Tripod Home | New | TriTeca | Work/Money | Politics/Community | Living/Travel | Planet T | Daily Scoop
posted September 3, 1996
I'm a single mom with three kids, and I realize that I need to start setting some money aside for life insurance so my children will be provided for if something happens to me. The thing is, I'm lousy with salespeople -- don't do well with the hard sell or with having a lot of figures thrown at me all at once. Can anybody out there give me the basic advantages of whole-life vs. term or vice-versa? Also, are there good, understandable resources available (on the Web or elsewhere) for educating myself about insurance?
KP: Most economists advise against "whole-life" policies as rip-offs (i.e., the insurance company takes your premium and invests it a high rate of return in the stock and bond and mutual fund markets, but pays you only a tiny fraction of those earnings, calling it your "retirement fund"). Of course, if you die, you forfeit all of that money, which the wealthy insurance company keeps (plus the interest earned). You lose twice: by spending too much on premium, and forfeiting most of the potential earnings.
Most insurance companies are locked into this rip-off system and will rationalize it any way they can. Find a more ethical company to help you select an inexpensive, affordable term policy. One company that I have selected to work with -- mostly because of their no-nonsense stance against the rip-off policies of most major insurance providers -- is Primerica Financial Services. Find a qualified representative in your area, sit down with him or her; get a FREE financial needs analysis (don't pay for this -- it should be complimentary) and use it as a guide for selecting among the various term policies. Find the best one for you.
Finally, the benefit of an inexpensive term policy is that it frees up the money you would otherwise be paying on a whole-life premium. This is your money, which you can invest in the same way the big companies do -- i.e., get the big rate of return. Again your local neighborhood PFS rep can help you understand all the options.
Best advice I got was this: don't sell yourself short. YOU need to know how to take care of YOUR money -- do not expect someone else to do it for you. You CAN get educated -- it is NOT all that complicated. With a little help and initiative, you CAN get the answers you need. Do not let anyone tell you otherwise. Find someone whose goal is not to "sell you something," but rather to provide the best service for you and your family.
garish: As an agent that sells both types of life insurance, I would probably need more info from you to make any recomendation. To answer the question about advantages of whole life insurance verses term: The premium for W-l is generally higher than term but offers a cash value that in many cases can far exceeds the premiums paid. Term insurance has a lower premium rate per thousand dollars of insurance to start, but will increase if you elect to renew the coverage for a new term. Term insurance premiums are based on your age at inception and change to your age at the renewal of the next term. Whole life premiums are based on on the rate and age you started the plan. Term you rent, whole life you buy to own. A properly structured whole life plan and term can be a great way to start a good foundation for you and your childrens future.
KP: This is not really a dilemma at all -- rather, it is a question of whether you want to give away your money to an insurance company on the promise they might return some of it back to your family later (but not if you die) -- or whether to keep your money and invest it yourself, earning much higher interest than any W-L policy can yield. Your choice. A complete and more interesting debate can be found on a variety of newsgroups; but we must also consider the fact that the vast majority of W-L policies are cashed in long before any significant "cash" has accumulated. Why give away your "cash?" This has NEVER made any sense to me. Would you give your car insurance company $100 extra each month, and hope they will give it back to you in a few years? No? Then why give the same money to a LIFE insurance company? And why would anyone need to be isured for the same amount their WHOLE life? Surely you need to protect your income more when you are working than when you are retired.
nosugar: Garish made a good explanation as to the differences between whole-life (or permanent) insurance vs. term. Additionally there are three types of whole life insurance. Garish explained the first. There is also Universal W/L and Variable W/L insurance. Universal is an innovation to traditional W/L as the interest rated credited to your account varies with the general level of interest rates. Also the premium payments are flexible, in that if there is sufficient cash value in the policy you can pay a lower or no premium depending on your cash flow requirements. But similar to traditional W/L the rates are controlled by the insurance company.
Variable Life was designed to give the policy holder control over the cah values inside the policy. Depending on the company you may have between 5 and 20 investment vehicles to choose from in the form of mutual funds with additional feature of a guranteed interest account. The benefits of the Variable W/L are investment control over the cash value, tax deferred growth of cash values, level premiums for the life of the policy.
I suggest you speak to an insurance professional about your needs. Check A.M. Best, some other ratings service, or a recommendation from a freind for a good company. What you might do is after finding a company you like is to buy a level term policy that has a conversion feature to start accumulating some cash values.
Contrary to the PFS proponent, there are valid strategies for all types of insurance; all dependant on your particular situation and needs. See someone who does this type of financial needs analysis on a full time basis. Most PFS Reps are moonlighting on their day job, whatever that may be.
cfhc: I wouldn't hang my hat on Primerica, speaking of ripoffs. They are notorious in the industry for ripping off insureds, especially the elderly who have built up significant cash values in traditional whole life policies. Their agents are usually part-time, uninformed, and adverse to the idea of advancing their knowledge through CLU, LUTCF, etc. Stick with the tried and true companies whose agents are career-minded and knowledgable. There are many of them.
Map | Search | Help | Send Us Comments
