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. I personally own a 30 year term insurance from Primerica and I also open my Roth IRA there as well.

Agents make more commission on whole life. Whole life is a lot more expensive.

Take the level term policy which gives level premiums for a certain amount of years. You get more insurance for your dollar. Then, also take out a 401K or IRA and invest your savings there.

Only honest insurance agents will tell you that. Because they make more commission on whole life or universal life, not many will tell you the truth.

First of all, the agent makes more commission off of whole life insurance. The company will make more profits on whole life vs. term because whole life stays in-force a lot longer than term and becomes very profitable in the long run. I will honest, i am not too crazy about whole life. You extremely over fund the policy and it is hard to afford the amount of coverage that you really need. On the other hand, term is only temporary and at the end of that term, all of that money is gone and your health may not allow you to renew that term. I really like the adjustable life insurance policies. That policy allows you fund whatever amount over the minimum. You can get a larger policy for lessor premium than whole and fund it as long as you want to. You have the option in the future to fund it more, if you desire. If your budget allows you to spend $300 a month on life insurance, buy an adjustable life and a term policy for around $150 per month. Then take the difference and max out your 401k or IRA. Don't let a life insurance agent sell you on the fact that whole is a good investment. Most of those policies earn 4-5% interest and you will do extremely better in the market now, while it is close to the bottom.

Most people only keep a life insurance policy in force less than five years. 70% of the people that die in the USA, do not have active life insurance at the time of death.

That's a major factor in how the companies make money.

As was mentioned by other people, agents make about 10X as much commission selling whole life.

Whole life is OCCASIONALLY the best life insurance product for a situation. But MOST of the time, Term life and investing the difference, is BETTER. Life insurance is NOT an investment.

Term policies, you can buy one that's guaranteed renewable, and convertable, if you want. But if you invest the difference in premium between term and whole life, in 20 years, you'll have that whole "payout amount" sitting in your investment account, and you can afford to be self insured.

Life insurance is a bet. You're betting you'll die while the policy is active. The company is betting you'll live. Whole life, if you run the numbers, you'll see that the insurance company will make many, many times the payout amount, in premiums and investment income, off of YOUR dollars, before they have to pay out. IF you keep the policy in force until you die. Which, most likely, you won't.