What Your Insurance Agent Will Never Tell You!May 19 '00 Write an essay on this topic.My eyes lit up last night when I realized that this section had been added to the Epinions' menu, because, you see, I use to be an insurance agent. And while I was training, I learned more about life insurance than I really wanted to know. It took reading a book entitled How Your Insurance Policy Robs You to open my eyes to one of the largest industries in America and how they defraud, yes defraud, millions of unsuspecting clients every year. I want to share some of the things I learned about life insurance. Now insurance agents don't want you to know what I am about to tell you, and they will hate me for telling you this, but I know whereof I speak. And at the end of this editorial, I will give you some questions to ask your agent. Insurance is based upon the concept of shared risk. When you sign a contract you are agreeing to share the risk of loss with the pool of people who have also signed similar contracts. This is true of all forms of insurance (health, casualty, auto, etc.). That means when someone in your life insurance pool dies, your payments help pay that claim. Now bare in mind, there are millions of people making those payments, and the companies invest that money and also buy policies with re-insurance underwriters to protect their losses. Have you ever wondered why few insurance companies seem to ever go broke? It is a trillion dollar empire. They have more money than the government! So you have agreed to share the risk. And in most cases, that slick talking salesman has sold you a whole life policy with a face value of a few thousand dollars telling you if you die, your loved ones will be taken care of. You sleep better, don't you. Why, if you die, your beneficiary will receive $50,000 in cash. And all the while, the policy is building up a cash reserve or value, which, as they describe it, is like a savings account. If you need the money in an emergency or for college tuition for a child, it will be there for you building up interest. You buy. Then they mail you a policy that is so complicated it rivals acts of Congress in complexity. But it is what they don't tell you (it's in the fine print) that should make you angry. First of all, the only way you can get the face value of the policy is to die. They should call it death insurance not life insurance, because you have to die to get it! Or actually, there is another way. Each policy has a paid up date. At that age, depending upon when you took out the policy, you could demand payment. But generally, most of us won't live that long! And then there is that "savings account" they tell you about. Those cash values. For the first year (with some policies, three years) it builds up no cash value. This is what in the business is called front end loading. All of their cost is built into that first initial period and is used to pay re-insurance, overhead, commissions costs. You don't make a penny during that time. (And by the way, that period usually carries suicide clauses as well. So don't kill yourself during that period, OK?) So during that period you are building no cash values, you can't kill yourself, and you have to die to get a penny out of it. All the while you are paying about $7.00/$1,000/year for the policy. (That's on average.) So you get into the earnings period and start building cash value. At a very slow rate. And they are paying you approximately the rate of inflation in interest on those accumulations. You actually earn more interest on your money in a savings account at the bank. But then you get about 10 years down the road and decide that junior needs $4,000 for college. (If you are lucky enough to have that much in the cash value at that time.) You call your agent and say, "I would like to take $4,000 out of my "savings account." He says fine, and sends you loan papers. Yes, I said LOAN PAPERS! Because, you see, actually that cash value doesn't belong to you; it belongs to the insurance company. You have to borrow it to get it! And if that is not insult enough, if you are stupid enough to do it, you have to repay the money (if you die with an outstanding loan, the balance is subtracted from the face value) with interest! Now get all excited. You will borrow your own money and pay it back with only around 5 or 6% interest. That's cheap. But I thought he told you that it was your money when he sold you that wonderful policy!? Now get this. In that same brief case where he got the information about this whole life policy, he also had information about another type of policy called term life. Term life is pure protection which is purchased for a period of time (the term) and is generally half the price of whole life. Yeah, there is no "savings account," but you could easily buy an annuity with the amount saved and come out thousands of dollars ahead in the long run. By the way, there is another way to get the accumulated cash value at any given time and that is to "cash in" the policy. They give you your cash value (which is usually always less than what you have paid in), and they cancel the policy leaving you with no protection. Mark this down! There are only two ways to get money out of a whole life policy: either die, in which case someone else gets the money (they keep the cash value if you die-- you don't get both) or borrow it (and pay back with interest) or cash it in (and loose the protection for your loved ones). The fact is, they want to sell you whole life policies because the agent gets paid more for selling one over selling a term policy. I literally have taken the money a person was spending on a whole life policy, and spending the same amount of money, put 10 times the amount of coverage on him in term insurance. Exactly, he had a $1,000 policy. I put $10,000 on him, and he didn't spend one penny more! Now which would you rather have? SO HERE ARE THE QUESTIONS TO ASK YOUR LIFE INSURANCE AGENT 1.If I buy your whole life policy, when will it start building cash values? 2.If I want the money, do I have to borrow it? 3.If I borrow it, what happens if I don't pay it back? 4.If I pay it back, do I pay interest? 5.How much interest will I earn on this cash value? 6.If I die with an outstanding loan on the cash value, what happens to the face value? 7.When I die, do my beneficiaries get the face value and the cash value? 8.You say my premiums will be $25.00 per month. How much term insurance could I buy from you for the same amount of money? By this time he will probably be packing his bag and getting ready to leave. My advice. Let him leave!  |
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