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