A Primer on Life Insurance for Mothers

One of my client's wives paid me a visit to inquire about life insurance, a merchandise I was well acquainted with. She told me that she and her hubby were visited last nighttime by a life insurance agent. "Jan, what did he seek to sell you?"

"A $90,000 whole life policy with an annual insurance premium of $500. Are that okay?"

Knowing that few people really understand life insurance, I asked her if she really understood what the agent was talking about.

"I thought I did last night," she replied, "but when I woke up this morning, I wasn't so sure. That's why I'm here. You once told me to never purchase life insurance unless I talked to you about it. Well, I'm here. Could we confabulate about it?"

I was glad that January was here instead of Mark. I have got learned that it is much easier to speak to women about life insurance than men. Women look to break understand the financial effects of their spouses' death, especially if they are mothers. Most men, however, don't desire to confront life insurance because they believe that they will never die. Women cognize better.

I was no stranger to the cloudy human race of life insurance. Throughout my 20 old age as a CPA, I'd often locked horns with insurance agents and financial contrivers who wanted to sell garbage life insurance merchandises to my clients. In my function as a CPA, I always believed that it was my occupation to move as a female parent biddy and protect my clients from the wolves.

I began by asking January a inquiry that rapid climbs to the bosom of the matter. "Tell me Jan, why are you buying life insurance? What make you trust to accomplish?"

She answered, "To protect me and the children in lawsuit Mark dies."

That quickly established the fact that January knew about the cardinal issue: that life insurance have but one purpose: protection in lawsuit catastrophe strikes.

Then I asked her another question. "Just say that you knew for certain that Mark was going to decease tomorrow. How much life insurance would you purchase on his life ---$90,000 or $450,000 --- assuming the insurance premiums were identical?"

She looked at me as if I was crazy. "I'd purchase the $450,000 policy. Who wouldn't?"

I then gave January a quick instruction about life insurance, explaining that there are only two sorts of life insurance, term and cash value. The problem is knowing which one of them is the better buy.

Term insurance is pure insurance ( protection) coverage. If you pay the insurance premium and decease , the insurance company will pay the human face value of the policy to your beneficiary. It is available to age 95 and can be purchased yearly, or on a guaranteed degree insurance premium footing for 5,10,15, or 20 years. The merchandise is unsophisticated and very inexpensive. The premiums, however, make addition each clip the policy is renewed since the insured have grown older.

Cash value life insurance (sold as whole life, endowment, consecutive life, lasting life, universal, and a zillion other names) is the second type. It differs significantly from term because there is a nest egg or investing characteristic attached--the cash value. About 75% to 80% of every insurance premium dollar travels to this cash value "kitty" and the residual pays for the existent life insurance protection. These policies typically last to age 100 and the insurance premiums stay degree for one's full life.

Thus, in one slickness package, a cash value life insurance policy claims to carry through two worthy goals: death protection and household savings. It was my occupation to convert January that cash value insurance neglects miserably on both counts and that she must, for her and her children's sake, purchase pure term life insurance and nil else.

"Jan, there are two grounds why you must not purchase that whole life policy or any other cash value product. First and most importantly, cash value life insurance is anywhere from five to 10 modern times more expensive than the equivalent amount of term insurance. It's wish paying $75,000 for a $15,000 automobile just because you went to the incorrect dealership."

To maintain their customer's attention away from the high cost of cash value, agents focusing their sales patter on the investing feature, usually with the assistance of reams and reams of incomprehensible computing machine printouts. This sales maneuver have literally duped the American populace out of millions of dollars in the last 150 years, ever since cash value was invented.

"Jan, how much clip did the agent pass last nighttime talking about the existent insurance protection versus how much money you'll earn from the cash value policy?"

She thought a spot before answering. "Well, he spent the whole eventide going over a clump of computing machine printouts that showed us how rich we'd be in 50 old age when we retire, and how much we could borrow from the policy if we ever needed a loan."

"But what did he state about your protection needs?"

"Come to believe about it, hardly anything at all. After we told him that we could afford a $500 annual premium, he looked in a book and said that he had establish a great $90,000 whole life policy that we could afford. But about protection, he really said very little." I could state that she was starting to abound in anger, a mark that I was doing a good job.

I then told January that people with children living at home should have, as a regulation of thumb, about eight to 10 modern times their annual gross income in life insurance protection. For Mark and Jan, that translated into at least $475,000. The agent who met with them should have got got figured that out and done his extreme to guarantee such as adequate protection.

"You see Jan, that agent's exclusive accent should have been on your financial protection in lawsuit Mark deceases tomorrow, not about making you a rich lady in 50 years. The agent's determination to sell you the anaemic whole life policy would literally rob you and your children of $385,000 if Mark deceases tomorrow."

"But Mark is not going to decease tomorrow. Don't state that!"

"Jan, you don't cognize that. He could decease tomorrow or in a hebdomad from any 1 of a thousand and one different causes. And so could you or I. That's wherefore you must be fully protected right now. Life insurance is a today need."

I continued..."Jan, retrieve when I told you that there were two grounds to avoid cash value life insurance?"

"Yes."

"You told me January that the agent spent most of last nighttime talking about the wonderments of the cash value investment. Now I am going to give you the existent scoopful about that." This 1 always sets the concluding nail in the cash value coffin.

"The cash value," I continued, "is not like an ordinary investing such as as stocks, bonds, or a bank nest egg account."

"But the agent said it was just like a bank nest egg account..."

"It resembles a nest egg account about as much as a shark resembles a goldfish. State me Jan, what make you believe haps to the cash value---the promised pot of gold---if Mark dies? Who gets it?" The merriment starts...

"That's easy," she replied, "I do...it's our money...our investment...right? Marsh...tell me I am right!"

"Sorry, you are wrong. If Mark dies, the insurance company maintains it. That agency that all that extra insurance insurance premium you paid for so many old age travels up in smoke."

"So what make I get if Mark dies?"

"You get the human face amount of the policy...but you could have got gotten that for a 5th of the premium with a term policy."

"Marsh...you can't be serious. In my worst nightmare, I would not anticipate something like this. Are you sure?"

"Very. But if you desire some cogent evidence of your own, get the book What's Wrong With your Life Insurance by Jessye Norman Dacey. That's just one of many books in the library that echoes what I have got been yapping about. Don't believe I am the Lone Ranger on this."

Apparently she got fed up. Her voice rose as she said, "The agent never said word 1 about any of this! Are you telling me that he bent our ears off last nighttime just to sell us a fool change policy that volition leave of absence me seriously underinsured just so he could do a bigger commission...and that they steal my investing to boot if Mark dies?"

"That about hits the nail on the head. And one more than thing...when you state the agent you desire a term policy instead, anticipate another visit from him. Be aware that they are very well trained in changing minds. Plus, you might desire to shop around for the best deal. Even among term policies there is a broad discrepancy in price."

End

Postscript:

It is this author's hope that anyone in ownership of this article base on balls it onto their relatives, friends, and neighbors. The information in this article can set many thousands of extra dollars in the bank accounts of those who need it most.