Posted by: thesavinghabit | May 25, 2010

Term Life Vs. Whole Life Insurance

Every so often we find articles on other blogs that we want to share with you.  Our goal is to help you save money or make wise decisions with your money.

Below is an article published by Leo at GetADealDude.  Thank you, Leo, for some great information to pass along!

“Why is it that 70% of the life insurance policies that are sold happen to be cash value policies? Hmmm…  just a thought.  So let’s take a look at who benefits the most in cash value (aka, whole life, universal life and variable life) policies.  A cash value policy is an insurance product that combines insurance and a savings account together. The returns on these policies are not very good. But the commission for the people who sell them are great, that is why you see the discrepancy at 70% vs Term Life only at 30%.  Many will say, it’s because they only last for a short period, when actually you can get a term policy at a guaranteed rate for 30 years now! So that can’t be it right?

Say you’re a 29 year old guy and you are looking for about $130,000.00 in coverage with a cash value policy. That will run you about $100 a month, while that same amount of coverage in a  20 year term will cost you about $8 bucks. The $92 difference, you may be thinking goes straight into the savings part right? WRONG! It disappears in commissions and fees in the first 3 years. After that the industry average will get you about a 2.6% return (per year) on Whole Life, 4.2% for Universal Life and 7.4% with Variable Life which includes mutual funds. This is according to the “Consumer Federation of America, Kiplinger’s personal finance and fortune magazine.” The same mutual Funds from the Variable Life policy average about 12% on their own. So they give you 7.4% on average and they take 4.6% on top of the other fees they already took the first 3 years. Don’t just take my word on it look it up!!!

There’s plenty more to come, so stay tuned for (part II) coming in a few days.”

Part II has also been published. You can find it here.

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