[Jimbo232]

Variable whole or permanent life insurance by its nature has a "variable" return and can generally be invested in mutual funds offered by the insurance company. I've never heard of a variable policy with a guranteed return, but at just 2% I'd suppose it is possible.

The scam here isn't offering the 2% guranteed (as you can easily obtain 5+% from an online savings account), but rather whole/permanent life insurance policies are prudent for very few people. I'd recommend reading up on the differences between term and whole life insurance, but I'll give you a quick overview off the top of my head.

In general whole life insurance will have premiums of several thousand per year, whereas a term life policy with the same death benefit will just cost a few hundred per year. If at the end of the policy (say 30 years) you aren't dead the term policy expires, but the whole life policy has built a cash value that you can draw from. This cash value is generally the big selling point for "financial advisers" who are really disguised life insurance salesmen. Almost always you can end up just as well off if you take the difference between the whole life premiums and the term life premiums every year and invest it on your own. Not only will you end up with the same amount of money, you will also not have your $ tied up with the insurance company for decades. The cash value of a whole life policy generally will hit its "breakeven" point somewhere around 15 years, meaning if you are not willing to pay a couple thousand per year for over a decade you will lose a good portion of your premiums because your cash value has not built up to the value of the premiums you paid in yet. Another disadvantage of a whole life policy is often times the funds you have available to put your premiums into are limited and affiliated with the insurance company who are also charging management fees to run the mutual fund so you are getting 1+% taken out from your investment balance every year.

The primary advantage of a whole life policy is that your premiums do grow tax free. I would not classify the cash value as an advantage because you could obtain the same financial position investing the difference in personal investment accounts using cheap and efficient investments such as index funds.

It is my belief that a whole life policy may be advantageous for someone who has an excess amount of cash-flow and is already taking advantaged of other, more beneficial tax-advantage saving opportunities - maxing out 401(K), maxing out IRA, maxing out 529 savings for children, etc. Unless your uncle is fully taking advantage of all the above tax-advantage saving opportunities I would not consider a whole life policy. Life insurance should be used to protect financial dependents in the case of death, a term-life policy does this just fine, there are much cheaper and efficient options to invest and save than a whole-life policy. I urge you and your uncle to read up on term vs. whole life insurance.

/Rant