name of this site is
etermlifeinsurancequote.com for a
reason...term is the most affordable way
to insure against the risks that
accompany someone passing away early.
This begs the question...what about the
main alternative, whole life insurance?
That's a good question and it's really
the first question to answer in order to
make an informed decision. Let's
look a little closer at how whole life
insurance works (and doesn't).
life is exactly what it says. The
protection of whole life will continue
as long as the premium is paid (whether
by you or by the policies cash
value/dividend). You are
protecting the insured for his/her
entire lifetime. Suffice it to
say, whole life policies always pay out.
There will always be a benefit paid
regardless of whether a person passes
away tomorrow or at age 90.
To many people, this a reassuring
thought and addresses the most common
misunderstanding of insurance..."What if
don't pass away during the period of
term life I purchased and I paid all
that money?". This is akin to the
"What if I never get sick" argument with
health insurance and it shows a critical
misunderstanding of how insurance works
and our views of risk and probability.
Read that last sentence over and the
let's look at how the
companies came up with a way to satisfy
this basic fear much to their financial
benefit...whole life insurance.
you're now a life insurance executive in
charge of new plans for the company.
There's plenty of jokes I can enter here
but it's too easy so we'll move on.
People in marketing are telling you
about this strange fact that people like
to get something for money they pay and
a lot of the population doesn't
life insurance because they very well
may not get anything. Even though
those people know the risk of going
without, they can't get past paying
money now for some possible benefit in
the future. There's a disconnect.
Voila...whole life insurance. You
pitch it to the company and they think
you're crazy. "We can't insure
against a risk that has a 100% chance of
happening...we'll either have to charge
the full amount (plus profit, overhead,
inflation, etc) or go broke!"
Well, let's just say the carrier didn't
go broke by selling whole life
insurance. In fact, it's one of
their most profitable types of insurance
and life insurance brokers are pretty
excited to show you whole life as well.
Perhaps they just all feel it's a better
product or maybe they understand that
some people will go without life
insurance all together if there isn't
something more tangible for the money
they pay. You may agree with this
but understand that you are paying
significantly to do so.
does the company 1) offer whole life
considering the fact they will have to
pay out and 2) attract people to
purchase whole life due to the cost
resulting from item 1? To
answer question #1, the carrier has to
charge considerably more money to offer
whole life. You can think of it
this way. Let's look at $100K
benefit. One way to think of it is
that they will charge you $100K plus a
certain percentage to cover profit,
overhead, inflation, cash value (we'll
discuss later) over your statistically
expected remaining years. That's a
lot of money you have to pay and this is
the reason whole life is so much more
expensive than term. To some
extent, you're paying a dollar to get a
dollar (actually less than).
question 2, how does the carrier attract
people to buy this much more expensive
life insurance policy? The first
way goes to the disconnect that caused
the company to create whole life in the
beginning. The guarantee of a
benefit. "Why would you pay money
and get nothing in return with term" is
likely the pitch. But they need
more to "sweeten" the deal. What
if your policy builds up a cash value
that you own. We'll take some of
the extra premium and give it back to
you over the course of the policy.
At some point, the cash value and/or
dividends can even pay the premium of
the policy. Now, people are
satisfied. Yes, they are paying a
lot more but they will get some of back.
The problem is that they will get a lot
less of it back than they pay relative to
the cost of term life.
you're absolutely adamant about the
"whole life" length of protection for
whole life, then by all means. We
can help you in this regard. We
just think it's important to get an
impartial understanding of what you are
paying for. Insurance, at it's
core, is about insuring the
probability of a risk.
Anything that strays from this framework
quickly approaches something else and
usually at your expense.