Whole life is a Scam… But Term Isn’t Your Best Option Either
Life insurance is a topic that many people choose not to talk about. It could be because people don’t see the importance of it, they’re uneducated about the subject, or they cringe at the thought of any conversation that deals with them no longer being alive. Whatever the reason may be, life insurance has been a topic that is unappealing at the least (depressing at its worst). However, life insurance is one of the most important areas for anyone that cares about their future, or the future well-being of their loved ones. There are so many benefits to life insurance, which most people don’t know, other than a small amount of income to take care of one’s burial. When it comes to life insurance, people have been living with incorrect information for quite some time now, and because of that, the people that suffer the most are the underserved, undereducated families.
Most people have read an article or two (…or 7), that have given reasons to never purchase a whole life policy. Due to that, the only other choice for people to purchase would be term life insurance. But what people have failed to write about (or read about) is the fact that those ARE NOT the only options for life insurance. In order to understand that, however, people must first become educated in the area of life insurance and begin using the proper terminology.
There are only two types of life insurance: Term and PERMANENT! This is the most common mistake seen when talking about life insurance.
Term life insurance is temporary. It could last anywhere from 10–30 years. Once the term is completed, the insurance premium that is paid to keep the policy will increase 10–25 times what the insured was originally paying. So think, if a healthy 25 year old female gets a 30 year term policy, she will pay a very small amount of premium initially, however, at age 55, she will either have to pay the increasing premium, requalify for a new policy (by which she will now be older and paying more in premiums), or discontinue her coverage. For these reasons, most people above the age of 60 are not protected with the proper amount of coverage for their age, because they were either forced to cancel their original policy or lower their current death benefit amount so they can afford a more reasonable premium.
When you’re young, life insurance is about protection. Protecting your income in case something were to happen to you. Protecting your loved ones from going into debt. Making sure your young children go to college, getting the house paid off, and making sure any other debts can be paid in the event someone passes away too soon. But when people become older, life insurance is about leaving a legacy. Ask most people in their 70’s and 80’s, their concern is no longer on material possetions, instead they’re focused on the well being of their next generations. Children, grandchildren, great grandchildren, and other memebers of their family. They want them to be happy and give them a chance to live a better life. They want their offspring to change the world, create special memories, and have special things. All these things can be made possible with the help of the right life insurance policy. A term policy may not allow this to happen if that term expires.
On the other hand, there is PERMANENT life insurance. People often confuse this with “whole life,” but to be clear, whole life is ONE TYPE of permanent policy. The way a typical whole life policy works, is that you pay a premium for life insurance coverage, but along with that it also has a cash value savings component. The reason its called “whole” life, is because unlike term, this policy will last someone their entire life, normally up to age 100. Since the insured’s coverage will last longer than a term policy, and there is an added cash value savings, the premium you pay on a whole life policy will be more than a term. And rightfully so! But here’s four reasons why whole life is a scam:
1) For the first 3–5 years, you will not grow any money inside the cash value.
2) The interest rate for your cash value component will only grow between 1–3% fixed, depending on the company.
3) If you choose to borrow money from your cash value, you will be charged between 4–8% interest on the loan amount (again, depending on the company). Which must be paid back to your policy at some point; and
4) When the insured passes away, the beneficiaries will only receive EITHER the initial death benefit amount OR the cash value, which ever is greater.
This is the reason people tell you to never purchase a whole life policy because it’s a flawed product and has no benefit to most people. The only reason someone should purchase a whole life policy is that they’re over the age of 55, potentially in bad health, and are looking for permanent life insurance coverage.
So since whole life is a scam, and term insurance may not be the best option either, for people between the ages of 18–50, what type of insurance should they have?
That still depends on the individual needs of each person or family that is being protected. But instead of thinking that whole life and term life are the only options, explore the OTHER permanent policies out there, that have become very popular for many families. These are typically called universal life (UL), variable universal life (VUL), and indexed universal life (IUL) insurance policies. The policies typically go to age 100 or even 121. They have the option for beneficiaries to receive both the coverage amount AND the cash value savings upon death. And they also give the insured more ability to grow money inside that cash value, with rates of return measuring up to 15% in some policies, without the consequence of losing money in a down market. Not to mention that, if structured properly, that money inside the cash value can be accessed tax free!
There are so many benefits to life insurance and only a few things to learn, but it all starts with being educated about the proper terms and what they mean. The one thing to always remember however, is that life insurance is only for those people that love their family. If there’s someone around you that you love, or you believe that you will love someone in the future, life insurance is a necessity! After all, it is the foundation of a family’s financial plan.