Argumentative Article About Health Insurance
Argumentative Article About Health Insurance
Insurance: Beware of Universal Life
Have a life insurance agent suggested that you buy 'permanent' insurance such as Whole Life, Universal Life or Variable Universal Life? The reasons they give seem so compelling, but are they in your best interest? Here is an explanation of the basics, plus what the insurance agent not tell you!
There are two main categories of life insurance – term and permanent. The basic idea behind life insurance is that if you die early, there will be a bag of money to take care of your loved ones. This bag of money is called "death benefit".
The cost of life insurance based on your age, your sex and your health. The insurance company bases premiums on the risk that you will die. The older you are, or the poorer your health, the more expensive the insurance will be.
The "raw" cost of insurance goes up every year because the risk of death increases every year. Term and permanent insurance payment approach plan differently. With level term, these increases in the costs spread out over 10, 20 or 30 years, and premiums kept the same. If you renew your policy at the end of the word, will your insurance costs rise.
With permanent insurance, your premium the same as long as you own the insurance, up to age 100th This way, you will not be in a situation where it becomes too expensive as you age. Initially you pay more than the raw cost of insurance and that the money held in reserve. When crude costs insurance is higher than your premium, the difference from the reserve.
The difference between Whole Life, Universal Life and Variable Universal Life has to do with the return you earn on that money while it is held in reserve. Whole and universal essence pay interest while variable universal allows you to "invest" as a reserve in mutual fund-like accounts.
On the surface it may seem that there should be a lot of difference between the premium on 20-year period and a universal policy with the same death benefit. But let's look at some real numbers. The annual premium for a 45-year-old man in excellent health for $ 1,000,000 in coverage is $ 1,400 for years for 20-year period. The man would pay about $ 8,000 a year for permanent insurance. That's right – about $ 6,600 more each year.
This reserve in the permanent insurance can be a significant over time, so they allow you to borrow money in reserve. This has led to the use of permanent insurance for needs other than death benefit as a way to build a retirement nest egg. The 'trick of the day "is that you must take all the equity out of your home and put it into a universal life insurance, because it will allow you to build your wealth faster. (I expose the fallacy of this argument in a forthcoming article.)
What your insurance agent will not tell you is that the commission on permanent insurance can be about 70% of first year premium and then maybe 5% a year extra premiums. Commissions on the first year term premiums can be as high as 100%. In our example above, the agent make about $ 5,600 on permanent versus only $ 1,400 on sight. This higher commission is a huge incentive for agents to sell permanent insurance instead of the word.
The result is a huge conflict of interest between clients' needs and wants the agent. I would like to think that every agent will always do what is in the client's best interest, but we know it is not the case. And most agents are convinced that expression is a waste of money and that permanent life insurance is the best choice. I do not.
I believe that permanent life insurance should be used only in special situations such as to cover property taxes due on death. I do not think it should be used when you want to provide for your family in the event of a premature death. I do not think it should be used as a way to "build wealth 'or as a form of pension scheme. In my next article I will explain why.
About the Author
Nationally-syndicated financial columnist and Certified Financial Planner Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question FREE at http://www.guardingyourwealth.net/