Financial advisors often recommend life insurance for two main reasons:
- It can be an important financial planning tool for income replacement, estate planning, and business protection.
- It’s also a high-commission product. Advisors can earn 80-110% of the first-year premium, making it one of the most profitable financial products to sell.
So how do you know if a life insurance recommendation is genuinely in your best interest or if it benefits your advisor more than you?
Do You Actually Need Life Insurance?
Before buying any life insurance policy, ask yourself:
- Do I have dependents who rely on my income?
- Would my family struggle financially if I passed away?
- Do I have large estate tax liabilities or business succession needs?
For most people, term life insurance is the best choice—offering low-cost protection for a set period. Permanent life insurance (whole, universal, variable) is typically only necessary for complex estate planning or high-net-worth individuals.
How Financial Advisors Get Paid (And Why It Matters)
The way an advisor is compensated directly affects the financial products they recommend:
- Fee-Only Advisors:Paid directly by clients (hourly, flat fee, or % of assets). No commissions. Fiduciary duty to act in your best interest.
- Fee-Based Advisors:Earn a mix of client fees and commissions. Potential conflicts of interest.
- Commission-Only Advisors:Make money solely from selling products, including life insurance. Their job is to sell.
Not all advisors pushing life insurance are acting in bad faith, but understanding their financial incentives helps you evaluate their recommendations.
💡Want to work with a fiduciary, fee-only advisor? Find one onSam’s List.
Commissions: The Driving Force Behind Life Insurance Sales
Life insurance commissions vary widely, but permanent life insurance is far more profitable for advisors:
- Term Life:40-90% of the first-year premium
- Whole Life:80-110% of the first-year premium
- Universal Life:90-105% of the first-year premium
For example, if you purchase a $10,000 annual whole life policy, your advisor could earn $9,000+ in the first year alone. By contrast, if they manage a $10,000 investment portfolio for you, they might earn just $100 per year.
Some advisors working for insurance-affiliated firms also have sales quotas they must meet to keep their position—so the pressure to sell is real.
The Fiduciary vs. Suitability Standard
Not all financial advisors are legally required to act in your best interest.
Fiduciary Advisors(Best for Consumers)
✅ Must recommend the best option for you—even if it pays them less.
✅ Required to disclose conflicts of interest.
Suitability Standard Advisors(More Sales-Driven)
❌ Only need to recommend something "suitable"—even if it costs you more.
❌ Often push products that earn them higher commissions.
Before working with an advisor, ask: "Are you a fiduciary 100% of the time?" If they hesitate, they probably aren’t.
When Life Insurance Actually Makes Sense
Despite its reputation,life insurance can be valuable in the right situations:
✔️Income Protection:If you have dependents relying on your income.
✔️Estate Planning:If you need liquidity to pay estate taxes or protect assets.
✔️Business Succession:If you’re a business owner needing a buy-sell agreement.
✔️Special Needs Planning:If you’re providing for a dependent with long-term needs.
However, if an advisor is pushing permanent life insurance instead of term insurance, be cautious.
Final Thoughts: How to Avoid Bad Advice
Not all financial advisors are the same. If an advisor is recommending life insurance, ask:
- Are they a fiduciary or a commission-based salesperson?
- Do they have minimum sales quotas?
- Have they explained alternative options (term vs. permanent life insurance)?
- Will they still work with you if you don’t buy insurance?
💡Looking for financial guidance? Browse professionals onSam’s List.
Frequently Asked Questions (FAQs)
Why do financial advisors recommend life insurance?
Because it’s a high-commission product and a legitimate risk management tool. Some advisors recommend it in good faith, while others push it for financial gain.
Should I buy life insurance through my financial advisor?
It depends. Fee-only financial advisors don’t earn commissions on insurance, so their recommendations are usually unbiased. Commission-based advisors may push high-cost policies for financial gain.
Is whole life insurance a good investment?
For most people, no. Whole life insurance is expensive and underperforms compared to traditional investments like IRAs or 401(k)s. However, it can be useful for estate planning or business succession.
How can I tell if my financial advisor is a fiduciary?
Ask: "Are you a fiduciary 100% of the time?" If they hesitate, they probably aren’t. Fiduciaries are required to put your best interests first.
What’s a reasonable amount to pay for life insurance?
For term life insurance, a healthy 40-year-old might pay $25-35 per month for a $500,000 policy. Permanent life insurance costs 8-12 times more for the same coverage.
Looking for financial advisors who truly put your interests first? Find one onSam’s List.
