| One of my client's wives paid me a visit to ask about | | | | earn from the cash value policy?"She thought a bit |
| life insurance, a product I was well acquainted with. | | | | before answering. "Well, he spent the whole evening |
| She told me that she and her husband were visited | | | | going over a bunch of computer printouts that |
| last night by a life insurance agent. "Jan, what did he | | | | showed us how rich we'd be in fifty years when we |
| try to sell you?""A $90,000 whole life policy with an | | | | retire, and how much we could borrow from the |
| annual premium of $500. Is that okay?"Knowing that | | | | policy if we ever needed a loan.""But what did he say |
| few people really understand life insurance, I asked | | | | about your protection needs?""Come to think about |
| her if she really understood what the agent was | | | | it, hardly anything at all. After we told him that we |
| talking about."I thought I did last night," she replied, | | | | could afford a $500 yearly premium, he looked in a |
| "but when I woke up this morning, I wasn't so sure. | | | | book and said that he had found a great $90,000 |
| That's why I'm here. You once told me to never buy | | | | whole life policy that we could afford. But about |
| life insurance unless I talked to you about it. Well, I'm | | | | protection, he really said very little." I could tell that |
| here. Could we chat about it?"I was glad that Jan | | | | she was starting to bristle in anger, a sign that I was |
| was here instead of Mark. I have learned that it is | | | | doing a good job.I then told Jan that people with |
| much easier to talk to women about life insurance | | | | children living at home should have, as a rule of |
| than men. Women seem to better understand the | | | | thumb, about eight to ten times their yearly gross |
| financial consequences of their spouses' death, | | | | income in life insurance protection. For Mark and Jan, |
| especially if they are mothers. Most men, however, | | | | that translated into at least $475,000. The agent who |
| don't want to face life insurance because they think | | | | met with them should have figured that out and |
| that they will never die. Women know better.I was | | | | done his utmost to assure such adequate |
| no stranger to the murky world of life insurance. | | | | protection."You see Jan, that agent's sole emphasis |
| Throughout my 20 years as a CPA, I'd often locked | | | | should have been on your financial protection in case |
| horns with insurance agents and financial planners | | | | Mark dies tomorrow, not about making you a rich |
| who wanted to sell garbage life insurance products to | | | | lady in 50 years. The agent's decision to sell you the |
| my clients. In my role as a CPA, I always believed | | | | anemic whole life policy would literally rob you and |
| that it was my job to act as a mother hen and | | | | your kids of $385,000 if Mark dies tomorrow.""But |
| protect my clients from the wolves.I began by asking | | | | Mark is not going to die tomorrow. Don't say |
| Jan a question that zooms to the heart of the | | | | that!""Jan, you don't know that. He could die |
| matter. "Tell me Jan, why are you buying life | | | | tomorrow or in a week from any one of a thousand |
| insurance? What do you hope to accomplish?"She | | | | and one different causes. And so could you or I. |
| answered, "To protect me and the children in case | | | | That's why you must be fully protected right now. |
| Mark dies."That quickly established the fact that Jan | | | | Life insurance is a today need."I continued..."Jan, |
| knew about the key issue: that life insurance has but | | | | remember when I told you that there were two |
| one purpose: protection in case disaster strikes.Then | | | | reasons to avoid cash value life insurance?""Yes.""You |
| I asked her another question. "Just suppose that you | | | | told me Jan that the agent spent most of last night |
| knew for sure that Mark was going to die tomorrow. | | | | talking about the wonders of the cash value |
| How much life insurance would you buy on his life | | | | investment. Now I am going to give you the real |
| ---$90,000 or $450,000 --- assuming the premiums | | | | scoop about that." This one always puts the final nail |
| were identical?"She looked at me as if I was crazy. | | | | in the cash value coffin."The cash value," I continued, |
| "I'd buy the $450,000 policy. Who wouldn't?"I then | | | | "is not like an ordinary investment such as stocks, |
| gave Jan a quick education about life insurance, | | | | bonds, or a bank savings account.""But the agent said |
| explaining that there are only two kinds of life | | | | it was just like a bank savings account...""It resembles |
| insurance, term and cash value. The problem is | | | | a savings account about as much as a shark |
| knowing which one of them is the better buy.Term | | | | resembles a goldfish. Tell me Jan, what do you think |
| insurance is pure insurance ( protection) coverage. If | | | | happens to the cash value---the promised pot of |
| you pay the premium and die , the insurance | | | | gold---if Mark dies? Who gets it?" The fun |
| company will pay the face value of the policy to your | | | | starts..."That's easy," she replied, "I do...it's our |
| beneficiary. It is available to age 95 and can be | | | | money...our investment...right? Marsh...tell me I am |
| purchased yearly, or on a guaranteed level premium | | | | right!""Sorry, you are wrong. If Mark dies, the |
| basis for 5,10,15, or 20 years. The product is | | | | insurance company keeps it. That means that all that |
| uncomplicated and very inexpensive. The premiums, | | | | extra premium you paid for so many years goes up |
| however, do increase each time the policy is | | | | in smoke.""So what do I get if Mark dies?""You get |
| renewed since the insured has grown older.Cash | | | | the face amount of the policy...but you could have |
| value life insurance (sold as whole life, endowment, | | | | gotten that for a fifth of the premium with a term |
| straight life, permanent life, universal, and a zillion | | | | policy.""Marsh...you can't be serious. In my worst |
| other names) is the second type. It differs | | | | nightmare, I would not expect something like this. |
| significantly from term because there is a savings or | | | | Are you sure?""Very. But if you want some proof of |
| investment feature attached--the cash value. About | | | | your own, get the book What's Wrong With your |
| 75% to 80% of every premium dollar goes to this | | | | Life Insurance by Norman Dacey. That's just one of |
| cash value "kitty" and the remainder pays for the | | | | many books in the library that echoes what I have |
| actual life insurance protection. These policies typically | | | | been yapping about. Don't think I am the Lone |
| last to age 100 and the premiums remain level for | | | | Ranger on this."Apparently she got fed up. Her voice |
| one's entire life.Thus, in one slick package, a cash | | | | rose as she said, "The agent never said word one |
| value life insurance policy claims to accomplish two | | | | about any of this! Are you telling me that he bent |
| worthy goals: death protection and family savings. It | | | | our ears off last night just to sell us a chump change |
| was my job to convince Jan that cash value | | | | policy that will leave me seriously underinsured just so |
| insurance fails miserably on both counts and that she | | | | he could make a bigger commission...and that they |
| must, for her and her children's sake, buy pure term | | | | steal my investment to boot if Mark dies?""That |
| life insurance and nothing else."Jan, there are two | | | | about hits the nail on the head. And one more |
| reasons why you must not buy that whole life policy | | | | thing...when you tell the agent you want a term policy |
| or any other cash value product. First and most | | | | instead, expect another visit from him. Be aware that |
| importantly, cash value life insurance is anywhere | | | | they are very well trained in changing minds. Plus, you |
| from five to ten times more expensive than the | | | | might want to shop around for the best deal. Even |
| equivalent amount of term insurance. It's like paying | | | | among term policies there is a wide variance in |
| $75,000 for a $15,000 automobile just because you | | | | price."EndPostscript:It is this author's hope that |
| went to the wrong dealership."To keep their | | | | anyone in possession of this article pass it onto their |
| customer's attention away from the high cost of | | | | relatives, friends, and neighbors. The information in |
| cash value, agents focus their sales spiel on the | | | | this article can put many thousands of extra dollars in |
| investment feature, usually with the aid of reams and | | | | the bank accounts of those who need it |
| reams of incomprehensible computer printouts. This | | | | most.Copyright 2000 |
| sales tactic has literally duped the American public out | | | | Marsh Kaminsky CPA (retired due to disability) |
| of trillions of dollars in the last 150 years, ever since | | | | e mail: Because of Multiple Sclerosis, I am a retired |
| cash value was invented."Jan, how much time did the | | | | CPA. Besides my interest in life insurance, I have a |
| agent spend last night talking about the actual | | | | very strong interest in early preschool learning. |
| insurance protection versus how much money you'll | | | | |