| Has a life insurance agent suggested that
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| | numbers. The annual premium for a 45-year
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| you buy 'permanent' insurance such as
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| | old man in excellent health for
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| Whole Life, Universal Life or Variable
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| | $1,000,000 in coverage is $1400 per year
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| Universal Life? The reasons they give
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| | for 20-year term. That man would pay
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| seem so compelling, but are they in your
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| | roughly $8,000 a year for permanent
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| best interest? Here's an explanation of
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| | insurance. That's right--about $6600 more
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| the basics, plus what the insurance agent
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| | every year.
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| isn't telling you!
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| | That reserve in the permanent insurance
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| There are two broad categories of life
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| | can become a substantial over time, so
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| insurance--term and permanent. The basic
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| | they give you the ability to borrow the
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| idea behind life insurance is that if you
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| | money held in reserve. This has spawned
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| die prematurely, there will be a pot of
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| | the use of permanent insurance for needs
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| money there to take care of your loved
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| | other than the death benefit, such as a
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| ones. That pot of money is referred to as
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| | way to build a retirement nest egg. The
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| the 'death benefit'.
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| | 'ploy of the day' is that you should take
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| The cost of life insurance is based on
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| | all the equity out of your home and put
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| your age, your gender and your health.
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| | it into a universal life insurance policy
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| The insurance company bases the premium
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| | because it will allow you to build your
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| on the risk that you will die. The older
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| | wealth more quickly. (I expose the
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| you are or the poorer your health, the
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| | fallacy of that argument in a future
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| more expensive the insurance will be.
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| | article.)
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| The 'raw' cost of insurance goes up every
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| | What your insurance agent isn't going to
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| year because the risk of death increases
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| | tell you is that the commission on
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| every year. Term and permanent insurance
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| | permanent insurance can be around 70% of
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| approach the payment plan differently.
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| | the first year premium and then maybe 5%
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| With level term, these increases in cost
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| | a year on additional premiums.
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| are spread out over 10, 20 or 30 years
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| | Commissions on first year term premiums
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| and the premium is kept the same. If you
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| | can be as high as 100%. In our example
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| renew your policy at the end of the term,
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| | above, the agent will make about $5600 on
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| your insurance costs will increase.
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| | permanent versus only $1400 on the term.
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| With permanent insurance, your premium
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| | This higher commission is a tremendous
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| stays the same as long as you own the
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| | incentive for agents to sell permanent
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| insurance, up to age 100. That way, you
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| | insurance instead of term.
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| shouldn't be in a situation where it
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| | The result is a huge conflict of interest
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| becomes too expensive as you age.
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| | between the needs of the client and the
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| Initially you pay more than the raw cost
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| | desires of the agent. I would like to
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| of insurance and that money is kept in
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| | think that every agent will always do
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| reserve. Once the raw cost of insurance
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| | what's in the client's best interest, but
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| is greater than your premium, the
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| | we know that's not the case. And most
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| difference is taken from the reserve.
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| | agents are convinced that term is a waste
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| The difference between Whole Life,
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| | of money and that permanent life
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| Universal Life and Variable Universal
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| | insurance is the better choice. I don't.
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| Life has to do with the return you earn
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| | I believe that permanent life insurance
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| on that money while it's kept in reserve.
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| | should only be used in special
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| Whole and universal essentially pay
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| | situations, such as to cover estate taxes
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| interest while variable universal allows
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| | due at death. I do not think it should be
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| you to 'invest' that reserve in
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| | used when you want to provide for your
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| mutual-fund-like accounts.
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| | family in the event of a premature death.
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| On the surface, it may seem that there
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| | I don't think it should be used as a way
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| shouldn't be a lot of difference between
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| | to 'build wealth' or as a type of
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| the premium on 20-year term and a
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| | retirement plan. In my next article, I'll
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| universal policy with the same death
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| | explain why.
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| benefit. But let's look at some real
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|
