Whole life insurance question?

Hey all....well I'm studying for my life insurance agent exam and I have a question. Well, if a person takes out a whole life policy, then when they die their beneficiaries won't receive the cash value along with the death benefit, right? So, why would anyone want a whole life policy instead of a universal life that pays both cash value and death benefits to the beneficiary?
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Well, I'm not some jerk who wants to rip people off. I wouldn't sell someone a cash value policy if they only need term. Anyway, the company that I'll be working for specializes in senior citizens. I'll just be selling Medicare supplements, long term and short term care policies, and annuities.

Um ... okay, to answer your question, a lot depends on the company and the insurance contract. Not all UL policies will pay the cash value in the policy along with the specified (face) amount.

And for alphafemme with her limited answer that life insurance is "replacement income" only, she is oh so wrong. Too many people miss the point of life insurance. Sure, pure protection is the most common use--mom or dad dies, and they want the family to have the same standard of living, or to pay off a mortgage, etc. Life insurance can be used in so many different ways, and whether or not it's a good fit for your client would depend on their situation, analysis of need and suitability. A good agent will care more about the client's needs than their pocket (commission). If you have a client who needs life insurance as part of a QTIP (qualified terminable insurance trust) or IBRP (insurance based retirement plan), you should sell it. Perhaps these people are risk averse, and don't want market exposure, so fixed rates in UL policies are more appealing and thus more SUITABLE for them. I think you get my point ... .don't let someone jaded by life insurance let you think in such a limited manner. There is more to life than term--renting insurance. And what happens when you outlive that term? You've done your client a disservice by giving them a new illustration with a much higher premium, and less benefits (such as policy loans and partial surrenders in the event of an emergency) than you can with permanent insurance.

That answer made me sad. Good luck on your exam and in the business.

I agree you should pass the exam first... but if you can understand the practical application of how insurance works - it may help you by not requiring so much basic memorization, so kudos to you for asking yourself those hard questions!!!

Hopefully you will continue to ask yourself those questions which will also benefit your future clients... because you should give serious thought to all of the types of life insurance out there and the pros and cons... and think about the people you are possibly ripping off when you sell them whole life policies and UVL's.

To give you the short answer on why I wouldn't want a UVL anymore than a whole life, is because "traditional" UVL's tend to eat into themselves when the cost of the actual premium becomes more than the locked in low monthly payment - it begins to pay the premium out of the accumulated cash value, usually as a loan, with interest... Ouch! No Thank You!

There is a reason there is a slogan and an industry around the phrase "buy term and invest the difference"

We don't buy car insurance and send in "extra" each month and ask Farmers to invest it for us, do we? So why do we do it with life insurance? Because it's standard practice? Because Life Insurance agents make a bigger commission?

By doing this with life insurance, we are succumbing to an industry that preys on people's ignorance about a necessary evil and doesn't stop to educate them about their true "financial needs."

Insurance is designed to be INCOME REPLACEMENT in the event a family breadwinner dies.... debts still have to be paid and a standard of living to maintain... at the point you retire and hopefully pay off most of your major debt (i.e. your home) you need lots of cash, not lots of insurance! You should be investing your own money or using a FINANCIAL broker to invest - not an insurance policy that is latent with hidden fees and often doesn't even begin to accumulate any cash value for 5 years or more - AFTER the agents fees are paid (which are usually a percent of your policies earnings)

Therefore, it's MUCH cheaper to buy term insurance and take the difference in what you would pay in premium and invest that money!

The problem is that the agent make much higher residual commission off of Whole Life policies than off of mutual funds (assuming you are in a position in which you can get securities licensed as well).

Therefore, it's much more profitable to the agent to have your clients, esp. the richer ones, buy a huge cash value insurance policy and "insure" their income instead of showing them ways to continue to increase their income and secure their own financial security...

Sorry, I used to be health and life licensed and the things that go on in this industry make my skin crawl. I'm sure I will get some backlash for my response, but it's not to bash agents at all - many are taught a certain way, just like consumers are educated a certain way... and they do their job... but if you look outside the box and truly want to do whats best for your client, in most situations - it doesn't make much financial sense to pay such a high premium for insurance - unless you truly are just trying to create an inheritance or trust fund for your dependents!

You are right ALPHA. No digs from me.

The real question to our asker is why would anyone want a CASH value policy when there is term at a fraction of the cost.

H M, when you get your license, will you be able to sell cash value products knowing that they can get a better cost with term?

It is not unethical to sell CV. It is just a question of can you do that to people or not?

Good luck in your career.

It may be cheaper for the whole life policy, and you don't have the risk of the cash value not accumulating much value.

Cost, plus it may have been the only option they were told about when they went looking for insurance.

Check into it a little further. Even a universal policy does not pay both, unless youpay higher premiums to be able to do so. All cash value policies are an either or unless you pay more for them.

Pricing, or for estate planning purposes (as in, evading the death tax).

It's more complicated than that, and only certain types of UL pay death benefit plus cash value. Just pass your exam, and then once you have real numbers in front of you, it'll slowly start to make sense.

As implied above, most WL policies will outperform most UL when it comes to guaranteed cash value performance (if cash value is even a goal of theirs).

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