A Primer on Life Insurance for Mothers

One of my client's wives paid me a visit to ask aboutmoney 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 visitedwhole evening going over a bunch of computer
last night by a life insurance agent. "Jan, what did he tryprintouts that showed us how rich we'd be in fifty
to sell you?""A $90,000 whole life policy with an annualyears when we retire, and how much we could
premium of $500. Is that okay?"Knowing that fewborrow from the policy if we ever needed a loan.""But
people really understand life insurance, I asked her ifwhat did he say about your protection needs?""Come
she really understood what the agent was talkingto think about it, hardly anything at all. After we told him
about."I thought I did last night," she replied, "but when Ithat we could afford a $500 yearly premium, he
woke up this morning, I wasn't so sure. That's why I'mlooked 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 weabout protection, he really said very little." I could tell
chat about it?"I was glad that Jan was here instead ofthat she was starting to bristle in anger, a sign that I
Mark. I have learned that it is much easier to talk towas doing a good job.I then told Jan that people with
women about life insurance than men. Women seemchildren living at home should have, as a rule of thumb,
to better understand the financial consequences ofabout 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 insuranceinto at least $475,000. The agent who met with them
because they think that they will never die. Womenshould have figured that out and done his utmost to
know better.I was no stranger to the murky world ofassure such adequate protection."You see Jan, that
life insurance. Throughout my 20 years as a CPA, I'dagent's sole emphasis should have been on your
often locked horns with insurance agents and financialfinancial protection in case Mark dies tomorrow, not
planners who wanted to sell garbage life insuranceabout making you a rich lady in 50 years. The agent's
products to my clients. In my role as a CPA, I alwaysdecision to sell you the anemic whole life policy would
believed that it was my job to act as a mother henliterally rob you and your kids of $385,000 if Mark dies
and protect my clients from the wolves.I began bytomorrow.""But Mark is not going to die tomorrow.
asking Jan a question that zooms to the heart of theDon't say that!""Jan, you don't know that. He could die
matter. "Tell me Jan, why are you buying lifetomorrow or in a week from any one of a thousand
insurance? What do you hope to accomplish?"Sheand one different causes. And so could you or I. That's
answered, "To protect me and the children in casewhy you must be fully protected right now. Life
Mark dies."That quickly established the fact that Janinsurance is a today need."I continued..."Jan, remember
knew about the key issue: that life insurance has butwhen I told you that there were two reasons to avoid
one purpose: protection in case disaster strikes.Then Icash value life insurance?""Yes.""You told me Jan that
asked her another question. "Just suppose that youthe 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 lifegoing to give you the real scoop about that." This one
---$90,000 or $450,000 --- assuming the premiumsalways puts the final nail in the cash value coffin."The
were identical?"She looked at me as if I was crazy. "I'dcash value," I continued, "is not like an ordinary
buy the $450,000 policy. Who wouldn't?"I then gaveinvestment such as stocks, bonds, or a bank savings
Jan a quick education about life insurance, explainingaccount.""But the agent said it was just like a bank
that there are only two kinds of life insurance, termsavings account...""It resembles a savings account
and cash value. The problem is knowing which one ofabout as much as a shark resembles a goldfish. Tell
them is the better buy.Term insurance is pureme Jan, what do you think happens to the cash
insurance ( protection) coverage. If you pay thevalue---the promised pot of gold---if Mark dies? Who
premium and die , the insurance company will pay thegets it?" The fun starts..."That's easy," she replied, "I
face value of the policy to your beneficiary. It isdo...it's our money...our investment...right? Marsh...tell me I
available to age 95 and can be purchased yearly, oram right!""Sorry, you are wrong. If Mark dies, the
on a guaranteed level premium basis for 5,10,15, or 20insurance company keeps it. That means that all that
years. The product is uncomplicated and veryextra premium you paid for so many years goes up in
inexpensive. The premiums, however, do increasesmoke.""So what do I get if Mark dies?""You get the
each time the policy is renewed since the insured hasface amount of the policy...but you could have gotten
grown older.Cash value life insurance (sold as wholethat 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 differsnightmare, I would not expect something like this. Are
significantly from term because there is a savings oryou sure?""Very. But if you want some proof of your
investment feature attached--the cash value. Aboutown, get the book What's Wrong With your Life
75% to 80% of every premium dollar goes to thisInsurance by Norman Dacey. That's just one of many
cash value "kitty" and the remainder pays for thebooks in the library that echoes what I have been
actual life insurance protection. These policies typicallyyapping about. Don't think I am the Lone Ranger on
last to age 100 and the premiums remain level forthis."Apparently she got fed up. Her voice rose as she
one's entire life.Thus, in one slick package, a cash valuesaid, "The agent never said word one about any of
life insurance policy claims to accomplish two worthythis! Are you telling me that he bent our ears off last
goals: death protection and family savings. It was mynight just to sell us a chump change policy that will
job to convince Jan that cash value insurance failsleave me seriously underinsured just so he could make
miserably on both counts and that she must, for hera bigger commission...and that they steal my
and her children's sake, buy pure term life insuranceinvestment to boot if Mark dies?""That about hits the
and nothing else."Jan, there are two reasons why younail on the head. And one more thing...when you tell the
must not buy that whole life policy or any other cashagent you want a term policy instead, expect another
value product. First and most importantly, cash valuevisit from him. Be aware that they are very well
life insurance is anywhere from five to ten times moretrained in changing minds. Plus, you might want to shop
expensive than the equivalent amount of termaround for the best deal. Even among term policies
insurance. It's like paying $75,000 for a $15,000there is a wide variance in price."EndPostscript:It is this
automobile just because you went to the wrongauthor's hope that anyone in possession of this article
dealership."To keep their customer's attention awaypass it onto their relatives, friends, and neighbors. The
from the high cost of cash value, agents focus theirinformation in this article can put many thousands of
sales spiel on the investment feature, usually with theextra dollars in the bank accounts of those who need
aid of reams and reams of incomprehensible computerit most.Copyright 2000
printouts. This sales tactic has literally duped theMarsh Kaminsky CPA (retired due to disability)
American public out of trillions of dollars in the last 150e mail: Because of Multiple Sclerosis, I am a retired
years, ever since cash value was invented."Jan, howCPA. Besides my interest in life insurance, I have a
much time did the agent spend last night talking aboutvery strong interest in early preschool learning.
the actual insurance protection versus how much