Why Fee-Only Fiduciary Advisors Dismiss Cash-Value Life Insurance, and Why Agreement Is Often Impossible

Fee-only fiduciary advisors are trained to be hypersensitive to cost. In the world of investment management, that instinct is not only justified, it’s essential. Fees compound. Drag matters. Over decades, excessive costs quietly erode outcomes and destroy optionality.

From that vantage point, cash-value life insurance often looks indefensible.

Why? Because permanent policies carry mortality charges, administrative expenses, rider costs, and early-year friction that don’t show up in index funds or ETFs. Run the numbers strictly as an investment comparison and, on a spreadsheet, insurance appears inefficient.

The math is correct.

The conclusion is not.

Because the math is being evaluated inside an incomplete model.

A True Observation Inside the Wrong Frame

“Yes, insurance has costs that reduce capital growth.”

That statement is accurate… and still misleading.

It assumes:

• Capital exists primarily to compound

• Growth is the dominant objective

• Liquidity is always available when needed

• Risk is best handled solely through diversification

Those assumptions work well in traditional portfolio construction. They break down, however, when capital must perform multiple roles simultaneously, such as liquidity, tax control, risk transfer, stability, and behavioral protection under stress.

Cash-value life insurance was never engineered to win a return contest.

It was engineered to change how capital behaves when conditions deteriorate.

As such, evaluating it purely as an investment product guarantees a false negative.

The Cost Conversation Fiduciaries Rarely Finish

Here’s where the discussion usually stops too early.

Fee-only advisors focus on explicit, visible costs:

• Expense ratios

• Advisory fees

• Insurance charges

But balance-sheet planning focuses on something far more consequential: the cost of accessing capital at the worst possible time.

Market portfolios are only liquid if assets can be sold. Selling often triggers taxes, distorts asset allocation, and forces decisions during unfavorable markets.

Insurance-based liquidity works differently. Policy loans provide access to capital without liquidation, without immediate tax recognition, and without disrupting portfolio structure.

That feature isn’t free. Its cost is embedded.

Ignoring that cost doesn’t eliminate it, it just hides it.

What the “Insurance Drag” Is Actually Paying For

The internal cost structure of properly designed permanent insurance isn’t accidental. It finances structural features markets simply don’t provide:

• Permanent risk transfer: Mortality, longevity, and insurability risk are underwritten once and never repriced.

• Liquidity without liquidation: Access capital without selling assets or triggering taxes.

• Non-correlated capital: Cash values aren’t marked to market and don’t experience volatility drag or sequence risk.

• Contractual guarantees: Certainty always reduces expected return. That’s not inefficiency, it’s the definition of a guarantee.

This is not an investment substitute.

It’s capital infrastructure.

The Cost Myth That Refuses to Die

One of the most persistent objections from fiduciary circles is that cash-value life insurance, especially IUL, is “expensive.”

That claim collapses under scrutiny when policies are properly designed and evaluated over the correct time horizon.

When measured as a percentage of account value, using the same framework applied to mutual funds, well-structured, max-funded IUL policies often exhibit long-term average costs in the 0.4%–0.6% range, declining further in later years. Outcomes vary by carrier, crediting methodology, and funding discipline, but when those variables are controlled for, the math is remarkably consistent.

That’s not a talking point. That’s arithmetic.

By comparison, many 401(k) plans and retail mutual fund portfolios quietly operate near or above 1% all-in, without:

• Life insurance

• Tax-free access

• Liquidity without liquidation

• Protection from sequence risk

• Immunity from RMDs

• Insulation from future tax rate increases

The irony is that insurance is often dismissed as “high cost” by advisors whose primary benchmark ignores what those costs are actually purchasing.

Why Fiduciary Math Keeps “Winning” the Argument

Because the wrong question keeps being asked.

The question is not:

"Is insurance the cheapest way to grow capital?"

The real question is:

"Is insurance a cost-effective way to ensure capital remains available, predictable, and tax-efficient under stress?"

Same numbers. Different question. Entirely different conclusion.

The Marketing Identity Blind Spot

Beyond analysis, there’s a powerful marketing identity at work.

Fee-only advisors are positioned as:

• Client-paid

• Commission-free

• Conflict-minimized

That positioning has done real good for the profession. It corrected decades of abuse.

But it also creates an unspoken moral binary:

• Fee-only = aligned

• Commission-based = conflicted

Once that narrative hardens, permanent life insurance, outside of term or basic estate planning, becomes suspect by default.

Not because of design flaws.

Because of identity conflict.

The AUM Bias No One Likes to Acknowledge

There’s also a structural reality rarely stated out loud.

Cash-value life insurance:

• Isn’t managed

• Can’t be billed on an AUM basis

• Removes assets from fee calculations

Over time, this reinforces an implicit belief:

“If an asset can’t be managed, billed, or optimized, it must be inferior.”

That belief doesn’t require bad faith. It’s simply an artifact of how advisory businesses are built.

When Structure Limits Curiosity

If an advisor can’t recommend or implement a solution without undermining their value proposition, that solution rarely gets explored deeply.

Most fee-only advisors:

• Can’t sell insurance

• Don’t design policies

• Aren’t compensated for implementation

So the unconscious conclusion becomes:

“If it doesn’t fit my model, it probably shouldn’t exist.”

That’s not ethics. That’s economics.

The Comparison That Actually Matters

Cash-value life insurance is almost never intended to replace equities.

The more honest comparison is this:

“How much capital is required elsewhere to produce the same usable result?”

This is where Capital Equivalent Value matters.

Instead of asking, “What’s the return?” the question becomes:

How much capital would be required in taxable or tax-deferred accounts to generate the same net, spendable cash flow as a smaller amount of policy-based capital accessed tax-free through loans?

Once RMDs, marginal tax rates, timing risk, and forced distributions enter the equation, the answer is often: significantly more.

At that point, the comparison shifts away from raw returns and toward system efficiency.

Where the Criticism Is Fair

• Skepticism is warranted when:

• Policies are poorly designed

• Early cash value is an afterthought

• Riders are misused

• Insurance is sold as a market replacement

• Death benefit has no planning rationale

Those are design failures, not structural flaws.

Why Consensus Is Sometimes Impossible

When a professional’s worldview is tightly bound to how they’re compensated, how they market themselves, and how they define ethics, alternate frameworks don’t feel like debate. They feel like threats.

At that point, more explanation doesn’t clarify. It entrenches.

A Few Final Thoughts

Fee-only fiduciary advisors have elevated standards across the profession. Their emphasis on transparency and client-paid advice matters.

But when investment-only metrics, marketing identity, AUM economics, and implementation constraints define what is considered “valid” planning, blind spots emerge.

Cash-value life insurance isn’t a bad investment.

It’s not trying to be one.

It’s a deliberately constrained growth vehicle designed to solve problems markets don’t, especially when things go wrong.

Recognizing that isn’t a rejection of fiduciary principles. It’s an expansion of them.

And sometimes, respectful separation of philosophies isn’t failure, it’s intellectual honesty.

Please note that Studemont Group, LP is not a legal firm and does not offer legal advice. We advise you to consult with your attorney, and we will coordinate with your counsel in creating and executing your ILIT strategy