San Diego Financial Advisor Taylor Schulte told me that he feels similar about whole life as I do. In fact, he said that nothing makes him angrier than seeing someone with a whole life policy that isn’t what they need.
“They are expensive, wrongfully sold, and one of the biggest rip-off investments out there,” said Schulte. “Most people are better off buying low-cost term insurance and investing the difference.”
A life insurance agent I know named Chris Huntley even started the Whole Life Insurance Rebellion — a movement created to help consumers understand how much of a rip-off whole life has become.
When it comes to whole life, the biggest proponents of these policies are the people who sell them. [tweet_quote display=”If you want to see who is benefitting from a financial product, you can always follow the money.”]If you want to see who is benefitting from a financial product, you can always follow the money.[/tweet_quote]
#5: Indexed universal life insurance
If you have maxed out your 401(k), cannot contribute to a Roth IRA, and have your financial ducks in a row, then buying an indexed universal life insurance policy could make sense. But even then, it’s pretty questionable.
I cannot tell you how many times I’ve heard these policies referred to as a “Super Roth IRA.” This makes me crazy because this is a life insurance with an investment component. You do have the potential to secure a return based on the index your policy is tied to, but your return is typically capped. These caps can limit your return substantially, which is why these policies have limited upside.
One thing that makes me extra-crazy about indexed universal life is that I’ve heard advisors say, with a straight face, you should buy these policies before you open a Roth IRA or max out your 401(k). They will give you all these stats and facts to back up their advice, but none of it makes any sense.
The only thing guaranteed when you buy indexed universal life is that the person who sold it to you is going to see their bank account balance rise. Why? Because they made a huge commission for selling you a policy regardless of whether you needed it or whether you would have been better off with something else.
[tweet_quote display=”You can make a lot of money and build real, long-term wealth if you choose to invest wisely.”]You can make a lot of money and build real, long-term wealth if you choose to invest wisely.[/tweet_quote] Unfortunately, there are so many investment scams and slimy salesman out there that you have to pay close attention to avoid getting ripped off.
Before you invest your hard-earned cash, make sure you understand what you’re buying and, more importantly, why.
This post originally appeared on Forbes.