3 votes

"Busting the Biggest Lie of Modern Finance" By Tom Dyson

By Tom Dyson

Income for Life involves putting your cash into a dividend-paying whole life insurance policy with a mutual insurance company.

It’s a way to grow and compound your cash at rates of up to 5% per year. Your money only grows each year. It doesn’t go down in value... even if there’s a big stock market crash. It also grows tax-free.

Best of all, you can use your account to finance expenses such as buying cars, paying for vacations, or funding your children’s college education. Or you can use it to supercharge the returns of your investments.

Today, I want to bust one of the biggest lies in modern finance. That is, that permanent life insurance (the type we use with Income for Life) is the biggest rip-off because of its higher fees and commissions.

Some years ago, my wife and I were shopping for life insurance. (This was before I knew about the Income for Life strategy.) A friend had referred us to an agent for Northwestern Mutual in Jacksonville, Fla.

He was trying to sell us a permanent life insurance policy. My wife and I were getting frustrated with how much he pried into our finances. And he was taking up too much of our time.

I knew the perfect question to end the meeting...

“So how much commission do you make from this policy?” I asked.

“I take a 100% commission,” he replied.

I was expecting a high number, but this seemed impossible.


“That’s right,” he said. “The insurance company pays us 100% of your first year’s premium payment as a commission.”

No wonder everyone thinks permanent life insurance is a rip-off, I thought. And with that, we excused ourselves and left.

Life insurance companies have a reputation for charging the highest commissions in finance. This reputation is so bad there are pages and pages on Google with titles such as “Why you should never buy whole life insurance” or “10 reasons permanent life insurance is a scam.”

There are even two popular finance gurus—Dave Ramsey and Suze Orman—who actively campaign against permanent life insurance because the fees are so high.

To see this for yourself, try this experiment. Tell a financially savvy friend or family member you’re thinking of taking out a permanent life insurance policy. See what he says.

Well, it turns out, this is one of the biggest misunderstandings in finance. The reality is...

Permanent life insurance has LOW fees. When it’s set up the Income for Life way, over the long term you can end up paying less than 0.15% in annual fees.

That’s as low as it gets... lower even than the famously cheap Vanguard Index mutual funds.

Was the life insurance agent trying to rip me off? Of course not. The government regulates life insurance fees and commissions. You’d lose your license—and maybe even go to jail—if they caught you overcharging your customers.

The reality is that the 100% first-year commission is actually a great deal for us. I’m going to demonstrate this to you with some simple charts we’ve made. Once you’ve seen them, you won’t be able to look at permanent life insurance the same way again.

How We Evaluated the Fees

To compare fees on investments, you can’t look at just one year.

Life insurance companies charge a 100% commission upfront. Then the fees taper off. Mutual funds charge almost nothing in year one. Then the fees get bigger every year. To compare the two, you have to add up how much you’d pay over the entire life of the investment, under identical circumstances.

So that’s what we did. And what we discovered shocked us.

First, we got a copy of the fee schedule from one of the top mutual insurance companies in America. One that our Income for Life experts recommend you do business with.

We produced a 40-year simulation in an Excel spreadsheet. We used actual data from a real-life insurance policy set up the Income for Life way. Then we put in the premium payments a person would have paid. Finally, we added up the total amount of fees the policyholder would have paid to hold this policy.

Then we produced a 40-year simulation of a mutual fund investment. Why a mutual fund? Mutual funds are the most successful investment products of the last 50 years. Everyone uses them.

At their core, they do the same thing. A mutual fund company has a manager who allocates investors’ money with the idea to grow it. A mutual insurance company does the same thing. It invests, manages, and allocates money that customers pay in premiums with the idea to grow it over time.

And besides, the fee mechanism mutual funds use is very common throughout the financial industry. It’s Income for Life’s biggest competition, in other words.

We put the exact same amounts of money into the mutual fund each year, on the same dates, as we did for the life insurance policy we examined. Over the 40-year period, the exact same amount of money went into each account every year.

And we grew the money in both accounts at the exact same rate (a low 3.9%) each year. Then we introduced a 1.5% annual management fee to the mutual fund.

[In the mutual fund business, they call this annual fee the “expense ratio.” Consumers use this number to compare management fees across different mutual funds. The mutual fund industry claims its average expense ratio is 1.31%.

But according to research by Forbes and the WSJ, mutual funds are actually charging, on average, 2.75% per year. Trading costs are the reason. They generate an expense of 1.44% per year on average, but mutual funds don’t have to report them.]

The same amount of money went into each account over 40 years. But we kept the fees structure for a policy the same. And we kept the fee structure for a mutual the same.

Here’s what we found:
Insurance Fees

The insurance agent doesn’t actually take 100% of your first year’s total payment. He takes 100% of the first year’s BASE PREMIUM. With Income for Life, the base premium is usually around only 35% of the actual money you’ll put into the policy in its first four years. That’s because you’ll use a PUA rider to turbocharge the cash build-up in the initial stages of the policy. Our Income for Life experts will be more than happy to explain this to you.

After 10 years...

Life insurance fees paid = $33,825

Mutual fund fees paid = $34,160

Life insurance account value = $340,552

Mutual fund account value = $345,297

So far, it’s pretty close. The fees paid and the account values are similar.

What about after 20 years?

Life insurance fees paid = $39,075

Mutual fund fees paid = $108,111

Life insurance account value = $734,269

Mutual fund account value = $607,534

Now the gap has widened.

After 30 years?

Life insurance fees paid = $44,325

Mutual fund fees paid = $226,242

Life insurance account value = $1,280,336

Mutual fund account value = $921,889

At this point, the person in a mutual fund in a mutual find has paid out five times more infees the person in the Income for Life policy has.

After 40 years?

Life insurance fees paid = $49,575

Mutual fund fees paid = $397,336

Life insurance account value = $2,017,154

Mutual fund account value = $1,298,721

Are you getting the picture?

The bottom line is that “little” annual 1.5% mutual fund fee generated eight times more fees as the life insurance policy after 40 years. More importantly... that 1.5% mutual fund fee caused a difference of more than $700,000 in final account value. The mutual fund investor has an account with $1.3 million. The policy holder has an account value of $2 million.

They’ve both contributed the exact same amount of money over that 40-year period.

Next, we calculated the fee a mutual fund would have to charge to compete with a properly structured dividend-paying whole life insurance policy. We found...

After 20 years, the fees in the life insurance policy equate to what would be a mutual fund with an annual 0.50% fee.

After 30 years, the fees in the life insurance policy equate to what would be a mutual fund with an annual 0.25% fee.

After 40 years, the fees in the life insurance policy equate to what would be a mutual fund with an annual 0.15% fee.

This was astonishing, even to us. But there’s no mistake. Let me explain...

Why That Little Fee Does Such Big Damage

There are two ways you can extract fees from an investment...

First, there’s the standard mutual fund way, which is now the standard Wall Street way. They assess your fee on the total money under management, once per year. It could be 1% per year. Or 2% per year.

The great thing about this method for Wall Street is the fees get bigger and bigger as your money grows. They compound. This is Wall Street’s little secret.

I never realized how devastating these “little” annual fees could be until I started investigating this issue. They look small and insignificant, but they’re not.

Look at this chart. The green dots represent your account growth over time in a mutual fund-based fee structure. And the red dots represent the fees your account generates. Look how the fees grow in size as your account value grows in size.

How Fees Accumulate in a Traditional
Investment Account (401(k), mutual fund, etc.)

In a traditional investment account, the account manager takes a percentage

of the account balance in fees. As the account balance grows, the account

manager’s fee grows.


Then there’s the life insurance method of charging fees. First, the insurance company bases its fees on the money you put into the policy each year, NOT the account’s total value.

Then the insurance company front-loads the fees. So you pay a big fee upfront, then usually a small fee for the next 8-10 years, and then a maintenance fee for the remainder of the policy.

This way, over time the fees shrink, instead of growing. Look how the fees get smaller with each passing year with the life insurance method of charging fees.

How Fees Accumulate in an Income for Life Policy

In an Income for Life policy, the fee the life insurance company charges you has

nothing to to do with your account balance. It’s based on the money you pay in,

using a fee schedule that tapers off. This way, the fee you pay diminishes,

and your account balance grows free of any fees or commissions.


It’s a vital distinction. And it makes an enormous difference. How big?

Look at the charts above again. At the bottom of each chart, there’s a red dot that represents the total lifetime fee each method generates. After 40 years of collecting fees, the mutual fund’s green dot is eight times larger than Income for Life’s red dot.

Or consider the numbers from our simulation. Investing the same dollars at the same time and growing them at the same rate, the mutual fund generated $347,761 more in fees. And because the fees obstructed the compounding power, it ended up with $718,433 less in the account after 40 years.

The bottom line is that you don’t need to worry about fees and commissions when it comes to buying permanent life insurance. As long as you hold your policy for more than a few years, the fees are tiny.

Instead, you should be concerned with the fees you’re paying on your mutual funds and in your 401(k). Because whenever you pay a fee based on your total account value—even if it seems like a small percentage—you’re getting ripped off.

That’s because the fee compounds as your money compounds and eventually becomes enormous.

If you have any questions, concerns, or ideas, click here. Please select "Publications/Products" from the drop-down menu and then "Income for Life."


Trending on the Web

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

What about inflation?

Wouldn't calculating traditional inflation/QE inflation be a necessary consideration when making such an investment? If you get 5% interest on your money and must pay handling fees, how is that good if actual inflation is 5%+? Do such policies account for inflation or take inflation into account?


"For what avails a golden key if it cannot give access to the object which we wish to reach, and why find fault with a wooden key if it serves our purpose?" -Augustine

I'm looking to set this up

Thanks for this post. I got Nash's book and am looking to set something like this up.

My income is low right now, I'm part time self-employed. But I have around $20k in savings that I'd like to see getting better than 0.5% interest, but still remain liquid (for use in future business investments or land purchase), safe and away from the greedy governments reach or frivolous suits. And of course provide financial protection for my family in the event of my death. This looks like the it the ideal vehicle to do so.

I'm looking for the right local "Practitioner" to help set this up. I know Nash has some listed on his site.

I also came across this: http://jlmwealthstrategies.com/infinite-banking-concept
What do you know about them?

And Pamela Yellen seems quite popular with her site www.bankonyourself.com where she also has her list of advisors. Although her approach is a bit to infomercially for my liking.

The one thing that I've read about this that makes me hesitant to put $20,000 in is that you have to wait a few years after setting this up before being able to access any of it. Is this just talking about being able to get to the cash value? Can loans still be made to free up capital before then?


'This work is based on what we've learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It's your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Common Sense Publishing expressly forbids its editors from having a financial interest in their own securities recommendations to readers. Such recommendations may be traded, however, by other editors, Common Sense Publishing LLC, its affiliated entities, employees, and agents, but only after waiting 24 hours after an internet broadcast or 72 hours after a publication only circulated through the mail.'

I will have to study this

I never looked too close at whole life insurance. It just felt like a scam every time it was offered.

Don't worry, the government will protect you

Was the life insurance agent trying to rip me off? Of course not. The government regulates life insurance fees and commissions. You’d lose your license—and maybe even go to jail—if they caught you overcharging your customers.

Obviously this article wasn't written to sell this free lunch to Daily Paul readers. The guy says he was confident that he wasn't being ripped off because the government was there to protect him. If they were trying to rip him off with a financial product that's expensive and not appropriate for most investors the government would send them to JAIL!

Not only is the government making sure you don't get ripped off, this financial product is ... turbocharged! Wow! That's what I always look for in investments! Vroooom!

Bump for people learning to spot red flags. Do your own due diligence, get information from independent sources (and be aware that sometimes the advisory companies have ties to the companies selling the product -- a huge red flag when they don't disclose this and try to sound independent when they aren't).

If this was a conspiracy theory thread

It would be over run with comments

Universal Life vs Mutual Life

Retirement Disaster Looms For Universal Life Policyholders

Universal life is a modern invention that takes the “sure” out of insurance by tying the benefits to the performance of stock and bond markets. In contrast, mutual whole life has ancient roots, enduring the millennia because it’s a simple and safe way to grow a nest egg while providing for one’s heirs. The practice of pooling resources this way dates as early as Roman times when people formed burial clubs to pay funeral and living expenses for member families. The earliest mutual life insurance companies in the U.S. date to the 1700s, formed by church groups to benefit their congregants in time of need.

By the mid-twentieth century, the mutual insurance industry had become the Rock of Gibraltar in the financial lives of millions of Americans. Mutual insurance companies invested their members’ premiums so conservatively that the industry survived the Great Depression intact. Those old-fashioned values have persisted and that’s why most mutual insurance companies came through the recent Great Recession with their blue-chip ratings unsullied while publicly-owned stock companies had to be bailed out to avoid bankruptcy.

I know all this because I am a reformed universal life believer. In the 1980s I became successful by helping clients replace their old reliable mutual whole life policies with the new and improved universals. By the 1990s, when some of my clients began to reach retirement age, the hidden flaws showed up when the projections fell below their targets.

I felt betrayed by the companies that had persuaded me that universal life was a better policy because stock markets historically averaged a better return. I wondered what I’d done wrong, so I went back and studied the fine print, discovering that these policies were written to shift risk from the company to the policyholder. Universal life policies allow companies to raise premiums or siphon off cash values if they can’t make enough from investments to meet their costs and still earn a profit.

That uncertainty is exactly the opposite of what whole life is supposed to accomplish—a savings nest egg that will be there no matter what happens.


These points are very informative about life insurance

Also with the life insurance policy you usually have disability wavier of premium, so if you become disabled the premiums continue to be paid, if you die, the full face value is paid (tax free) regardless of what premiums are paid in. Also, correct me if I'm wrong, the cash value in the policy cannot be attached by a creditor.

This is very informative, I would love to see you debate these facts with Dave Ramsey. Dave usually foams at the mouth when talking about whole life insurance, that is when he is not criticizing Peter Schiff or advising his listeners to call for a prepaid envelope to mail in their "old or unwanted gold".

There Is Actually A Challenge Sitting Out There For Years Now

Dave Ramsey and Suze Orman on Whole Life Insurance: Let’s Debate!
UPDATED February 2014: It’s been more than 4 years since I challenged Suze and Dave to a debate, but they haven’t taken me up on it yet. This post sparked some very lively debate and insightful comments, so be sure to read those, too.

Suze Orman, Dave Ramsey and many other financial advice-givers tell you to avoid whole life insurance. However, the policies used for the Bank On Yourself method are dramatically different in three key ways from the kind of whole life insurance that Suze, Dave and others talk about. Here, I reveal these key differences and prove their validity by showing you examples of my own policy statements.
Bank on Yourself Will Beat Your Financial Strategy…or We’ll Pay You $100,000!*
Compare your BEST saving, investing or retirement planning strategy to the 18 advantages and guarantees of Bank on Yourself listed below…

Does your favorite strategy give you this benefit?
1. It increases by a contractually guaranteed amount each year
I wish
2. Your principal doesn’t lose value due to a stock or real estate market crash
I wish
3. Your plan could be administered by a company so rock-solid, that it’s part of one of the financially strongest financial services companies in the world
I wish
4. If the company that holds your account experiences financial results that are better than their projected "worst-case" scenario, you may also receive a dividend, in addition to your contractually guaranteed minimum annual increase (dividends are not guaranteed, however, the companies preferred by Bank On Yourself Advisors [specially trained life insurance agents] have paid dividends every single year for more than 100 years, including during the Great Depression)
I wish
Read more about the Authorized Advisors
5. Once credited to your account, both your guaranteed annual increase and any dividends you may have received are locked in – they don't vanish because stocks or real estate tumble
I wish
6. You can have peace of mind knowing that your growth (as well as your principal) in the plan are protected by a multi-layer safety net
I wish
Read more about the multi-layer safety net
7. You don't have to depend on luck, skill, or guesswork in choosing the right stock, mutual fund or other investment, and you can stop chasing after the best way to invest your money
I wish
Read more about the best way to invest money
8. If you pay for major purchase by borrowing your equity from your plan to pay cash for these items, and then pay your plan back with interest (just as an outside lender would have required you to do), you could ultimately recapture most or all of the interest you'd otherwise pay to financial institutions, and never see again
I wish
Read more about paying for major purchases
9. When you pay for things as described above, you could also recapture those dollars in your plan, so you can use them again
I wish
Want to find out how much more lifetime wealth you may be able to have by making major purchases this way? Request a free Analysis now.
10. Your plan comes with tax advantages. It's possible to get your hands on both your principal and growth with little or no tax consequences, under current tax law. Dividends you leave in your policy are not taxable. And dividends you take out are not taxed until they exceed the amount you put into the policy (your "cost-basis"), at which point you could switch to borrowing your "cash value" tax-free, as long as the policy remains in force (as spelled out in IRS Tax Code, Section 72)
I wish
11. You are in control of the equity in your plan, and you don't have to sell or liquidate your plan, investments or assets to get your hands on your equity
I wish
12. You can borrow your equity in the plan and use it to buy things or to invest in anything you want, while your plan continues to grow as though you never touched a dime of it. (With the policies and companies preferred by Bank On Yourself Authorized Advisors, you receive the same guaranteed annual increase, plus any dividends that may be credited, regardless of whether you have a policy loan. Loans that are never repaid will, of course, lower policy values.). You can't be turned down for a loan (as long as you have equity in the plan), and you don't have to fill out any nosy credit applications. If an emergency comes up and you have to reduce or skip some loan repayments, you won't get a black mark on your credit report or harassing calls from bill collectors
I wish
Find out more about Authorized Advisors.
13. You can predict the minimum guaranteed value of your plan in any given year (less any outstanding loans you've taken from the plan), as well as the minimum annual income you could take from the plan and for how long, so you don't have to pin your hopes for a secure financial future on luck, skill, or guessing games. (If the company that administers your plan has better financial results than its worst-case predictions, you could have additional growth.)
I wish
14. You can have access to your equity in the plan to provide retirement income – when and how you want it – with no government penalties for "early" withdrawal, or for waiting "too long." There are also no penalties for taking out "too little" each year and no mandatory annual "minimum withdrawal" requirements that are typical of traditional retirement plans (and without the restrictions of 401k withdrawal rules)
I wish
Compare a 401(k) to Bank On Yourself
15. Your plan has a guaranteed value at "maturity." If you pass on before then, your family and/or favorite charities could receive a guaranteed and predictable benefit many times larger than the current value of your plan. And it could go to them income-tax free, according to current tax law (IRC Section 101). What this means is that your loved ones could even get money you intended to save!
I wish
16. The money in your plan may be protected from creditors and lawsuits (consult with legal counsel to determine what's applicable in your state)
I wish
17. Your plan is not dependent on government-sponsored programs like Social Security or Medicare, both of which are predicted to go bankrupt. You also don't need to depend on an employer to keep their pension or retirement plan promises
I wish
18. You don’t have to be a tycoon to get started. The minimum amount required to get started is very low, and there is no upper limit imposed by the government on the total amount you can put in each year (the upper limit is determined by your income and assets)
I wish

I don't know about Orman, but I have heard Dave Ramsey

On his radio show, he really is just an entertaining snake oil salesman, with his country colloquialisms, promoting his ELPs and wearing religion on his shirt sleeve. I feel sorry for some of the people who call him for some help and they get dressed down for their foolish financial mistakes. The listeners tune in because it makes them feel better knowing someone else is in worse financial shape than they are. The Germans have a word for it, Schadenfreude.


country colloquialisms

Dave Ramsey

Dave Ramsey hasn't stopped long enough to really look...

Just like Josf down below...

They only know their slogans.

Something for nothing

When the so called "finance" is based upon the something for nothing fraud, the lie is only believed by the victims; not the criminals.


Oh Yes! Banks are victims too... apparently

Get ready to scroll down
Definition of 'Bank-Owned Life Insurance - BOLI'
Over 50% of All US Banks Own BOLI
A form of life insurance purchased by banks where the bank is the beneficiary, and/or owner. This form of insurance is a tax shelter for the administering bank, as it is a tax-free funding scheme for employee benefits.
Investopedia explains 'Bank-Owned Life Insurance - BOLI'

Banks use BOLI contracts to fund ever-increasing employee benefits at a much cheaper rate. The process works like this: the bank sets up the contract, and then makes payments into a specialized fund set aside as the insurance trust. All employee benefits that need to be paid to particular employees covered under the plan are paid out from this fund.
All premiums paid into the fund, as well as all capital appreciation, are tax free for the bank. Therefore, banks can use the BOLI system to fund employee benefits on a tax-free basis.
Plan Economics

BOLI is a more profitable investment than other bank investments. The reason is BOLI earnings are sheltered from income tax. This is how BOLI works:

The bank will normally sell a portion of its treasuries or other investments.
These investments will be replaced with BOLI, which creates non-taxable income.



The "finance" word is a false front for fraud. The "tax" word is a false front for extortion.

Those who believe in the fraud and extortion made legal believe in fraud and extortion made legal, those who believe fraud and extortion are "finance" and "taxes" are people who fail to see that fraud and extortion are fraud and extortion.

Word games?

Who claims that fraud and extortion is anything other than fraud and extortion besides Alexander Hamilton?

Not me. When someone says "National Debt," for example, they mean to steal everything that can be stolen.


OK. So now that you've pointed out the obvious...

how do YOU grow and protect your wealth?

Anybody can say "Rocks are hard and water is wet."

You still haven't sorted out your former assertion, "When the so called "finance" is based upon the something for nothing fraud, the lie is only believed by the victims; not the criminals."

Something for nothing? How so?
You invest in a profitable company and you share in that profitability.
How is that something for nothing?
How are you the victim?


If the denomination of the medium of exchange is FRNs or Federal Reserve Notes, then there is a transfer of purchasing power occurring by the utilization of a fraud combined with extortion; and that transfer is accurately measurable.

If the denomination of the medium of exchange is not FRNs, then that is another story.



When's the last time you bought food?

Rather than play games?

I prefer competitive alternatives.



No seriously

You take pot shots at working solutions to wealth confiscation, through taxation, inflation and market risk.

And you talk crazy about FRN's as if you can conveniently operate day-to-day without using Dollars.

The methods

I use methods of communication that appear to be effective to me.

Your method is to make claims as to what I write.

Instead, how about finding an effective method?

Instead of employing the words "pot shots," for example, why not quote the "pot shots," that were supposedly authored and offered by me?

If you have information worth offering, then I have not read it, how can I shoot at it with pots? It is not relevant to me.

If you, or anyone else, are involved in the fraud known as The Federal Reserve System, then there are documented, accurately measurable, cases of crime being perpetrated by criminals upon victims when using that criminal money.

If that is not understood, or if that is not your concern, then that ends my reasoning to have any connection whatsoever to the information offered by you.

Use criminal money any way you wish, for any reason whatsoever, and why is that my concern?


I'm thinking you live off charity

Or others are feeding you somehow.

Unless you live in some far, far, away kingdom where the people exchange bits of precious metals for supplies.

Moving from misrepresentation

Moving to insult?

This is a better method?


True. If you consider charity as an evil thing.

Some of the world's most noble, courageous and dedicated icons were sustained by charity.

But be that as it may.

My point was to provoke you into revealing how you navigate the day-to-day of commerce without using the 'criminal Federal Reserve Debt Notes'.

For the most part I am serious, so I am intent on discovering any and all means to circumvent the traps of government and elite bankers.

I've been on the 'other side' during a stint with Brown Brothers Harriman Co. so I've had inside training.

Private information

As to my private information, the public at large can pay all they want into the counterfeit government to find out anything about me that can be known.

As to the insult, you can confess or dodge the question at will.

As to methods by which people can offer free market competition to force the quality of money up and the cost of money down there are many ways that have been tried, are being tried, and will be tried not limited to gold and silver as money, home grown whiskey used as money, Andrew Jackson "killing the bank," Lincoln offering so called "greenbacks," Pay Pal, The Liberty Dollar, Bit-coin, Islamic Finance, Constitutional Republics such as Utah reclaiming Gold and Silver as money, Saving to Suitor's Lawful Money redemption, and a new one I found last week called Lawful Bank.

If any of those competitors are connected in any way with the criminals at The World Bank with their International Monetary FUND in any way other than as competitors forcing money quality up and money cost down then such connections could be accurately accounted, and if the accurate accounting in fraudulent, then that could be an accurate accounting too.


This article breaks through the misconceptions

that have been promulgated around investing.
I saw it as a very effective tool to further the conversation in this thread;
Austrian Economics: Update 2/09/14 - Take Profits Tax-free - Pass It On Tax -free - Contractually Guaranteed Annual Income