The biggest difference here is how and why to use each type of insurance.

Don't be fooled, Term policies pay a nice commission as well. One reason they cost so much less is that over 95% of term policies never pay out! On the other hand, permanent insurance held to maturity or kept in force, pay out 100% of the time.

So where is term right and when is permanent right?

As pointed out, it is good to have a large face value when you have a family you want to protect. This is probably best accomplished with a 20 or 30 year term. The rates are higher than 5 or 10 year rates, but you have a product you can keep without rate hikes later on. Also if using term, you should always be certain it is convertible into permanent insurance. The last thing you want is to die a week after the policy is closed because it could not be converted. You also want to know your rates will remain level, not have annual increases.

Often this approach is used to inspire investment outside of a life policy. Unfortunately, a vast majority never get around to the investment part, so when the policy comes time to close, there is no investment dollars to take it's place as a means of providing security.

Permanent insurance is also used (frequently by the most wealthy of families) to create a tax free growth vehicle, access to the dollars on a tax free basis, and a tax free way to pass along an inheritance or charitable gift.

There will always be arguments on both sides but knowing the difference between them and using the right product for the right purpose will always serve you best.

Personally, I don't like life insurances but for many people it may be a good choice.

It's always important to shop around and know what you are looking for.

I also think that too man people are too concerned with tax-fee 'investments' but that's just a personal opinion.

I think the need of a life insurance depends on how financially intelligent you are.

A young couple may get one becasue you never know what will happen tomorrow but there are clearly better ways to put the money to work for you that you will spend on the life insurance.

In the end it's all a personal preference.

Another thing to consider is your current health, and whether the insurance company will accept you.

Some people are now going online to look at another option for term life insurance without taking a physical exam.

You can get free quotes online and apply online in a matter of minutes for up to $250,000 of level term life insurance.

This may be an option for people who need life insurance quick, or those who don't want to take any physical exam or blood tests.

Keep in mind, this type of coverage may cost more because the insurance company doesn't fully underwrite it. They only ask you a few health questions and let you know immediately if you qualify for coverage.

I agree entirely with Dru, and Hadley has made some good points, too.

Insurance companies actually hate Whole Life insurance, and would prefer to sell you Term, Universal Life and Variable Life insurance. Why? For a few reasons.

1. As Dru pointed out, Term insurance rarely pays out a death benefit. Making the premiums 100% profit (minus some administrative costs).
2. Whole Life has higher Guarantees than most policies, which the insurance company is on the hook for.
3. Universal Life has the highest lapse rate of any of the permanent products. Low guarantees and low cash-value returns = disaster.
4. VUL has few guarantees, a high lapse rate, and very high fees. Not to mention, the sub-account performance is your responsibility as an investor, not the insurance companies.

My comments on PPL's note...
1. True, there is term and permanent. Permanent includes whole life, universal life, and variable life, plus other variants. Technically, UL and VUL are only permanent in the sense that it's only if you pay the necessary premiums, which can increase/fluctuate.

2. Every insurance and financial services product is technically "sold". In fact, sales make the world go round. You wouldn't have a job if it weren't for sales. None of us would. Now, I do agree that you can be an educated shopper, ask intelligent questions, and find professionals you can trust.

3. A good insurance agent would never recommend being underinsured. If you cannot afford a full whole-life premium, a good agent will re-structure your insurance program to compensate. This can be done by using some term insurance, term riders, or policies that are structured specifically for low premium. A life insurance policy needs to be designed for a client, and these things would be taken into account.
And from a macroeconomic perspective, whole life policies are CHEAPER than term. The premium remains fixed, and therefore becomes cheaper over time. Not to mention dividends can begin paying premiums, even in early years, making out-of-pocket cost go down. Whole life has profound economic benefits from an estate planning and retirement planning perspective.

4. You do not understand whole life insurance. WL is built on Guarantees. A WL policy has to "endow" at a specific age, and the guarantees ensure that those cash values earn an internal rate of return necessary to get the cash values to that level by that age. What is promoted, are the dividend rates, which are not guaranteed. These rates are above and beyond the guarantees. No professional insurance agent should be selling policies off of dividends.

5. Insurance is not an investment. But you have to plug the holes in your bucket before you can fill it up with water. The best investment program in the world won't help your family when you die prematurely or become disabled.

6. I agree entirely here. However, many people define "needs" differently, so do some research. You should carry the largest death benefit that an insurance company will issue, with waiver of premium to protect against disability, and conversion to whole-life options.

7. I've already written enough, but there are significant retirement and estate planning benefits to having life insurance after retirement. Buying term insurance just to get you there will not allow you to take advantage of these benefits. And if your health changes, you may be stuck.

8. Definitely buy when your healthy. This is where conversion is an important consideration. Not to mention waiver of premium.

9. Agreed, tell the truth. Some smaller insurance companies are notorious for fighting death benefit claims, mainly because they do not have the financial resources built up enough to be able to absorb any increases in their projections.

10. Life insurance should NEVER be bought over the internet. Not even term. Now, you can research companies, products, and features over the internet, but DO NOT buy insurance this way. I can show you a single life insurance product that can be issued 50+ different ways. They can be built customized to your unique needs. Find an agent you trust, because they will be the ones delivering that check to your family if something happens to you.

Sorry for the length!!!!

PPL, I wasn't going to reply to this thread but I just can't resist throwing in my 2 cents. I'm going to respond to each and every one of your assertions.

Keep in mind I'm NOT attacking you personally.

I'm simply replying to your topic and perhaps offering a perspective from someone with 23 years experience in the financial services industry who has SOLD hundreds of life insurance policies over the years and earned tens of thousands of dollars in COMMISSION in the process!!!!!!

Okay, let's play.....

PPL wrote:
True.
But not really accurate.
All polices are either Term or some form of Cash Value. To characterize all cash value policies as some form of Whole Life is simply not accurate.

What would call Return of Premium Term? It's not "pure" term insurance and it's certainly not Whole Life, however, the insured gets back every penny they paid for the life insurance at the end of the term.


Your comment is a blanket condemnation of an entire industry. Agents don't sit down with clients with a gun pointed at their heads demanding they buy one form of life insurance over the other. That's not how the sales process works.


PPL, the internal cost of insurance and the risk to the insurance company of providing the death benefit is the same regardless of whether the policy form is Term Insurance or some form of Cash Value life insurance. To compare the premium of a term policy with the premium of some form of cash value insurance with the exact same face amount is an apples and oranges comparision.

Your statement.....
.....is patently false.

The first thing that's determined in any life insurance interview is how much life insurance is NEEDED. The affordability is a separate issue and obviously a person's financial circumstances will dictate how they pay for their protection.



Another blanket condemnation. "Agents" have NOTHING to do with company software or projections and each and every cash value life insurance application submitted is accompanied with a signed proposal from the client clearly identifiying the policy's CURRENT projections along side the policy's GUARANTEED VALUES.



Another blanket condemnation.

PPL, are you aware that typical agent first year commission for term life insurance is 90%-100% to perhaps 105% of the first year's premium?

There are fundamental reasons why insurance agents are paid COMMISSION rather than an hourly rate or a weekly salary. I'm quite certain if any insurance company could pay their agents minimum wage to market and sell their products THEY WOULD.


The "historic lows" are for Super Super Extra Super Preferred Non-Tobacco Rates that very few persons will qualify for and get the policy as applied. Less than 20% of these policies will be issued at the low ball sucker rate within the 35 to 65 age range.

AND even if YOU are perfectly healthy in ALL areas, if your Mom or Dad died of any form of cancer or had a heart attack prior to age 60 you will be slapped with the Standard Rates which will be just about double the quoted premium.



Really? That's it? Just those two criteria are all that one should consider when buying life insurance? So are you saying, Federal Estate Transfer Taxes, Business Buy-Sell Agreements, Employee Benefit Plans, Charitable Funding, Business Loan Collateral Assignments and other such uses are not to be considered?

PPL, does a persons needs and circumstances, wants and desires change over time?

I'm not following your point about holding life insurance until retirement income kicks in. Term life insurance is certainly not going to supplement anyone's retirement income and retirement proceeds from pension plans would be paid to the named beneficiaries. If you're talking about having life insurance to provide for a survivng spouse to augment income in retirement because of the loss of their deceased spouses Social Security Income then Term Life Insurance is absolutely most inappropriate for that objective.



Yes PPL, "Buy when you're healthy." Because if and when you become uninsurable then YOU CANNOT buy life insurance at any price.

Your statement,
"but don't buy until you have dependents."
is contradictory.

Do you think perhaps a young married couple with no children might want to provide for each other if one predeceased the other? Once again are you saying that having dependents is the ONLY trigger for the consideration of life insurance?



Hmmmmmmm, shade the facts???? The medical questions on a life insurance application are YES or NO. There is nothing to shade. Anyone applying for any type of significant death benefit with any reputable company is going to be required to submit to a Paramed Exam, Blood Test and Urine Test at the very minimum. There's not a whole lot of room to shade anything.




Yet another blanket condemnation.

Term Life Insurance quotes are a joke. They are sucker rates. Have you seen the commercials? A male age 40 could get $250,000 of coverage for under $15 dollars per month!!!!!

Oh it's true...... for their Super Super Extra Super Preferred 10 year term rates THAT NOBODY QUAILIFIES FOR. Not to mention the premium explodes in the 11th year and if you become uninsurable you're stuck.

An insurance agent would know this and advise you of the 11th year premium explosion along with the fact of life that one risks becoming UNinsurable in the future.

By the way PPL. It is insurance agents and agencies who own and market those online term insurance web sites and they are paid 90%-100% to perhaps 105% or more of the first year's premium when you buy the policy online.

So while you may have avoided the pushy commission salesperson the insurance company still paid the EXACT same commission to the agent who owns the online agency.

__________________
Gary Spicuzza, *SAFE
Copyright 1956.
No Rights Reserved.
*Self Appointed Financial Expert

agree, but still have tone of term and regulation can't be understand ............need to open a law forum for this situation...ha

__________________________________________
a penny a day, make life happy always

Before purchasing low cost life insurance, be aware of factors generating life insurance rates:

1) Your age and sex. The younger you are, the easier it is to find life insurance policy with low premiums and correspondingly the older you are the higher the premiums.

2) State of health. If you aim at life insurance with low premiums, you are obliged to improve your health, for example stop smoking and drinking alcohol, make physical exercises, lose weight and so on.

3) Risky hobbies. It’s advisable to give up risky hobbies, if there are some.

Do search properly for various quotes, fill them out and compare.

Uh, I think there is more info. on here than most people need/want to know.

How can I insure my family the cheapest against the loss of my future income if I die before my kids get out of college? Term.

Which policy, term or whole life, would allow me to invest more of my disposable income in other instruments to get a good return as I move to retirement? Term.

Is insurance an investment? No, you only get back more than you put in if you die while the policy is in force.

How can I tell whether the insurace company that I'm considering is a reputable one? Look at their AM Best rating. You want an A+ or A++ rating.

All Things Personal Finance...And Then Some

Uh, I think there is more info. on here than most people need/want to know.

How can I insure my family the cheapest against the loss of my future income if I die before my kids get out of college? Term.

Which policy, term or whole life, would allow me to invest more of my disposable income in other instruments to get a good return as I move to retirement? Term.

Is insurance an investment? No, you only get back more than you put in if you die while the policy is in force.

How can I tell whether the insurace company that I'm considering is a reputable one? Look at their AM Best rating. You want an A+ or A++ rating.

All Things Personal Finance...And Then Some

Yes!! Nice information that you have shared with us.
Thank you very much

Very helpful posts.

I just registered in this forum because I was looking for a way to discuss the rip off that I think my little "burial policy" is that I bought through my Credit Union.

It is a $6000 policy that I have been paying on for 4 and a half years.

I recently complained about this policy to the State Insurance Department because supposedly there is a 27 day period beyond the 31 days grace period that it will pay out in and the insurance company refuses to set this 27 day policy out in writing in the policy.

Turns out the state law says they don't have to. They only have to put in writing the 31 days, so to me that 27 day policy is nonexistent and is some kind of sales propaganda or something.

It appears to me that this insurance company is in actuality doing several little tricks to prevent actually ever paying out the $6000 to my beneficiary upon my death.
Apparently all the little tricks are legal, but I bet if I had the data, it would be shown that of all these kinds of policies CUNA Mutual sells through my credit union, an extremely low percentage ever pay out. I also bet the state department of insurance does not even gather or keep current statistics on this.

That to me is a huge rip-off. But I see this forum is for the big guys, not little moneyed people like me who are being ripped off in a small way.

I need to decide whether to just stop paying on this rip-off policy because I sincerely believe this crooked insurance company is never going to pay, even if the claim is made promptly and if I was properly paid up on my premiums at the time of my death. I bet the insurance company even claims that they did not receive the premium payment in the mail by the due date or some such scam.

Nobody is watching the crooked insurance companies and the average person like me does not begin to understand the myriad of ways the insurance companies can rip the little people off.

Dachsie I read your post and I'm not sure what you are upset about but I'll try to shead some light on your grace period issue.

Yes, by state law most states mandate a 30 day grace period before a policy will lapse for NON-PAYMENT of premium.

That's one issue and is clearly written in the policy.

Now by "company practice" many companies will allow an additional 30 days BEYOND the grace period by which an insured can pay all back premium and have the policy re-instated WITHOUT new evidence of insurability.

That type of "company practice" would not and is not stated within the contract itself because it is not part of the contract but it is a "company practice" and they reserve the right to alter or amend their company practices.

Your comment below is wrong:
NO. They don't pay the death benefit after the grace period expires.

Once the grace period has expired you no longer have life insurance and if you die after the 31 day grace the company WILL NOT pay the death benefit.

The 27 day period you refer to after the policy has lapsed BY COMPANY POLICY is the period of time they are allowing you to RE-INSTATE your policy without submitting new evidence of insurabilty IF you pay all the back premium.

Some companies allow up to six months to re-instate a policy.

So my question to you is.....

Did you get behind or miss or stop making your premium payments?

I fail to see what the insurance company has done wrong.

Did I miss something?

__________________
Gary Spicuzza, *SAFE
Copyright 1956.
No Rights Reserved.
*Self Appointed Financial Expert

GaryS.,
Thank you for your reply.

I found out about the "extended grace period of 27 days" accidentally in a phone conversation with an insurance company customer service person.

I did forget one premium and accidentally discovered I had forgotten. I promptly paid all premiums due within the 31 day "grace period". I bought the policy under the agreement they would send me a monthly statement and I would send a check. I did that without hitch for about three years, but then the ins. co. said they could not afford the stamp and the monthly statement and said I had to remind myself to pay premiums on time and use their coupon book. So, I forgot to check my calendar and was slightly late on one payment over about a 5 year period.

So I called customer service and asked just what would happen as far as payout to my beneficiary if I died and had missed a payment. She told me about the 31 day grace period but she also mentioned an additional 27 day extended grace period. She indicated that that extended period was also a period in which my beneficiary could collect on the policy. She seemed to be rather silent on this topic and wanted to change the subject and when I asked her if the 27 day extended grace period was written in my policy, she replied "no, that is not something we really want our policy holders to know about." Naturally that sounded illegal to me so I filed a complaint with the Insurance Dept.

Even in their reply to me, they did not make fully clear that the extended period has only to do with right to reinstate policy without having to "requalify." I only learned that from your post.

I think all of this information about the grace period ought to be made very clear.

Anyway, I read somewhere in this thread I think that a very small percentage of these kinds of small "whole life" policies ever end up paying out. I am still looking for some data on that. Unfortunately it apparently is not one of the functions of the Texas Dept. of Insurance to put out studies and pamplets informing the public about what percentage of the time these policies and these companies actually deliver what they sold.

Of course, the whole economy is going bust now and with AIG's fall, the whole insurance industry is looking more corrupt than ever, even to those of us in the general public who are uninformed as to accurate and complete insurance data.

I think the average person would be wise to just set aside their premium amount to a separate private fund for their "burial policy" and not send a monthly donation to an insurance company. But no one will educate the average person about the pitfalls of insurance.