Suze Orman Likes Life Insurance Policy Loans?

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.

suze orman life insurance

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!”

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.

What’s wrong with Hawaii?

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?

The Club is Not All That Exclusive

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?

The Truth About Whole Life Insurance Commissions

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.

Click here to see the full illustration run all the way to Deepak’s age 120

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.

Namaste Suze.

 


10 Responses to “Suze Orman Likes Life Insurance Policy Loans?”

  1. Mike Doherty says:

    Not to mention the suitablity/know your customer violation. That was one exahustive fact finder she did.

    What if ole Deepak was a business tycoon making $500K-$1M/+yr. Probably would’t be calling her if he did…but it sounded like he could swing the premium so he’s likely be making pretty good $. But she didn’t bother to ask on air so we’ll never know.

    • Brandon Roberts says:

      This is a beautiful point. If someone can swing the $14,000 per year to fund a life policy, chances are good that he makes more than the average American worker. We were asked the other day how we write policies that are in excess of $50,000 in annual premium. We responded with: step 1, you have to have someone who earns more than $50,000 per year.

  2. Chris says:

    Isnt the industry standard about 50-55% commission anyway so the $4300 premium example would only pay about $2400, after tax agent takes home $1700? Bif difference from $10k?

    • Brandon Roberts says:

      Huge difference, looks like Deepak had a better grasp of commissions than she did, and he’s not licensed in any states.

  3. Jeff Hexter says:

    Wait? You two guys get together for a few days and spend it on youtube hunting for Suze Orman vidoes? Don’t you know there are cat videos to look at?!

    I like how you juxtaposed her own words to show the flaw in her reasoning (okay, hypocrisy), and then analyzed her statements to show her lack of knowledge, credibility, or at the very least a misunderstanding of a product she says she is “licensed to sell” (which actually speaks volumes about the licensing process as well as about her).

    Bravo!

    Hypocrisy used to upset me a lot more than it does now. So many people do not recognize it in themselves, but if they are willing to face up to it when confronted with it I am usually happy to give them a chance to reconcile their positions. But her statements were so extreme, he attitude seems so absolute, I might have a hard time forgiving her. In any case, I wonder if anyone has ever thrown her words back at her so she could eat them.

    • Brandon Roberts says:

      Hahah! We stumbled across another video of a pastor who raps for Jesus, but that one is totally not appropriate for the Insurance Pro Blog, or any venue really.

      We found this while doing a little Google reconnaissance. It’s actually from 2009, but neither of us had seen it before. We sat there in a long silence after watching it both thinking did that really just happen?

      The Deepak video is really old, and is one of her famous cash value life insurance clips, so I immediately thought of this clip (In fact, I often refer to issues that frustrate me as so bad “it gives me dandruff”) and told Brantley we needed to discuss this and incorporate that video into the discussion.

      I personally think that Suze has suffered the same fate a lot of financial gurus did over the past 5 years. They badmouthed cash value life insurance for years until they were reminded just how wonderfully it saved people’s butts, then they had to eat a little crow in admitting that they were wrong about stock market yield assumptions.

      Of course, a lot of these people don’t actually understand the underlying forces at play. Instead they just jump onto whatever conventional wisdom sends their way and parrot it out to the world.

  4. Nick says:

    I just had to laugh when I saw that second video! we did a podcast episode to break down the points you brought up.

    Thanks for sharing the first video! She’ll come around eventually.

    • Von says:

      Uze Sorman is not known for humility, or teachability. Nor is Rave Damsey.
      It seems clear why she was a successful stockbroker… her gung-ho style fits my picture of most of them.

  5. Jeff says:

    Suze does not seem to have a grasp on life insurance. She would be hard pressed to have a cogent
    discussion on the topic. Her success comes from her brilliant partners marketing skills.

  6. Colin says:

    just for kicks I ran a producer search for her in Maryland and she’s not licensed there, either…

    I love how she makes a recommendation for Deepak when she only knows the facts about the life policy. What if he makes $400k per year and is already maxing out his 401k? A Roth IRA isn’t an option then. What if he is extremely wary of market volatility, or doesn’t want his money tied up in Real Estate? What if he needs the flexibility in 5-10 years to possibly access the cash value to fund another goal he has. If this friend is recommending he put $8-$9k of additional premiums into a $4k permanent policy I would say he’s a GREAT friend!

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