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What's the Best Insurance Policy for Wealth Building?


Whole Life insurance versus Equity Indexed Universal Life. Which one builds the most wealth for retirement?

If I had a dollar every time I heard that a Northwestern Mutual life insurance agent pitched a whole life insurance policy to a client as a wealth-building tool, I’d be retired (especially to potential doctor clients).

While to most using a cash value life insurance policy to build wealth for retirement sounds strange, not only can it work, but it should work out well for most people who are under 55 years of age.

There are really three types of policies you can use for wealth building:

1) Whole Life (WL)

2) Universal Life (UL) and, specifically, Equity Indexed Universal Life (EIUL)

3) Variable Life. I don’t bother discussing this because they are not overly useful since the advent of EIUL policies, which have similar upside growth but no downside risk.

If cash value life is a good wealth-accumulation/retirement tool, which policy is the best one to use? I thought a good way to approach this topic was simply to use a National Underwriter (NU) study that details the numbers on how WL has done over the last 20 years.

NU’s study


Enough pontificating; let’s get to the historical IRR of various WL policies using the past 20 years compared to what they actually returned:

compares the illustrated returns in WL policies versus the actual returns. It’s very interesting because the actual rate of return in WL policies going back 20 years is typically 2% less than the illustrated internal rate of return (IRR)The numbers

Illustrated IRR

Actual IRR


New York Life




Guardian Life




Mass Mutual




Northwestern Mutual




IRR is not the greatest measuring stick because it simply measures cash accumulation. The power in using cash value life insurance is in the ability to

EIUL and, specifically, the Wealth Preservation Institute's Retirement LifeTM.

borrow money tax free from the policy in retirement. This is where WL really gets destroyed by


I used my favorite EIUL policy for this comparison. Assume our example client is 40 years old, pays a $10,000 premium each year for 25 years, and then max borrows from the policy from ages 65 to 84 (20 years). The following chart shows some of the WL numbers.

Tax-free borrowing each year for 20 years

Mutual Trust


Ohio National


Guardian Life


Northwestern Mutual



could be removed from an EIUL policy over the same time period using the back-tested rate of return of 8.78%? An incredible $90,846 each year.

much tax-free income

If I lowered the assumed rate of return in the policy to 7%

to make a “conservative” example, you’d think the numbers would be terrible, right? Wrong. The conservative number is $50,365 each year, which still destroys the numbers from the WL policies listed in the NU study.

Wake up call


he point is to remind everyone to make sure you educate yourself on the products or investments being pitched to you by advisers. Only as an educated consumer can you determine if the advisers you are working with are putting forth the best plan and products to help you meet your retirement goals.

Roccy DeFrancesco, JD, is author of

, and founder of

The Doctor's Wealth Preservation Guide

The Wealth Preservation Institute. The

has recently been approved for up to 21 AMA PRA Category 1 CME Credits™ in a self-study format. If you would like to purchase the book at a 33% discount


as benefit for being a reader of

so you can earn CME credits in the comfort of your home, e-mail

Physician’s Money Digest



For free copies of


Bad Advisors: How to Identify Them; How to Avoid Them

visit www.roccy.org

Retiring Without Risk


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