First, I am a customer of term life and whole life, life insurance, not an agent or in any way trying to sell it and do not benefit from the selling of insurance. I have experience with only the 3 policies I pay for.
Note that you cannot get your money back out of life insurance. If you die (especially if you die early) you get more out than you paid. Otherwise you can borrow against the policy (up to about 90% of the cash value) or you can cancel the policy and get the entire cash value but that's the end of it. It would be really hard to make whole life act as the cash portion of a PP, especially for the first few years. Even harder than trying to use I-Bonds.
I think for most people, it is a mistake to conflate life insurance with an investment. If you are very, very wealthy and have estate concerns or have other reasons why you might need the specific benefits of permanent life insurance then it might be worth considering as an investment.
Note that performance is typically very back loaded. Do not even consider whole life if you are not thinking in terms of decades. In other words, the first years you will lose money, sometimes for 10 years. If the policy is significantly over funded, the performance can become positive sooner, but if too soon it will become a modified endowment contract (MEC) and you will lose all the tax advantages.
Term life is the cheapest way to get life insurance, just like renting anything. The most typical reason why someone would want whole life as opposed to term is if the need for life insurance will significantly exceed 15 years. This is because a decent whole life policy that is not overfunded will typically become self-funding sometime in 10 to 15 years. That means you could stop making payments and keep the insurance forever.
When I was about 8 years old my father was an agent with A.L. Williams "buy term and invest the difference." He did that full time for a year or two, then part time for another 5 years or so. I was well steeped in that doctrine.
When I started shopping for life insurance about 20 years ago, I found the numbers cited in the Williams literature did not match what I discovered and my own calculations. Plus I expected my minimum need for life insurance would be 18 years so the "permanent" aspect of whole life insurance looked to save me money. So I bought some whole life. (Currently I expect to need life insurance for at least another 10 years, and as expected I need more life insurance than I did 20 years ago.)
I bought a whole life policy for about 60% of my coverage, and a term policy for the rest. I also bought a term policy for my wife. Two years later I converted my term policy to whole life. Four years ago I converted my wife's policy to an overfunded whole life policy. Those are the three policies I know.
I do not have any experience with IBC. IBC requires a policy to be overfunded to be truly effective, and my wife's policy is as of this week 4 payments out of 7 until it would become a modified endowment contract (a MEC). This means is barely beginning to accumulate cash value (and performance is still negative).
However, I am satisfied with the performance of my whole life policies, which is I why I converted the wife's policy. Remember, these returns are in addition to the insurance coverage and are tax advantaged. From youngest to oldest (and note I pay annually):
Wife's policy, overfunded, 3 payments credited, paid until March (and 4th payment pending):
Return if I were to cash out today: -25.63%
Return if I were to have cashed out 11 months ago: -49.89%
Death benefit increase: 4.2% above the starting value.
(The death benefit will increase again when they credit my 4th payment, and the return figures are likely to look worse for 3-6 months. I expect a year from now the return will be around 0%.)
My policy #2, paid until May, ~17 years old:
Current return (if I were to terminate the policy today): 3.37%
Last month's return (if I had terminated a month ago): 3.13%
Death benefit increase: 28.81% above the starting value
(For several years now the increase in cash value has been immediately higher than the annual premium payment, so I keep making the payment even though I could stop and keep the insurance. Plus the cash value increases every month. Last year the total increase in cash value was about 2x my premium payment.)
My policy #1, paid until June, ~19 years old:
Current return: 3.89% APY
Last month's return: 3.74% APY
Death benefit increase: 35.73% above the starting value
(Same comment as #2 re. the increase in cash value. The annual increase in cash value here is well over 2x my premium payment.)
First of all, I just have to add (with no disrespect intended to your father) that I wouldn't listen to anything the average A.L. Williams/Primerica agent said regarding any financial matter. Their term sucks as far as cost per $1K of insurance goes, they typically sell loaded, actively-managed mutual funds (for the "invest the difference" part of the BTID) and sometimes have a client put money into two fund families just before the load breakpoints on each, and their variable annuities that they replace VULs with are horrible cost-wise compared to the same type of products offered no-load from Vanguard, TIAA-CREF, or Jefferson National. Naturally, the Primerica agents don't tell their clients about these other options because that would mean less commissions from them...then said Primerica agents go and bray about how whole life is bad because it pays such high commissions to the agent. Hypocrites.
The performance of whole life insurance per se is not actually all that "back loaded." It IS true that the COI is more expensive at first than term--it has to be since it is more "levelized" (essentially overcharges you for COI at a younger age to undercharge you for it later when your risk of dying is higher...come to think of it, the same is true for 30-year level term vs one year ART)--but high COI doesn't account for the lack of cash value in early years; the main reason for that is high commissions (55% to 100% of the first year's premium, typically) to the insurance agent and the IMO, GA, or BGA. The same WL companies' products that are designed for the COLI, BOLI, executive bonus, or premium financing markets typically have 85-90% or so of the first year's premium as cash value because they pay almost no commission.
A "significantly overfunded (base/PUA/term blend)" policy that is funded just under the MEC limit should have total CV equal to premiums paid by year four or five (or maybe year six at the latest unless the insured is not healthy or smokes). With that said, most max non-MEC overfunded policies you see today are
not as overfunded as they could or should be for cash value accumulation purposes. What the agent typically does is blend the base WL with PUAs (paid-up additions; each one is essentially a miniature single premium WL policy in and of itself that is immediately "paid-up" hence the name) but doesn't blend in any term. In a policy created in this fashion, the more PUAs you have and the less base whole life you have, the closer to being a MEC the policy will be (and it can even become a MEC if there is too high of a ratio of PUAs to base WL). Most agents (and this includes the ones who promote Infinite Banking)
won't blend the policy to include as many PUAs as possible before the policy becomes a MEC....they will blend in PUAs but will put maybe half or two thirds as much PUAs as they could. The reason for this is that PUAs pay almost no commission (somewhere in the neighborhood of 2 to 6% depending on the insurance company) but the base policy pays the fat commission mentioned above....the greater the blend of PUAs to base WL face value the agent specifies; the less commission he/she makes as a percent of total premiums paid. The cash value would be higher if the agent blended it for more PUAs and less base WL but most agents care more about their commissions than their clients (sad but true). With that said, even if the agent DID max-blend the policy, if it only included base WL and PUAs the client would still not be as well-served from a cash value accumulation standpoint as a
truly properly blended design would serve them. For that, we need a third element besides base WL and PUA...we need a term insurance rider.
Term insurance blending on a WL policy is great (from a cash value accumulation standpoint) for two related reasons: One, term is stupidly cheap compared to base WL so you can get a higher death benefit for less outlay of money, and two, because said higher death benefit lets you load up on more PUAs without MECing the policy. If you had a (for example) base WL for $100K face value you might could (depending on whether the base WL was a 10-pay, 20-pay, pay until 65, pay for life, etc...it will vary based on what it was....a 10-pay WL is itself almost a MEC to start with so without term blending it can take very few PUAs without MECing whereas the pay for life policy can take many more since it a lot farther from being paid up to begin with than the 10-pay is...the 10 pay is paid up in ten years---you never have to make a payment after that--while the pay for life is paid up at age 121) add perhaps $100K in PUA face value before the policy hit the MEC limit.
On the other hand, if you use the term blending strategy, what you would do is have the agent pick the smallest base WL amount he/she can (varies between companies and based on health ratings but generally between $1K and $100K); load it up with the largest amount of term permitted relative to the base face amount (most companies allow between 4 and 10 times the base WL face amount in term although one allows either 99 or 999 times the base WL face amount on one of its products especially designed for blending), put a PUA rider on the policy to allow PUAs to be bought with premium dollars and not just with dividends, and replace the term with PUAs as quickly as the MEC limits will allow (in most cases will be from seven to eight years although in some cases it can be more financially advantageous to buy as much PUAs as you can for five or six years without hitting the MEC limit and let dividends pay the term premium for the last year or two before stripping any remaining term off as soon as the seven-pay period is up...depends on the company, the policy, and how old and how healthy you are).
The reason the above strategy works so well is because it minimizes the part of the policy that money is "wasted" on commissions for (the base policy) and maximizes the amount that pays almost no commissions (the PUAs). To be fair, the term policy DOES pay nearly the same commissions as a
percentage that the base WL does but since term is so cheap those commissions aren't anywhere near the drag on policy cash accumulation that the commissions on an equivalent face amount base WL policy would be. For more information on designing a policy like the abovementioned one (minimum face and maximum term and PUAs) see Glenn Daily's (he is a fee-only insurance consultant) article at:
http://www.glenndaily.com/documents/blending.pdf
With all the above said, I would add that there
is a company that does NOT require a PUA and term rider to achieve good cash values and cash accumulation because it pays its agents peanuts in comparison to the typical companies' commissions. A pay-for life policy from this company will have about 85 to 90% of its first year's premium in cash value and it's 10-pay will have nearly 100% (more than 100% if the dividend is as high as illustrated) of first year's premium as cash value. The only disadvantages are that there is little premium flexibility since the company doesn't offer term or PUA riders on the insured, and that this company is fairly strict on underwriting so that a "preferred plus" risk with someone else might be a "preferred" with them, a "preferred" risk somewhere else might be a "standard", etc.
Finally, I take it that the first WL policy you mentioned (the one that has been in force for 19 years) wasn't blended at all, either with PUAs or with term/PUAs? I guess SGUL wasn't available back then either?
