I don’t doubt for a minute that our readers aren't familiar with the First Lady of Personal Finance, the diva of dinero, Suze Orman. However, we’ve never publicly taken her to task for her views on cash value life insurance.
That changes today.
Brandon and I actually spent three days together working in the same office. For those of you who don’t know, that’s somewhat of an anomaly since I’m in Georgia and he’s in Vermont.
As we were working and doing a little research for our site, we stumbled across this video of Suze taking a call from a lady asking her specifically about life insurance policy loans? Please take a few minutes to watch it, you’ll be entertained…trust me, we almost fell off our chairs.
If you’re familiar with any of Suze Orman’s books, her television show, her “kits” etc. you’ll know that she is a strong advocate of all things term life insurance. In fact in her book, “The Money Book for the Young, Fabulous & Broke” she says,
[quote type=”medium” align=”center”] “I’m going to make it incredibly easy for all of you. All you have to do is buy term life insurance” [/quote]
Well, that certainly seems to contradict her sentiment in the video with Oprah…right? In that video, she makes it sound like the caller is so fortunate to have a whole life insurance policy that her family can draw from.
If you at all doubt Suze’s complete disdain for all types of cash value life insurance, here’s another short video to help you out:
I'm so confused…Which is it Suze?
Sort of hard to have it both ways isn't it?
But I digress.
Honestly, we (Brandon and I) don't really care what opinion Suze Orman has concerning life insurance, or for that matter any other financial entertainer. Suze's job along with all the others is to sell advertising on television and draw an audience to purchase her books and her various financial rescue kits. And by the looks of it, she does well with both. Good for her.
However, where we would like to take her head-on is for the misinformation she so freely spews out into the world. Particularly, the bit she shares in the second video where she's talking with “Deepak” a 31 year old caller who's friend, who is presumably a life insurance agent, has recommended he purchase a whole life policy with a $500,000 death benefit and a $14,000 annual premium.
Suze says, “Stop, stop, there isn't a friend in the world, not one friend in the world that if it was a true friend would recommend you buy a whole life insurance policy. A schnook, somebody who wants to take you, somebody who is in my opinion not a friend maybe, but there is no way a friend would do it”
Gee tell us how you really feel.
Now for the really juicy part of that clip.
Suze says, “Do you know that I am licensed life insurance agent, and I am licensed in every single state in the United States except Hawaii because I don't wanna go to Hawaii to take the exam. I have been licensed everywhere. Very few people in the United States can say they have that type of insurance background. Therefore, I can tell you that if you put $14,000 in to a whole insurance policy my friend, how much commission do you think I or your friend would make off of the $14,000 deposit?”
Deepak replies with, “I bet at least $1,000 or 2”
Suze answers emphatically, “Why don't you try about $10,000..okay!”
No that's not okay. Why?
Because she's incorrect.
Where should I begin?
I guess I'll just start from the top. Hang with me, it'll be worth it.
First, let's assume that Suze is a licensed life insurance agent in every state but Hawaii, that's entirely possible. However, saying that she's not licensed in Hawaii because she “doesn't wanna go to Hawaii to take the exam” doesn't make any sense at all. When a licensed agent wants to be licensed in a state where he/she doesn't have residence, we get what's known as a “non-resident license” in that particular state.
I'm not aware of any state that requires an agent to be physically present to take an exam to get a non-resident license. Just to be sure Hawaii wasn't some sort of anomaly I ventured over to their state insurance department website to read through their requirements. You can see the state of Hawaii's posted requirements here. Doesn't say anything about having to get on a plane to take an exam?
Next, I have to address her statement about “very few people in the U.S. can say they have that type of insurance background”. Being licensed in every state doesn't require any type of insurance background. It requires a few thousand bucks a year to pay the fees in every state. That's all. Furthermore, it's not that rare and it doesn't mean that person has specialized knowledge on a particular insurance related subject. Then again, she's proving that point for me…right?
Finally, I'd like to address her analysis of the commission Deepak's friend stands to make for selling him a whole life policy with a death benefit of $500,000 and a $14,000 annual premium.
Just for kicks, I ran a whole life insurance illustration for a 31-year old male with a $500,000 death benefit to see what the premium would be. Mind you, I have not disclosed the identity of the company but these numbers are taken directly from the company's illustration.
As you can see, in the illustration, a $500,000 whole life policy for Deepak has a base premium of $4,375. That means if he pays $4,375 every year from age 31 to age 120 his beneficiary is guaranteed to receive $500,000 when he dies. Pretty simple…right?
Okay, now if his agent friend sold him this policy he'd make maybe $4,000 in commission.
If he could get a $500,000 whole life policy for a bit over $4,000/year, why would his friend try to sell him a policy for the same death benefit with a $14,000 annual premium? Well we can only conclude that his friend subscribes to our philosophy of stuffing a whole life insurance policy to the gills to take advantage of tax-free loans, access to cash and a competitive internal rate of return.
If we look at a policy, designed the way we (and presumably his friend) typically design a whole life policy and using the same values that Deepak gave Suze when he called in, we are able to provide Deepak with the $500,000 death benefit in year one that increases to over $1.5 million of death benefit at his age 65–guaranteed. Additionally, the policy will provide him with a cash value of $1,473,890, which by my calculation is a 5.1% internal rate of return. Not too shabby in my opinion.
Oh by the way, the commission on the policy as we would design it would be just under $2,500.
What does that all that mean? Suze's math just doesn't work.
If you'd be interested in learning more about how we design cash value life insurance to work for our clients, please contact us, we'd love to help.
Brantley is a practicing life insurance agent and has been for nearly 18 years. After years of trying to sell like his sales managers wanted him to, he discovered that people want to buy life insurance if you actually explain the benefits.