Life Insurance and the Sick and/or Elderly
Part 2
May 16, 2016
Last Week
Last week, I talked about what life insurance is for. That it's primarily for replacing lost income due to death. I also explained that there are basically 2 types of life insurance on the market today (Term and Cash Value) and the difference between the 2. I also mentioned that as a life insurance agent, I ONLY recommend and sell Term Life Insurance even though I have been challenged a few times on what kind of life insurance someone should get if they were sick or elderly. And lastly, at the end of the blog, I mentioned that ALL cash value policies are a complete rip off. Here's why.
Why Cash Value is a Rip Off
The reason I say they're a rip off is because there are only 3 ways you can have access to the cash value portion of those policies. 1) You reach 100 years old. 2) You cash out the policy. And 3) You take out a loan on it. Which you DO have to pay back. If you don't pay it back, the insurance company will take what is owed out of the death benefit once you die.
And here is the biggest reason why cash value policies are a big rip off. When you die, the insurance company KEEPS the cash value portion and only pays out the face value (death benefit) of the policy. How is that right?
Buy Term and Invest the Rest
Another way insurance companies push these cash value policies is that they emphasize the cash value as a way to "Save For Retirement". So let's look at that a bit. I got quote for a whole life policy from a nationally known insurance company and compared it to a term policy from another nationally known company, I would sell.
I based both policies on myself. A 50 year old, non-smoking male, wanting a $50,000 death benefit policy. As you can see below, there is a huge difference in the monthly cost.
Whole Life / 10 yr Term
$109 per mo. / $22.70 per mo.
A difference of $86.30. That's huge! Even if I were to bump the term policy to a 30 year policy, I wouldn't even come close to the monthly cost of the whole life policy ($43.77 per mo.) So what would happen if you bought the term policy above and invested the rest outside the insurance company? $86.30 at a 10% rate of return for 35 years (30 to 65 years old) would be just over $311,165.
Now you're probably thinking, "How much is the cash value making?" Even though the nationally known insurance company did not give out the rate of return in their quote, all cash value policies have a horrible rate of return. Just a little better than CD rates (which are between 1.05% - 1.35%). So I gave it (this is a guess on my part, not factual) a 3% rate of return. For the same 35 years, it would be just under $64,736. A difference of $246,429. So which one would you pick?
Part 3
Again, I hate to leave off on sort of a cliffhanger, but there is still a lot of information on this topic and I don't want to leave any of it out. I also don't want to make this post really long. So we will pick up where we left off here on May 23rd.
Hey, If you haven't done so already, check out our Facebook page. I share all kinds of money tidbits there that you may find interesting. Hope to see you there!
And here is the biggest reason why cash value policies are a big rip off. When you die, the insurance company KEEPS the cash value portion and only pays out the face value (death benefit) of the policy. How is that right?
Buy Term and Invest the Rest
Another way insurance companies push these cash value policies is that they emphasize the cash value as a way to "Save For Retirement". So let's look at that a bit. I got quote for a whole life policy from a nationally known insurance company and compared it to a term policy from another nationally known company, I would sell.
I based both policies on myself. A 50 year old, non-smoking male, wanting a $50,000 death benefit policy. As you can see below, there is a huge difference in the monthly cost.
Whole Life / 10 yr Term
$109 per mo. / $22.70 per mo.
A difference of $86.30. That's huge! Even if I were to bump the term policy to a 30 year policy, I wouldn't even come close to the monthly cost of the whole life policy ($43.77 per mo.) So what would happen if you bought the term policy above and invested the rest outside the insurance company? $86.30 at a 10% rate of return for 35 years (30 to 65 years old) would be just over $311,165.
Now you're probably thinking, "How much is the cash value making?" Even though the nationally known insurance company did not give out the rate of return in their quote, all cash value policies have a horrible rate of return. Just a little better than CD rates (which are between 1.05% - 1.35%). So I gave it (this is a guess on my part, not factual) a 3% rate of return. For the same 35 years, it would be just under $64,736. A difference of $246,429. So which one would you pick?
Part 3
Again, I hate to leave off on sort of a cliffhanger, but there is still a lot of information on this topic and I don't want to leave any of it out. I also don't want to make this post really long. So we will pick up where we left off here on May 23rd.
Hey, If you haven't done so already, check out our Facebook page. I share all kinds of money tidbits there that you may find interesting. Hope to see you there!
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