ATTENTION LIFE AGENTS,In terms of cash value insurance, Please explain this to me?

Question

If I want to take out a portion of the cash value, why must I borrow it in the form of a loan? actually it is MY money that I have already paid taxes on.

Why upon death does the insurance company get to keep ( steal) the cash value? It seems like the concept of the cash value only exists for the companies benefit.

Why the shell game with people's money? Also, how do you smooth this over with the people that you serve and make it sound good?

Dear Rich, I;m not saying that all other insurances are bad. If fact I asked a very spacific question that you failed to answer.

Wow, mbrcatz17. That was quite a change of attitude in your response there.You started off saying that you really never saw the need to sell anything but term and all of the sudden you are calling YOUR clients pathetic and lazy for not reading their policies. Yes I agree that the people that you serve should be proactive in knowing and understanding what they are buying, but the way cash value and whole life policies function and the lack of disclosure there of is a matter of public record and the dis honesty in terms of how these financial products function cannot be cloaked by simply saying, they are too lazy to read their policy.The way I learned is to educate on the front end instead of taking an " Oh well, you didn't read your policy" attitude. What I find disturbing is that you go into your clients home knowing this is how you feel about them.

Answer 1

Most life insurance agents fail to explain the true nature of cash value. They only say that it's a saving plan in which interests grow tax-deferred. You can use it at anytime. They'll say things like in 15 years, your cash value will grow to $20,000. Your son will be 18 years old and he can use the cash value to pay for college. And the client will be like, "really? this sounds a pretty good plan." The insurance agent will probably ask, "great! how many policies do you want? I know you have two kids. You should get three policies. One for yourself and one on each kid."

The true nature of cash value is to really benefit the insurance company in case they can't pay out death claims in the future. People believe cash value belongs to them, but it really belongs to the insurance company because it is part of the insurance contract. If cash value really belong to the client, there would be no such thing as "borrowing." If you had a savings account in a bank, do you have to put money back when you take money out? The answer is no (unless there is nothing in the bank account, so you have to deposit money to keep the account active).

When you cancel the cash value life policy, you pay a surrender charge on it. That is so wrong.

If you die, you lose it all, unless the policy specifically states that your beneficiary will get death amount plus cash value (which is really rare). Then there are those adjustable life policies (such as Universal life and Variable life) that guarantees you a minimum death benefit, but will increase if the value of your cash value increases too. I think these are slightly better than Whole Life, but still not good because of the cash value feature.

Answer 2

Well, This is my take on Insurance Policies. I am not a LIFE Agents though I was one before and after doing the mathematics of it, it doesn't sum up so I QUIT, so here it is:

There are 2 portion to the Cash Value....
1. Guaranteed Portion and
2. Non Guaranteed Portion. (at least this is what they have when I was there, I do not know if it is still this way)

Guaranteed Portion is a portion where by upon death the insurance company must pay no matter what to the beneficiaries.

Where as the Non Guaranteed Portion is depending whether the performance of the company is good or bad (Nobody Knows - they have their own calculation to determine whether they are doing good or bad, Well what can I say ?)

Life Insurance - in this I mentioned whole life insurance with saving features, is an upfront loaded insurance policies.

Which means, you have been loaded with all the administration fees, insurance coverage and big chunk of it is the insurance agent commission up front.

This explain why most of this insurance policies takes more than 10 years for you to reach break even point.

Why you want to take out portion of the cash value you have to make it in the form or loan because the insurance company will earn interest, this is one way for them to offset the upfront load of cost for your policies.

They also knew that if one day you cannot service the policies, the policies will lapsed and they should recover as much as possible if your total premium still are not able to recover their administration cost.

Most Insurance Agent (Life) are not trained properly and they usually portray wrongly to the people whom they are selling the insurance policies to.

When I confronted my Agency Leader and a lot of other Leaders in the Industry they are not able to explain to me the logic of buying into Life Policies....

Here are my take on this issue:

Insurance company make profit not from term insurance but from Life Insurance and other Saving scheme that they created.

So it is a zero sum game, if they profit, then you are not....

Insurance is bought for risk management, so this is my believe.
If you want to protect, you should buy term insurance.

If you want to save, then it is better to put it in bank or other investment instruments.

Unless you got too much money, and you want to diversify, then Life Insurance is an option, with the rest of other policies such as unit link investment, endowment, etc..

Answer 3

Your second paragraph hits the nail on the head. Although in some policies, the cash value is added on to the face amount of the policy. People do seem to be taken in by the cash value. However, for a disciplined person perhaps it would be better to consider a term policy and then save and invest the difference in premium between a cash value and a term policy. Generally, you can get a higher face amount with term insurance than you can with cash value insurance for the same amount of premium.

Answer 4

OK, just for the record here . . .I don't sell whole life - I'm a term life kinda gal. I know that whole life CAN serve a purpose, I just haven't met anyone yet where I thought it was the best product for them.

The reason why the 'cash value' must be taken in the form of a loan, is that those are the terms you agreed to when you first bought the policy. Yes, it's your money, and yes, if you die, you lose the "value" part, and yes, if you die with a loan out, the face value gets reduced by the amount of the loan. MOST people don't keep cash value policies more than 5 years, so yes, it's a GREAT way for insurance companies (AND AGENTS!!) to make a LOT of money.

Whole life insurance is easiest to sell to people that don't want to take the time and understand what it does, and how it works.

The only way *I* make whole life sound good to people, is 1. it is the cheapest way to acheive a set goal (example - it's cheaper to buy a whole life policy for a 70 year old guy with terminal cancer, paying over face value, than it is to pay Uncle Sam the estate taxes due on the same amount of money) or 2. . . . ok, I can't come up with a second way.

I've been selling insurance pretty much all of my adult life. One thing that really bugs the hell out of me, is people who can't be bothered to learn about the policy in advance, but squawk about the terms and conditions AFTER they've had the policy a couple years. In my personal experience, about 90% of the people who want to buy insurance, pick one, small, tiny reason WHY they want that type of coverage - and don't want to take any time to learn about the positive or negatives about the policy. OH, they want something to leave their kids in 40 years. Oh, they don't want to worry about buying insurance if they get cancer later on. THEY DON'T WANT TO BOTHER WITH ANY KIND OF FINANCIAL PLANNING THAT RELIES ON THEMSELVES, RATHER THAN THE INSURANCE COMPANY for future funding. They are just, plain lazy about it.

95% of people don't want to hear MY opinion about something, they've heard from their grandma why THIS is best, and that's what they want. I can count on one hand the number of people who've actually READ THE TERMS AND CONDITIONS of the policy, or every line of the application, before signing. I think it's three. In 21 years. That is PATHETIC. And it's not because I'm not willing to sit down and explain - it's because THEY DON'T CARE.

So there will ALWAYS be people who "know" that whole life is better than term, without being able to quantify why, and who will ONLY want an agent to sell them that, and won't want any other opinions.

Don't blame the agents, blame an ignorant, and lazy, consumer.

Answer 5

Dear "Rest of Your Life Off",
Just because you work for a company that only sells term insurance does not mean that you should say all other life insurance products are bad. Just because you do not understand them, that does not make them bad.