting death benefit would be $366,597. So if you structured it with a lesser death benefit, where not all of this $920,000 is going into whole life, because to Richard's point, whole life is very expensive, especially in the early years. But what if you didn't have to allocate all of your 920 to whole life? What if you didn't have to do that? And what if you could have a blend of whole life and the benefits of term insurance? So what I did here was design a whole life that's a blend of whole life permanent insurance and term. And I shrunk the death benefit as much as I was allowed to according to the MEC rules. And we're going to start off with a death benefit of 366, 6597. And we're going to have a cash value at the end of year one, somewhere around a little over 10k. And if you look 10 years out, that death benefit, the cash value grows to 129 and the death benefit grows to 655, 20 years out, 347 cash value $1 million. So by year 20, I'm now ahead of the term life insurance policy of about six grand. By year 30, I'm 60 years old. I've got a cash value built up in there of $721,893 with a total death benefit of 1.4 million. So from a death benefit perspective, I went from 366 to 1,400,000 over a 30 year period. And my premium never went up. My expenses stayed the same inside of the whole life insurance contract, everything is fixed. I have this growth inside of the cash value, as you can see. And the death benefit grew as much as it did. So 30 years out. What does Richard have to show for in his example? Well, all he can show for is the $1.381 million. And that's if you get that, because you have to minus what taxes, potential fees. And what was the allocation? Did we eventually take profit out of S and P and sticking in bonds to kind of balance the portfolio out to help mitigate losses? You know what a lot of people forget is when you do, when you say something like average, when you use the word average, rate of return 8%, people think it's accounting for losses. That's not true. When in actual implementation of funding an investment account, if you actually looked at and mapped out the historical performance of the S&P 500, actually looked at it, and then you, minus all the negative years that it actually had, you're not going to get the same number. So when you run the math together, you actually might be more or it might be less. Depends on which period, obviously, that we're looking at. Okay. We just got out of the longest bull run ever, so the numbers actually might, might be better. Even if. So you're not accounting for taxes, you're not accounting for fees or the asset allocation over time in that account. So there's a lot of missing variables there. But still, let's, let's give it to him of $1.381 million. So I'm 60 years old, I lose the million dollars. Okay, that's no longer there. I had, by 59, I had say, $2.3 million of total asset. We look at the total financial portfolio. 60 years old comes, boom, I lose a million dollars of coverage. I'm left with 1,381,000,000. On the whole life side, I have a death benefit of 1,400,000, and I have a cash value of 721,000. So if you're just comparing the cash value performance to the performance of the S and P, that is a drastic difference. No doubt about it. I lost horribly. Right. 1.381 versus 721. And then keep in mind the cash value in a life insurance policy. Typically you're only going to be able to borrow against that money of about 90, maybe as high as 95%, depending on the company. So you can only borrow 90 to close to 95% of the available cash value that is in there. So. So there's additional limitation there. Okay, but now moving to the final part here that I want to share with you is what about in those 30 years? What if I leveraged the cash value outside of this whole life insurance contract and went and invested that money. Because we are comparing investing to not investing. Remember, whole life insurance at its core provides protection, provides insurance, provides living benefits, provides guarantees. And it is not an investment. It's a separate asset class that can be a part of someone's entire financial portfolio. But then it also gives us the ability to use some of that living benefit without compromising the performance of the cash value. So in my example here, let's just say that by year 20, this person is 50 years old, we're getting close to retirement, he's got $347,000 of cash value built up in there. And on the S and P side, if he would have had his money in there with the term, he would have had a million dollars and whatever the number was at that point in time. Let's say I did a cash value loan for $200,000. And let's say my loan interest rate is 5.68%. My total cost to borrow is going to be $11,360. Keep in mind, this interest that I'm being charged by Massmutual is going to be paid to Massmutual simultaneously. While that's happening, my $347,515 is going to keep earning interest as if I didn't borrow the money. The Massmutual is holding my cash value as collateral. MassMutual gives me 200,000 of their money. So it's separate, but they run side by side, essentially. So my 347,515 is going to keep earning interest as if I didn't touch it. Meanwhile, I now have access to $200,000 outside of this policy and I'm going to go invest it. So now if you compare that to the S and P, if I have a million dollars in a brokerage account and I pull out 200 grand, I'm no longer earning interest on a million dollars. Would you agree? I'm only gonna be earning interest on 800,000. And then whatever I do with the 200,000 over here is going to be at a different rate. So I'm not earning interest in two places on the same dollar, but inside of a whole life insurance contract, I can earn 2 interest rates on the same money at the same time. So 200,000, 5.68%, $11,360 is going to be my cost to borrow each and every year. And let's say I decided to become a hard money lender, or maybe I get Involved in tax liens. Maybe I decide to become a wholesaler. I'm going to wholesale real estate. Let's say I take this 200 grand to decide to start a business. Maybe I purchase a laundromat, maybe I purchase a car wash business, maybe I purchase a car detailing business. So many different things opens up other than the S&P 500 that I can do over here with this money. Now that I have a lump sum of money to work with. Keep in mind, now I have a lump sum of money to work with. If I'm a smart investor, if I invest in what I know, develop my investor DNA, invest in something that I know, that I have experience, knowledge in, let's say it's going to be a hard money lender on real estate, on real estate transactions, on fix and flips, on rehab costs, whatever it may be. Let's say we can earn 15% or more. I think that's very reasonable in that space, in the real estate space as a hard money lender, investing on rehab deals, on certain real estate transactions, helping certain investors acquire property and getting paid 15% or more, I think that's very reasonable, very possible to do in a year. Okay, I know people that lend money in real estate on notes or they do multiple transactions in a year and end up earning 45% on their money or more. So I'm being very conservative here and just saying, look, 200 grand and for one year I earned 15%. So let's say I was able to do that. I earned 15%, but I have a 5.68 borrowing cost that I have to supply for. So all I did was show three years of doing that 200 grand. You earn 15%, that's 30,000, minus 11,360. You're left with 18,000, 640 net. And then where it gets interesting, more interesting is depending on the structure of how this person invests. Did they use an llc, did they set up a company? What tax deductions were they able to get? So there's a whole different world that you know, opens up here that can be used but just to keep it simple. Again, not accounting for taxes, minusing, you know, fees, different things like that on this investment. But now we have an opportunity where I'm earning more than this average 8 over here. You can see how in just a 10 year period I can end up with not just more potential money, but I have more option, I have more liquidity. In my opinion, my money grew tax free. In one location. I was able to take those same dollars and invest like Richard did, but differently. And I have a $1.4 million death benefit that continues to rise. The other thing we need to keep in mind is when it comes to a properly structured whole life insurance contract, I don't have to pay that 920amonth for the rest of my life. In fact, when set up this way, I can do what's called a reduced paid up is one option. Or I can shrink the funding all the way down to the base premium. I'm going to share my screen and give you an example of this design by MassMutual so you can get a little more context of what we're dealing with. Okay, so here is the breakdown of the asset itself. Here are all the key benefits features, right? We got guaranteed level premiums, guaranteed tax, deferred increases in the cash value regardless of market fluctuations or conditions, guaranteed death benefit protection. Whole life insurance is a tax efficient asset that provides permanent life coverage with guarantee level premiums, cash value accumulation and the ability to leave a financial legacy. That's pretty important. A death benefit that is generally received income tax free, potential to receive dividends. While dividends are not guaranteed, MassMutual has paid them to eligible participating policy owners every single year since 1869. All right, we have additional riders in here. Here's my loan interest rate 5.68%. It can go up, it can go down. What I want to share with you is what the policy looks like after 30 years. As you can see my number earlier, right? The 721893 number, the 1.4 number of the death benefit. Here's an example of what my policy could look like after I fully funded it. I could drop it down to the base premium of just 1240. This is something a lot of people have no idea about that they can do with their whole life policy is whole life insurance is very expensive in the early years, but if set up properly can become super inexperienced, super inexpensive and actually go to zero in the later years when you're much older. So 1240 divided by 12 is only $103 a month and can stay like that all the way through. And look how the cash value continues to explode and the death benefit continues to grow. And I showed by age 70 never putting in another dollar again. I'm now 70 years old with a 1.9 million dollar death benefit. By the time most Americans get to 70, they're now uninsurable. So this presents a major risk to people's estate planning. If they do accumulate millions and Millions of dollars in their stock portfolio which is something that is not accounted for or thought of by a lot of financial professionals. And I'll throw Richard in that camp. I think he's not accounting for the legacy part. And that's another argument for where whole life can fit into someone's overall financial portfolio. I'm coming from it from a totally different perspective. I'm not saying that my whole life is going to outperform your S and P. What I am saying is my entire portfolio would outperform you by so many lengths and measures. Plus I'm accounting for the financial legacy part. Estate planning. I've got this tax free guaranteed death benefit that increases over time to the point where I don't even have to put any more money in some. So that same 920amonth once I'm 70 years old goes to zero. I could reallocate that 11,040 to repay the loans if I wanted inside the cash value. So I can reallocate it to that or I can reallocate that 11,040 to building more assets so I don't have to keep paying the whole life. And as you can see by 71 years old, death benefit grows to $1.9 million. I mean if we go all the way out to life expectancy, say around 85 years old of a male, the death benefit grew to $2.8 million, almost $2.9 million. That's, that's pretty powerful. Hey, let's say I live to 100 years old, the death benefit grows to $4.4 million and I've only contributed a principal amount of $343,600. What is the multiple on that? That's pretty powerful. And in terms of the cash value growing inside, we've got cash values in the 4/ million range. That's, that's pretty powerful. So the cash value grows and when you design a whole life where the death benefit increases, you're able to eliminate the cost of whole life altogether. Doing that reduced paid up option that I mentioned earlier. And eventually what happens is the cash value will meet the death benefit and that'll be that once it reaches the full contract. Right. Which some of these are written out to 120 years old. So no one will ever get there. But notice how we've got, when we look at the entire portfolio, we've got this increasing death benefit tax free. We've got this increase in cash value that's liquid, available to use in two different places, earning money, paying interest on what we borrow yet offsetting that by whatever we did with the money in terms of the investment. And I think that is a conversation worth having especially for the person like Richard who has retirement accounts. Let's say he has a 401k, let's say he has a Roth, let's say he has a traditional ira, a standard brokerage account and he accumulates millions and millions and millions and millions of dollars. He is going to have an estate problem, he's going to have an estate tax problem much later. Especially if he doesn't need. Depending on how he lives, let's say he lives modestly and that money just keeps compounding even after he stops contributing to it all through his 60s and 70s and 80s. Let's say he lives all the way to his 90s and he amounts a massive portfolio. What is going to offset that? His family, his kids, whomever is going to have to pay massive taxes if he's not strategic in where those dollars are being stored. Are they, are they being stored in tax free accounts that are easily able to transfer or are they not? So these are a lot of questions that that need to be had. But I thought that would be really helpful for those that watch that video and maybe you made your way over to this channel or you're watching other videos and maybe you're someone that's. You don't just take someone's word when they say whole life insurance is a scam. Maybe you're someone that's like I want to see the whole picture, I want to see all sides to really see does, does this make sense? How is the conversation being presented? You're presenting me an asset, whole life insurance that's not an investment and then comparing it to an investment that right there, we're starting off on the wrong foot. So hopefully this was very, very helpful for you. And you can see assets in a different light where you can say what does my whole portfolio look like and does it account for these other risk that can come into play? All right, my name is Denzel Rodriguez, personal finance geek, 21st century. Shout out to Richard again and this channel, Rich on Money. I am inviting you to my channel. We can have a dialogue, we can run numbers, case studies together, combine our audiences and really help them make the best decision with their money. Have a wonderful day. God bless.