April 16, 2012

Insurance Is A Scam

Insurance as a hedge against catastrophe is a good idea.Insurance as an investment is a terrible idea.

Insurance was originally intended to be a risk management technique to hedge against loss. 

Car, health, home and business insurance are all good ideas.  Term life insurance too, that is a hedge against you dying early in life and thus unable to provide for your family.

What is not a good idea, in fact, a terrible idea is buying insurance as an investment.  No one actually buys insurance, they are sold insurance.

Whole life, variable annuity this and fixed annuity that.  Stay away. 

The fees on these products are absolutely mind boggling.  The commissions that we make to sell them to you are equally mind boggling which is why they are so popular with insurance licensed stockbrokers, financial advisors and financial planners.

A financial planner can actually make more in commission for selling you a policy than your first year’s premium.  The reason for the high commission is the higher fee inside and a surrender charge of sometimes 20% before 10 years!

You have to be specially licensed to sell insurance which is why some financial guys push these products and others don't but there is some really sweet commissions in them so watch out!

The commission is so good that when a stockbroker lands a new client, one of the first things he does is scour your current investments for insurance products and you can bet you will be receiving a call for what is called a 1035 exchange. 

A 1035 exchange is very unlikely to be in your best interest.  The 1035 is the insurance form that you will need to sign to allow your financial guy to sell your current policy and buy another in its place; they call it an exchange but its ‘churn and burn’.

Just remember that most insurance is a scam.


  1. I had an insurance policy and a few stocks in a brokerage account and wasn't treated that well until someone realized my policy had cash value and exactly as you say, I was told I needed to exchange it with a 1035. A friend in the business advised me against it. He said I would have come out about the same but with more withdrawal penalties but my broker would have made about $15,000.

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