All Life Insurance Tips

Term life insurance and Cash value life insurance?

Hello I've been reading a book named "Starting a Small Business for Dummies" In this book the author made a comment as follows "Term life insurance offers the best way needed coverage at the lowest cost and wrote "other policies such as universal, whole and variable life are collectively refferred to as cash value policies" and says that the cash value life insurance is the bad option because it cost eight times what a term life insurance costs and in the early years the bulk of that money goes to pay insurance agents and adminstrative costs" my question is ---is that really true and later in one of the chapters-the authors goes on and talks about different options of finding money for the start-up costs of the business--- one the option it mentions is the life insurance it says the following-" if you own a life insurance policies with a cash value, you probably shouldn't because term life insurance is a better deal- it says that if you have a term life insurance, then consider cashing in such policies and putting that money for the start-up costs for your proposed business. " the confusion that is arising is how can you can cash in such policies-how can you cash these policies when you aren't dead, because according to the information that I've gathered so far about life insurance is that the money from these insurance policies goes only to the beneficiries after that person dies..so does this really make any sense.... Thanks

Public Comments

1. Chances are, you're going to receive a majority of answers agreeing with the philosophy in your book because it is correct for most people most of the time. However, in many cases it can be dangerously wrong. First of all, everyone's situation is different, with different circumstances and different goals. If the purpose of the coverage is definitely to pay a death benefit upon your death, no matter how far in the future that is, term coverage is not an option because it probably won't be in force when you die. As far as cashing out a policy, your decision is based both on your goals and the math. An in-force permanent policy may, for many reasons, make the most sense kept in place. If it has been in force for more than a decade, there's a good chance that it is sufficient to sustain itself indefinitely without paying further premium. Such is the case with a whole life policy I own. I paid premiums for only about eight years, and it has shown sufficient performance and dividends that it will likely stay afloat the rest of my life (I'm 48 and healthy). At the very worst, it will become unsustainable, in which case I can resume premiums or convert it to many years of paid-up term. Explaining every angle in response to your question would result in pages of information, none of it worthwhile because I don't know anything about you or your situation. You need to consult a properly qualified financial advisor or planner. This is NOT an insurance agent. Buy your home and auto coverage from a salesperson. Buy life insurance from, or under the supervision of, a financial professional.
2. I am going to basically agree with the post above me. The book is mostly right for most people. Insurance, particularly life insurance, is something that needs to be discussed on an individual basis. There is no right or wrong insurance for everyone. Even with the more expensive, permanent insurance, agents may get a higher commission and it may go towards more administrative costs, but if you die 2 days after its issued, then it doesn't matter because it's going to pay the same as the cheaper term insurance. Most agents refer to term as renting your death benefit because at the end of the term you have nothing to show for it (no cash value), while it is cheaper in the mean time. Perm insurance is like buying your death benefit because it gains cash value (like a home builds equity), and the rates are going to be level. If you have a 20 year term, and you dont die, then, assuming you're still insurable, you can purchase another term policy. However, you are now 20 years older, and it may very well cost more than what the perm ins was to start with. The whole thing is nothing but a gamble between you and the insurance company. I would suggest you set down with an actual agent, and not someone on the phone or over the internet, and discuss your needs as a business owner and family member. As an agent, I usually suggest a mixture. You are always going to need the final expenses of a funeral and possibly hospital bills at your death. This amount can be in a whole or another type of perm insurance. You will want to cover other things such as your house, child care, education, replacement income for your spouse, business expenses, emergency funds, and other things that can be covered with a term policy. Another thing to consider while you are an entrepreneur shopping for life insurance, are you going to be the only business owner. If not, then you need to ask your agent what is known as Key Man Insurance. In short, this would allow you to buy out your business partners share of the business in the event of their death, or vice versa. Another thing you will commonly hear concerning life insurance is "buy term and invest the rest." This is a highly debatable subject simply because, as stated above, nothing is cut and dry for everyone. Typically, this saying is OK AS LONG AS you actually invest the difference. And in the current market, if you did invest, what good did it do ya? It sounds like the author is saying 'buy term and invest the rest into the business." Take it for what you will, but you need to get face to face with your agent.
3. For detail: http://autoinsuranceba.blogspot.com/
4. Term insurance is cheaper. Cash value policy lasts longer. What the agent makes is not a consideration when determining how long YOU need coverage. If a policy builds cash value you can cancel it and take the cash value out. But, I'm confused on how a book can tell you cancel a policy in a later chapter that in a earlier chapter told you that the costs are up front. If you've already incurred those up front costs then what is the motivation to cancel a policy that's already in force? Moral of the story is that just because it's in a book doesn't make the author a genius....obviously.
5. Yes, it's true. For cash value policies, a small portion of what you pay in, goes into a 'cash account'. That small amount, sometimes earns interest. You can borrow your own money from that account, and pay interest to the insurance company, or you can cancel the policy, and get that cash account money back. But considering that it's so much more expensive to buy cash value insurance than term, AND the majority of your money doesn't go into the account, when you DO THE MATH, it's cheaper to buy term, and put the cost difference into your OWN savings/investment account. MUCH cheaper.