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Question:


Is whole life insurance a rip-off? I’ve heard conflicting arguments from financial experts.
-1993Amy


Answer:


You may be referring to the fact that whole life insurance is generally more expensive than alternatives like term insurance. But remember, in insurance as in other purchases, you get what you pay for. Term insurance is cheaper because, as the name suggests, it is only valid for a limited period, typically between one and 30 years. With rare exceptions, if any, the odds that someone will die in any given year tend to rise with age. The 30-year-old buyer of a 10-year term policy is very unlikely to need it because a very high proportion of 30-year-olds end up becoming 40-year-olds.
 
A whole life policy is different. As long as premiums are maintained, the insurance provider is going to have to pay out on it one day. True, the policyholder is likely to pay more in premiums each year and for a greater number of years than the holder of a term policy. But that discrepancy just reflects the realities of human longevity and the difference in liabilities that underwriters of the two types of policy are likely to face. Also, whole life policies generally accumulate a cash value that holders can draw on after a certain time, and they carry tax advantages too. If you still have doubts, you can reduce the chances of being ripped off by shopping around and comparing rates from different insurance providers or using an independent broker who earns a living off fees paid directly by customers rather than commissions from underwriters.
-Conrad de Aenlle



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