Permanent life insurance—whether it’s whole life or indexed universal life (IUL)—has become a lightning rod in financial conversations. Some call it the “rich man’s Roth.” Others treat it like a magic wealth-building machine. And yet, for most people, it’s neither. The truth? Permanent life insurance is one of the most over-marketed, misunderstood, and misused financial tools out there.
Let’s unpack when it makes sense, when it doesn’t, why it’s pushed so hard on social media, and why comparing it to the stock market is like comparing apples to oranges.
Why Permanent Insurance Is So Overused
It often starts with a pitch: tax-free growth, tax-free income, market exposure with downside protection, and a death benefit on top. Sounds perfect, right?
Here’s the problem: these policies are sold far more than they are needed, and usually for the wrong reasons.
Here’s why it’s overused:
• Commissions drive the conversation. Permanent policies are highly lucrative for the agents who sell them. That often clouds the judgment of the advice being given. First year policy commissions can be 90-100% of the first year premium amount.
• It’s positioned as an investment. Many people don’t realize they’re buying life insurance first and an investment vehicle second. That order matters. There are fees, policy charges, surrender schedules, and internal mechanics that don’t show up in the simple projections life insurance agents often use to pitch these products.
• The complexity creates confusion. Most people don’t fully understand how the policies work—especially IULs. The moving parts, costs, and assumptions can be tweaked by the carrier over time, making the long-term performance hard to predict.
The Barrier To Entry Is Too Low
Another major issue that contributes to the overuse of permanent insurance? It’s remarkably easy to become licensed to sell it because it’s not actually considered an investment or security.
No college degree needed. No advisory license. No ongoing fiduciary obligation. And no requirement to understand comprehensive financial planning.
That low bar means that someone can be legally allowed to sell you a complex permanent insurance policy without ever having taken a course on tax strategy, investment theory, retirement planning, business planning or risk management. It’s no wonder these policies get pushed hard—they’re easy to sell, easy to get licensed for, lightly regulated and packed with commissions.
The result? Many well-meaning consumers end up being sold insurance that doesn’t align with their actual financial plan or long-term goals.
When Permanent Life Insurance Does Make Sense
While it’s over-marketed to the masses, there are niche situations where permanent insurance can serve a real strategic role:
• High-income earners who’ve maxed out all other tax-advantaged accounts (401(k), IRA, HSA, deferred comp plans, etc.).
Even in these cases, I generally favor brokerage accounts due to their liquidity, simplicity, and flexibility—especially when paired with a well-diversified investment strategy. However, for very high earners with long time horizons and a need for stable, tax-advantaged accumulation, permanent insurance can serve as a bond replacement, providing conservative growth with tax deferral and a death benefit. It’s not a first choice—but it can play a role when all the other boxes are already checked.
• People with lifelong dependents or special needs planning, where guaranteed coverage is crucial beyond term insurance limits.
• Estate planning cases where a permanent death benefit is used to transfer wealth, cover estate taxes, or create liquidity.
• Business owners using permanent policies for buy-sell agreements or key person insurance.
The common thread? These are strategic tools for people with complex planning needs—not a baseline retirement savings solution for everyone.
Not A Comparison To The Stock Market
One of my biggest frustrations is when illustrations try to compare whole life or IULs directly against equity (stock) markets. It’s a misleading comparison, and here’s why:
• Whole life is built around guarantees—a guaranteed death benefit, guaranteed cash value growth, and sometimes dividends (though not guaranteed). That’s not the same thing as market-based growth. It’s more like a high-cost, long-term savings bond than a stock investment.
• IULs are capped and controlled by the carrier. While they’re “linked” to market indices, they’re not actually invested in the market. You get a portion of the upside (subject to caps and participation rates), and you’re protected from the downside—but that protection has a cost. And, crucially, the carrier can change the rules on caps and charges. That’s not the same as owning equities with dividends and true market growth.
• Liquidity is limited, especially in early years. Equities offer liquidity, transparency, and lower costs. Permanent insurance offers guarantees (sometimes), but at the expense of flexibility. Even with a good policy design, it can take several years to build up cash value in the policy. Many of the policies I come across are poorly designed and the time horizon is even longer before they will build real cash value.
In short: these aren’t substitutes. They play completely different roles. One provides protection and slow, steady growth; the other is a growth engine with volatility and risk.
So What’s the Takeaway?
I’m not anti-insurance. I’m anti-misuse.
Permanent life insurance isn’t bad—it’s just overprescribed. It’s a specific solution for specific needs, and most people are better served by buying term insurance and investing the difference in diversified, low-cost portfolios.
If you’re being pitched a permanent policy, ask yourself:
• Have I truly maxed out all other tax-advantaged investment options?
• Do I need lifelong coverage or am I being sold on a promise?
• Do I understand the internal costs, limitations, and flexibility of this policy?
• Would I still want this if the market didn’t perform the way the illustration shows?
At the end of the day, good financial planning isn’t about shiny products—it’s about intentional decisions and long-term strategy.
If you’re curious about where life insurance fits into your broader financial life, let’s have a conversation about it.
