There’s an old saying in the insurance business that life insurance isn’t purchased – it’s sold. I believe that, with the advent of Internet shopping, that concept has changed to a degree. On a website like LifeInsure.com, visitors can learn about life insurance a their leisure, decide what type of policy to purchase and then, compare prices and start the application process on their own. This has certainly been a paradigm shift in how life insurance is purchased (or sold).
Due to the simplicity of the product and the cost, I believe that most people are better served by term life insurance than they would be by a permanent policy (whole life, universal life in various flavors). It requires very little selling on the part of an agent and, due to the Internet, it makes it very simple for a consumer to compare and purchase without the (sometimes unwanted) help of an agent or broker.
Permanent policies, on the other hand, are quite intricate and there are many “moving parts” that make it difficult for the average consumer to comprehend. I believe, in these cases, a good life insurance broker/agent is needed to walk the consumer through the intricacies of the policies. Life insurance as an investment is a concept I have been hearing a lot about lately. Unfortunately, there are quite a few marketing organizations out there that recruit and minimally train armies of inexperienced agents selling these products they, themselves, barely understand.
A few of these organizations have geared up to marketing and selling the new “hot” product in the marketplace – Indexed (or Equity Indexed) Universal life insurance policies. I can always tell when when one of my prospective clients has been approached by this new breed of “agent,” because the first thing they ask me is, “If I invest in your policy, will I get 8% returns?” Unfortunately, these products are being marketed and sold as “investments,” rather than as cash value life insurance policies that will pay a death benefit to one’s heirs and might accumulate some cash value.
As with other kinds of permanent life insurance policy, Indexed UL policies have the potential of building up cash value that can accumulate on a tax-free basis that a policyholder can access on a tax-free basis later in life. Notice, I said “potential,” and not “guaranteed.” All permanent life insurance quotes are illustrated, showing both guaranteed and non-guaranteed potential growth of the cash value. To only focus on the non-guaranteed column is a misrepresentation if the agent doesn’t stress that the growth shown in the illustration is not a prediction of future performance and that the guaranteed column might very well represent the future growth.
Life insurance is designed, first and foremost, to pay out a death benefit on the death of the insured. I believe it should be approached on this basis – not on the basis of whether of not it will be a good “investment.” It is an investment – one in the future security of your family in the event of your death.
I believe there are some people that can benefit from a permanent policy, be it whole or universal life. I’m afraid, though, that most people would be better served by a term life insurance policy and traditional qualified (tax-deferred) investments.