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