The pitch sounds enticing: get lifelong insurance protection while building wealth in a single product. It’s a financial two-for-one!

Hold on! Mixing insurance with investment features is often a costly mistake. You’re likely paying for pricey insurance that underperforms as an investment.

The Commission Trap

Permanent life insurance—like Whole Life and Universal Life—is among the most complicated financial products available. The reason it’s often a poor investment is straightforward: the fees.

In today’s market, buying an investment product is nearly cost-free. For example, the Vanguard Total International Stock ETF charges just 5 basis points (0.05%). By comparison, permanent life insurance feels like a scam:

• Agent Commissions: Agents can earn commissions between 50% to 100% of the first year’s premium, plus renewal commissions of 3% to 5% afterward.
• The Reality: Instead of your money growing, it’s primarily funding the agent’s commission. Even modest growth in cash value can be overshadowed by high commissions, turning paltry historical returns of 1% to 3% into something much worse.

The Three Traps That Keep You Stuck

If the fees don’t deter you, the built-in restrictions should raise serious concerns:

1. Lack of Liquidity: Your money is tied up. To access it, you have to surrender the policy (incurring fees and taxes), borrow against it (which adds interest costs), or make limited withdrawals (likely reducing your death benefit). All these options are financially punishing.
2. Limited Investment Choices: Typically, the cash value of your policy is managed by the insurance company, leaving you with little to no control over your investments. You miss out on high-growth, diversified options available in the open market.
3. High Complexity: If someone offered you an investment with high commissions, limited liquidity, and restricted choices, you’d probably walk away. Yet, when these features are bundled into a product promising a $1 million death benefit for your family, the red flags might not seem as alarming. But they should.

The Key Advice

Talk to any fiduciary wealth advisor, and you’ll hear a simple, time-tested truth: buy term insurance and invest the rest.

By following this approach, you keep your financial worlds separate—just like the song suggests. You purchase insurance for protection and invest for growth. It’s the fundamental strategy for building real wealth.