Financial salespeople routinely pitch whole life and Indexed Universal Life (IUL) policies as tax-advantaged retirement vehicles with guaranteed returns and infinite banking capabilities.
However, commission structures on permanent policies consume up to 80% to 100% of first-year premiums, resulting in dismal internal rates of return that severely lag standard low-cost broad-market index funds.
The 'Buy Term and Invest the Difference' Rule
A healthy 35-year-old can secure a $1,000,000, 20-year level term policy for roughly $40 a month. Funneling the remaining $400 a month that a whole life policy would have cost into a tax-advantaged Roth IRA yields vastly superior liquid net worth without prohibitive policy loan interest burdens.
