Why Are Financial Advisors Against Life Insurance
Many financial advisors discourage life insurance, not because it’s ineffective, but because it doesn’t align with how they earn. Learn how permanent life insurance offers tax advantages, market protection, and living benefits that investments alone can’t match.
MAPFL BLOG
Financial advisors: “Life insurance isn’t a good investment.”
Many financial advisors often advise against life insurance, claiming it’s not a suitable place to put your money due to fees and fiduciary responsibilities. But what’s rarely discussed is the conflict of interest built into their business model, most advisors earn income through Assets Under Management (AUM), meaning they profit when your money stays under their control. When you purchase a life insurance policy, particularly permanent life insurance, that money is no longer managed by them, and they no longer collect fees on it. This financial disincentive can lead to biased advice, even if unintentionally, steering clients away from valuable protection tools.
The truth is, life insurance, especially permanent policies offer unique advantages that traditional investments can’t match. Beyond the death benefit, these policies provide living benefits like access to cash value, borrowing potential, and insulation from market and tax risks. It’s not just about returns; it’s about financial security, flexibility, and long-term protection. Life insurance shouldn’t be viewed as an investment alternative but as a strategic complement to a broader financial plan. When used correctly, it offers peace of mind during life’s uncertainties something no stock market portfolio can guarantee.
Why Are Financial Advisors Against Life Insurance
Main Points from the Transcript
- Tension Between Financial Advisors and Life Insurance
- Many financial advisors are hesitant or even resistant to recommending life insurance.
- They often claim it’s not a good place for clients to put their money due to their fiduciary responsibility.
- Why Financial Advisors Might Be Biased
- Advisors primarily make money through Assets Under Management (AUM), typically earning around 1% annually on client portfolios.
- Money placed into a life insurance contract is not under their management—meaning they don’t earn from it.
- Investment vs. Protection
- Advisors are focused on investment growth, not financial protection.
- Life insurance, while offering some investment components, is primarily designed to protect and insulate clients from:
- Market risk
- Taxation risk
- Unexpected life events
- Life Insurance Offers Unique Benefits
- Access to cash value
- Ability to borrow against it
- Tax-advantaged growth
- Death benefit protection
- Optional living benefits
- Clarifying the Purpose of Life Insurance
- Life insurance shouldn’t be viewed solely as an investment, but rather as a strategic financial tool.
- Insurance companies have adapted products to offer living benefits that owners can use, not just beneficiaries.
- Open to Discussion
- The speaker expresses a willingness to discuss the value of permanent life insurance with financial advisors, suggesting transparency and confidence in its utility.
- The speaker expresses a willingness to discuss the value of permanent life insurance with financial advisors, suggesting transparency and confidence in its utility.
🧩 Additional Supporting Points You Could Weave In
(If the blog needs more depth or SEO value)
- Different Types of Life Insurance (Term vs. Permanent)
- Case Study Examples: How a life insurance policy helped a family during a crisis.
- Tax-Free Growth: Explain how certain policies can grow without being taxed.
- The Role of IULs (Indexed Universal Life): Potential for upside growth with downside protection.
- Addressing Misconceptions: Life insurance agents = commission-driven, but that doesn’t negate product value.
- Balanced Planning: How both investments and insurance can coexist in a financial plan.
Podcasts / Blogs Latest Episodes
