Updated: Oct 15, 2020
This myth is born out of over-bearing and over-cautious insurance and financial services compliance departments (and those who only promote "buy term and invest the difference... with me"). Why? Because they are afraid of misrepresentation... and they have every reason to be cautious. There have been numerous lawsuits against other agents and advisors promoting life insurance as an investment... and because of the lack of full disclosure, those who were sold these policies win their lawsuits.
Here is one such lawsuit:
Terminology is vitally important in this business.
In my first "myth" article, I discuss some of the terminology in life insurance illustrations and how amateurs use sloppy terminology when describing how life insurance works.
Life insurance is an investment... but it is NOT a security.
If we use the dictionary, this is the definition of 'investment' that we find:
Definition of investment
: the outlay of money usually for income or profit : capital outlay also : the sum invested or the property purchased
the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.
Obviously there are additional definitions, but the general English language of the term 'investment' is that you put in money to gain a return. Does life insurance have a return in it? Absolutely.
So, what is a SECURITY?
Dictionary.com didn't give the proper financial definition, but Merriam-Webster did.
Definition of security
: an instrument of investment in the form of a document (such as a stock certificate or bond) providing evidence of its ownership
The problem is... misrepresenting a life insurance policy to NOT disclose enough of how it all works and how it IS an asset... and it IS an investment... but it is NOT a security, nor is it invested in securities (such as mutual funds - unless it is a variable insurance contract).
Real estate can be an investment... but it is not a security.
Collectibles can be an investment (such as a cars, stamps, or coins)... but they are not securities.
Mutual funds, stocks, bonds, ETFs are investments... AND they are securities.
Life insurance is an investment... but it is NOT a security (aside from variable insurance contracts).
If life insurance isn't a security, why do people buy life insurance? Some of that can be answered in this article here where I respond to a critic who only advocates "buy term and invest the difference". https://davidkinderfinancial.wixsite.com/davidkinderfinancial/post/2018/09/24/buy-term-and-invest-the-difference-always-wins-sort-of
Edit 11/28/2019: Just discovered THIS link:
Here was the problem (according to the link):
The false advertising class action lawsuit was filed by plaintiff Eddie Cressy, who claimed that Fidelity, which used to be OM Financial Life Insurance Co., had deceived himself and other California class members by marketing its universal life insurance policies as investments.
According to Cressy’s false advertising class action lawsuit, Fidelity’s deceptive marketing scheme included training 2,000 sale agents in its Missed Fortune program, which taught the agents to tell customers that the Indexed Universal insurance policies were like mutual funds, certificates of deposits, 401(k)s, individual retirement accounts, stocks, bonds and real estate.
That link just makes THIS point ever more clear:
Life insurance needs to be represented properly and compliantly. One prominent life insurance agent and speaker once said this in a webinar:
"Don't ever get caught in the dilemma of thinking that you have to compete with life insurance being an investment. It's not an investment. That's demeaning to life insurance. Life insurance is a flexible foundational product that allows you to do multitudes of things on behalf of prospects, clients, and businesses."