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Whole Life Insurance Problems

In 2012, the Wall Street Journal reported that investors paid $982 million in whole life insurance premiums over the course of the year.  Whole life insurance and a closely related product called universal life insurance have become more popular products as consumers turn to permanent life insurance policies amidst concerns about financial turmoil in investment markets.

Whole life insurance and universal life insurance policies are called permanent life insurance because the policies are intended to be kept over the course of a person’s life, unlike term policies which provide coverage only if death occurs within a limited period of time.  The policies are also sold as having an investment component, although unfortunately many financial experts indicate they are bad investment choices.

For investors who were provided with misleading information on whole life products or who were marketed inappropriate whole life products, it is important to understand rights and options. A California securities fraud lawyer can help in this regard.  If your policy was cancelled or you faced unexpected rate increases or costs, an attorney may also be able to provide assistance.

Investing in Whole Life Insurance Policies

Whole life insurance policies have fixed premiums and are designed to provide coverage for a policyholder’s entire life, unless or until premium payments stop being paid or the policy is surrendered.  Premiums which are assessed are higher than the amount of money it would normally cost to purchase a life insurance policy, and excess premiums are invested for the policyholder.

Whole life policies are designed to build tax-deferred cash value and are intended to serve as a savings and investment vehicle.  In many cases, policyholders are told that the whole life policy will provide them with substantial income, especially during retirement.

There are many providers of whole life insurance policies, with the top five sellers of whole life insurance coverage in California identified as:

  • Northwestern Mutual Life Insurance Company
  • New York Life Insurance Company
  • State Farm Life Insurance Company
  • Massachusetts Mutual Life Insurance Company
  • Guardian Life Insurance Company of America

In many cases, whole life insurance products are heavily pushed by insurance agents. This is because agents and managers receive significant upfront commissions when a whole life policy is sold. The commissions may total more than half of the value of premiums the policyholder pays each year.

Downsides and Problems With Whole Life Insurance

While whole life policies do allow tax free withdrawals, as long as rules are followed, and do provide guaranteed growth and/or dividend payments annually if policyholders hold on to the policies, there are significant downsides. Some of the problems include:

  • High fees on many policies which eat into account values. In addition to annual premiums which are higher than premiums for term life policies, there may also be administrative costs.
  • Difficulty comparing policies across providers.  Policies are written in complex ways which are “impossible for laypersons to penetrate,” according to the Wall Street Journal
  • Dividends can go down: Many insurers have reduced dividend payments in light of low interest rates. While there are guaranteed minimum payments, agents often use illustrations when marketing policies which paint a rosy picture.
  • Financial loss if a policy is cashed in early. Around 20 percent of whole life policies are terminated in the first three years and 39 percent are terminated within the first 10 years. Unless policies are kept for decades, often policyholders do not break even on their investment.

Insurers and agents may not disclose downsides or problems, and may recommend whole life policies to people even when downsides could significantly outweigh any benefits. If you believe any of this has happened to you, contact Evans Law Firm, Inc. to find out what options you may have for taking legal action. We can be reached at (415) 441-8669 or online at


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