What exact is whole life insurance, and how do life insurance companies profit from selling it?
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!
September 20th, 2009 at 3:12 PM
term is almost always a better deal for the consumer..as long as you don’t get sick such as a heart condition or bad chronic disease that makes you uninsurable or results in prohibitively big premiums down the road. also on whole life if the insurance company goes out of business you’re screwed. "death insurance" as it originally was called until Madison Avenue rebranded it in the 1920s.. is not an investment. it’s to protect your heirs and pay for your funeral. any agent telling you otherwise is feathering their own commission nest.
September 20th, 2009 at 3:12 PM
Insurance agents commission is based on the premium and the term, whole life polices pay a better commission.
September 20th, 2009 at 3:12 PM
To understand Whole Life, understand Term first.
With Term, you pay a premium for a set period, and if you die during that period, they pay. The premium may or may not change as you age, it varies, but the bottom line is that you are "renting" the policy.
Of course, in theory, you only need insurance for a while anyway, until you get financially settled, have the retirement package, house paid off, kids through school, etc, so you rent a policy that would take care of you if you died too young to have finished all that.
Now, Whole Life is also Term. It just costs more because it also has an Investment component. They take the extra part and put it into whatever they put it into, and you accumulate value, just like a stock portfolio or mutual fund. The terms vary, some have guaranteed rates of return, some don’t.
What makes it "WHOLE" life is that at some point, the investment has accumulated so much that you really don’t have to "pay" the Premiums, that can come right out of the income the Investment part is generating. You can borrow against it, too, if you want to, as it has a Cash Value.
The real question is, whether you think that you could take that Investment part of the Whole Life premium and invest it on your own and do better than the Insurance can, or maybe the question is, "would you have the discipline?"
I dunno. It’s good for some people. It’s not for everyone. Think.
September 20th, 2009 at 3:12 PM
Unlike term insurance, you pay till you die. Then your beneficiary collects. Usually, it includes an extra charge that cumulates giving a cash value you can collect if you turn it in.
They profit by calculating actuarial statistics and probabilities of death. That determines the premium. The older you are when you take the policy, the higher the premium. The insurance companies invest the float they hold and make a profit from that. A little of that is added to your policy’s cash value. Try this site to find the best life insurance
http://best-life-insurance-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.
Hope this help,