insurance

Agents are always extremely keen about selling my family whole life insurance instead of term. According to the agents, whole life is preferable to term since it does not expire and as a result the beneficiary is guaranteed some payment upon the death of the insured. However, why would the insurance company profit from such a setup if they are bound to pay back an amount that is at least equal to the total amount paid?

I have tried to do some research on my own, but I still can't seem to fully understand this matter. Any help will be greatly appreciated!

Basically insurance only works when a large groups of people own that particular insurance. Everyone pays to protect their income, but not everyone is going to use their insurance. So that's how basically insurance companies stay in business, unless something extraordinary has happen in this country where there's lots of people are filing for claims and the insurance company can't pay them all (such as the Hurricane Katrina event).

What is whole life insurance?

1) Its a level term insurance to a specified age (usually to age 95, 98 or 100) plus cash value.

2) It is very expensive when compared to term insurance

3) Cash value grows at a very low rate of return. In the first 10 years, you see a negative return on your money. But long term average is anywhere between 1-4%, depending on the company.

4) If you want to take money out, you have to borrow it and pay loan interest of 5-8%.

5) If you die someday, the insurance company pay the face amount of the policy (minus loans and missed premiums) to the beneficiary, but they keep all the cash value.

6) If you do get to live by the end of policy date (when you around age 100), the insurance company pay you the cash value, but you lose the insurance.

There's only one reason why that agent is trying to sell you whole life insurance: MONEY!

Next thing you'll know, that agent would try to sell you universal life insurance, a product that is more horrible than whole life, but it pays out more commissions.

Go with your instinct and find a different company who would listen to your needs. Try this site

http://free-best-life-insures-comparator-usa.blogspot.com/

Here you can get quotes from different life insurance companies in your area, its the best way to find an affordable life insurance with a reliable company.

It is much more profitable to THEM than term policies - so they tout it as a "good investment" for you. However, for most people, level term life insurance is a much better deal. You can get a much higher benefit level for the same premium dollars.

The purpose of life insurance is to protect your survivors by replacing your lost income - not to be an investment.

The Personal Finance section of Yahoo Finance explains the basic differences.

think of whole life as a combination of term life with a savings account added on. term life is just insurance and is much much cheaper. basically you are being overcharged for them and can save dollars by having a separate term policy and a savings account. remember that the whole life policy only pays off if the policyholder keeps the policy in force by paying premiums and that may be a very long time during which the company has your money to invest.

the reason they are pushed so much is the very large commissions for selling whole life causes the agent to give you a very biased view.

Both forms of insurance are profitable for the insurance company. Only the whole life is more profitable for the agent (assuming the same face amount). Any investment firm (i.e. bank, insurance company, etc...) profits from the margins on the money they manage. The more assets they hold then the more profitable they can become.

Whole life is a "gimick" policy, where the rate is set for your entire life - you pay into it until you turn 99, and a small amount of what you pay in, goes into 'cash value' - which is sold as a type of savings account.

The "bonus" of that savings account, is if you decide to cancel your policy, you get that savings money, minus a cancellation fee (usually a few hundred dollars). Plus, if you don't want to cancel the policy, you can BORROW that money, and pay interest to the insurance company - but if you die wihtout paying it back, the insurance company subtracts that borrowed amount from the payout (which makes it their money, not yours). Also, if you die, that savings amount goes to the insurance company.

95% of whole life policies stay in force less than five years. When people actually sit down to run the numbers, they find out that it's a poor investment - and generally, that's how it's sold, as an "investment" or "wealth building" tool.

Whole life is preferable to term, for the most part, because it makes a whole lot more money for the agent.

There ARE some cases where whole life is the appropriate type of policy to get. But for the vast majority of people, TERM is the way to go.