Indexed Universal Life Insurance: The White Coat Investor Responds

Last week we published a critical piece regarding a recent review of indexed universal life insurance that showed up on Jim Dahle’s website The White Coat Investor. Jim took our criticism seriously and on Friday of last week published a lengthy reply.

Based on the time Jim has taken to address this, I felt it was necessary to offer up some additional thoughts, and even a small critique on his attempt to rebut my biggest criticism of his original work.

First, an Apology

While I don’t deny that certain comments were made with sarcasm a-plenty, making a joke at someone’s expense was not my intention. There was never a point at which my criticism was intended to be ad hominem.

I’m not above admitting when I’ve gone too far in my humor and I’ll publicly apologize to Jim for my more biting comments (I’ve also reached out to him directly with similar sentiments).

Now the Topic at Hand

indexed universal life insurance

I’m not interested in arguing the issue of indexed universal life insurance as it relates to intentionally buying for its cash value per se. In fact the motivation of the original post came at the request of someone (who is not a licensed agent, but a physician actually) to give my thoughts on his review.

I found errors, or at least a lot of suggestive statements that weren’t totally accurate and as a result decided to take on the task.

There were statements that weren’t false at all, and I left them completely alone. And most of Jim’s reply deals with areas in which he and I will agree to disagree. That’s totally fine, and I completely expected that.

There are, however two points that we must readdress.

Surrender Charges and Real Losses

I don’t think there’s much more to argue on this subject necessarily, but my read of the response here seems to frame my argument to suggest that surrender charges don’t matter.

This is not my point at all. I merely pointed out originally that the cash value of the policy (all of it not just the surrender value) earns interest. So looking at the policy as a “loss” because you can’t walk away with the money is (from an accounting and finance point of view) not accurate.

A lot of people and institutions place money into products and/or situations that come with some degree of lost liquidity.

It doesn’t make them bad. It just makes them different and calls for an understanding and strategy that can make use of that.

One can suggest that it’s not worth it due to other options that exist and that’s fine. We’ll agree to disagree on just how significant that is or isn’t.

The Compound Annual Growth Rate of a Systematic Investment

My biggest issue with Jim’s original review was the comparing returns based on a lump-sum investment and a systematic investment.

And this issue wasn’t really addressed in his reply, instead he chose to talk about a systematic investment in the S&P 500. Whether he intended to do it or not, the goal post was moved a bit here.

He switched from the Vanguard S&P 500 fund that he mentioned in his original post, to the S&P itself. This seems minor, but the returns are different. This led him to a statement that suggested I made an error.

My numbers are below. I took the Vanguard S&P 500 Fund’s returns as reported by Yahoo Finance and calculated the annual return with those numbers assuming a $5,500 per year investment.

The fact that the results appear to come out below the indexed universal life insurance policy is irrelevant in my opinion.

My only goal in bringing this up was the show the relatively large difference between what one accomplishes when they are all in at the very beginning and systematic investment that’s made over time. The difference is significant and for the sake of accuracy, we need to make sure that the comparisons are apples-to-apples.

1989 0.251 $6,880.50
1990 -0.0929 $11,230.35
1991 0.2726 $21,291.05
1992 0.047 $28,050.22
1993 0.0715 $35,949.07
1994 -0.0176 $40,719.56
1995 0.3366 $61,777.07
1996 0.1914 $80,153.90
1997 0.3086 $112,086.69
1998 0.2617 $148,359.13
1999 0.1876 $182,723.10
2000 -0.1164 $166,313.93
2001 -0.106 $153,601.65
2002 -0.2381 $121,219.55
2003 0.2218 $154,825.95
2004 0.0907 $174,867.51
2005 0.0294 $185,670.31
2006 0.1179 $213,709.29
2007 0.036 $227,100.83
2008 -0.3763 $145,073.14
2009 0.1973 $180,281.22
2010 0.1283 $209,616.95
2011 -0.0002 $215,073.92
2012 0.1172 $246,425.19
2013 0.2593 $317,249.39

A Few Final Comments

I actually really appreciate the work Jim Dahle does and I wish him continued success.  He has some really great resources on his site and a recent post about disability insurance occupation classes was pure genius–I really wish I had thought of that.

There’s not one correct way to the top of the mountain and his audience is going to come down a tad differently on this subject than ours.

Do we believe we have it more right then they do? Of course we do. Just as they believe they have it more right than we do. We’re biased and he’s biased.

We’ve even picked up a handful of clients due to the White Coat Investor web site who listened to both sides and decided they agreed with us—thanks to Jim and others who have referenced us in the comment section.

We don’t view this as us versus them. We don’t consider it a win for us and a loss for Jim Dahle every time we write a life insurance policy on a physician that isn’t term life insurance.

I also want to point out that it’s not all or nothing.

I want to be clear in pointing out that I don’t think the White Coat Investor makes this suggestion. Most of our clients already have a pretty substantial sum of money either in securities or elsewhere and are looking for another place to store cash that has a lower element of volatility.

Life insurance is one of the options on the table, and they come to us to look at the best life insurance has to offer. Sometimes people choose life insurance, and sometimes they don’t. And when they don’t it’s more often the case that they don’t because we tell them not to.

10 Responses to “Indexed Universal Life Insurance: The White Coat Investor Responds”

  1. Jeremy says:

    Dr. Jim Dahle states his motivation for hating on the life insurance is because he felt ripped off by an agent that was making a commission. He’s even said, “I bet Northwestern Mutual gave me my money back now!” How many physicians suggest procedures that are unnecessary in an attempt to rip off the government. There are 5 cardio docs in my town that are on their way to prison for fraud for placing unnecessary heart stints in 40 year old healthy patients, and then charging Medicaid.

    I also find it amusing when you try to debate him on the subject he will usually edit and/or delete what you have to say in an attempt to further build his egocentric GOD complex on how right he thinks is.
    IUL does have guarantees that mutual funds do not. Dr. Jim wants to only focus on the guarantees and maximum fees of an IUL. When you bring up the there are no guarantees in the mutual funds he suggest without a license, or if you bring up the maximum charge in a mutual fund are 8.5%, I’ve found he doesn’t want an apples to apples comparison.

    I guess it’s his website and he can do what he wants as far as making the rules of the superiors he wants to present and usually doing an apples to oranges comparison. All the while Dr. Jim Dahle does this without a FINRA nor state approved license

    • Brandon Roberts says:

      Hi Jeremy,

      I think we’ve all well established the notion that there are bad people in every industry. Doesn’t make the industry bad, and I’m not so sure it helps to throw stones in this fashion. Bad people are simply bad people.

      I can’t speak to, nor am I interested in suggesting any support for, the claim that he edits comments or any other information to favor his opinion. I’ve made only one comment on his site, but I can attest that the entire comment was displayed as I had originally typed it.

      I’ll also note that I’ve been in direct contact with him recently and he doesn’t strike me as an unreasonable person. I also noted in the original critique that I can find no reason to believe that he has any hidden agenda or motive.

  2. Critical Care MD says:

    In reply to Jeremy:

    1. it is heart stents
    2. Since I am a doctor, I am married to a doctor, and I am good friends or know well over a hundred doctors, I can attest that my circle of friends are nice people trying to perform a difficult job to to the best of their abilities. (I have only met one doctor with major narcissistic traits, but mental health issues do not discriminate by the degree after one’s name.) Methinks you may have a “chip” on your shoulder about physicians.
    3. Regarding degrees after one’s name, having a FINRA or state approved license does not guarantee quality nor ethics. Rest assured, the individual who inappropriately sold me whole life insurance was fully qualified. Fortunately, I took control of my own finances and have never looked back.
    4. I suspect you sell IUL. I’ve had the EIULI policy and promptly got rid of it after two years of research and independent counsel. Perhaps a very select group would want such a product, not the majority of people that are SOLD these policies.

  3. Life Insurance - What is Universal Life Insurance? | Create Resumes | Find Jobs | FastJobz.Com says:

    […] solution for many people is universal life insurance. Universal life has been described as a hybrid between term life and whole life, but that […]

  4. Jeff Hexter says:

    I just wish to point out how classy, and sadly, how rare it is, to have a public disagreement on the Internet that does no devolve into name calling.

    Thank you.

  5. Jeremy says:

    In RE to Critical care, MD.

    Is it just like those physicians that sell their patients on unnecessary procedures and prescribe unnecessary Rx medications? Afterall that all leads to future complications down the road that you have to treat, huh?

  6. Dr. Dave says:

    It seems like some who argue one way or the other suggest that it’s all or nothing. I’ve owned whole life insurance since the 70’s and have definitely paid a good bit in premiums, but I’ve also placed a lot of money over the years into other things, like stocks. I think the two complement each other pretty decently.

  7. Evan says:

    MD’s are so arrogant. Lets just look at the medical industry’s prices for simple things, like an aspirin at the ER, and these MD’s have the gull to go on about other professions being unethical.

    I wished you would not have apologized because your argument was not an ad hominem. It’s just like a doctors to use words they don’t know the meaning to.

  8. B J B, CFP says:

    Re Dr. Dave: Good points! I certainly do not think it’s a good idea to put all of ones eggs in one basket so to speak. Your portfolio should be a good mix of many products.

    I do agree that contributing to the max of a match of a 401k is a great idea or having a SOLO 401k if self employed. I also agree that if your income is too high for a Roth IRA, you should utilize the backdoor Roth. I agree in contributing the max to an HSA. I like the Coverdale and 529 Plans. So the point where I will differ from WCI is where he is suggesting people place money into taxable account that is above of what I suggest should be only a 6-9 liquid reserve. This is the place where I feel IUL come into play.

    I suggest many options and explain the pros and cons to my client of whom are physicians when it comes to placing their money in taxable accounts. Most end up choosing the IUL strategy, and are happy with it.

    In WCI blog about taxes and IUL sales techniques, he is speaking on both sides of the fence. He tries to make the case for taxes not going up but then he says, “If taxes do go up, I’ll adjust.” Well, most will not. We’ve seen this past year a 39.5% tax bracket, a 3.8% (Obama care surtax,) on investment income, and a 20% capital gains tax, and it’s not stopping there folks. He speaks of SSI being paid by payroll taxes, and once one is in retirement they will not have to pay that tax. That’s how it is for now, but the folks in congress like to change things like this.

    As the saying goes, “An ounce of prevention is worth a pound of cure.” So if taxes do increase, I want my clients to have a product that gives them the option of accessing cash tax free, but I’m not advocating they put 100% of their assets into IUL.

  9. AllisonH says:

    It’s clear Jim Dahle, Md aka white coat investor has an axe to grind with insurance companies and agents b/c he is uninsurable do to his mountain climbing hobby.

    If you read his posts, he is full of contradictions and attacks others that do not agree with him. As far as moving the goal posts and not sticking to the facts, is par for the course for Dr. Dahle. I agree with the above poster in the you shouldn’t have apologized to him, b/c you would have never got that from him. After all, you are an evil insurance agent ya know?!?!? Sarcasm light is glowing!!

    He’ll go on and on about people who he feels ripped him off from his insurance agent, stock broker, real estate agent, his military recruiter, and the milk man…. Sooner or later one has to realize he is the one with the bad attitude, and I doubt the world is against him like he wants us all to believe.

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