Ask a life insurance agent that has built his career convincing people that whole life insurance is everything you will ever need, about term insurance, and then cover your ears. You will still be able to hear them just fine. Their voice will have raised enough to overcome your hands and probably a few pillows. I’ll explain their disdain for term insurance and their love of whole life shortly.
Term insurance is simply the right choice for most of us average folks. The truth is that if I want to make sure my family is taken care while my children are still dependent on me, a 20 year term is the perfect choice. If I am thinking there might be more children in the near future, maybe a 30 year term is the best idea. Why term and not whole life for family protection??
Let’s say we determine that $500,000 is the right amount of coverage during those family years. Just for the sake of this model we’ll say the parents are 35 and very healthy. They make about $40,000 a year. The mom would pay about $235 a year for a 20 year term insurance policy and $370 a year for a 30 year guaranteed level premium term insurance policy. The dad would pay $255 and $475 respectively. I should note that getting these prices will require going through an independent life insurance agent who has access to the lowest life insurance quotes. Also keep in mind that those rates are guaranteed to remain level for the full 20 or 30 years.
Now, in walks Mr Whole Life agent. He knows they only make $40,000, so today he is going to cut them some slack and suggest that they go with a universal life policy with a no lapse guarantee. With his insurance quotes the dad would be looking at a level rate until age 100 of $2225 a year and the mom at $1765 a year. Round figures they are looking at $4000 a year. That is one tenth of their pretax income for life insurance. A 30 year term would have been about 1/50th of their pretax income.
Oh, I almost forgot to tell you why Mr Whole Life sells whole life and universal life. A conservative guess is that he will make a 75% commission on the first year and about a 5% renewal every year after that. So if he doesn’t sell you term insurance, which really is the more appropriate product, he will make $3000 the first year and $200 a year each year you renew.
Term insurance is a little different. In round figures, a 30 year term on Mom and Dad would run about $850 a year. The life insurance agent would make about 75% of the first year premium, or $612.50. He doesn’t get any renewals after that. Do you suppose Mr Whole Life’s opinion on the appropriate product is influenced by his bottom line??
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