-V- And if you know that as personal policy premiums are at tax deductible in today's tax structure, the pohcyholdet sto is in a 50% tax bracket must, in effect, earn $3***) order to pay a $100.00 premium overcharge, and that the situation works a totally unnecessary hardship on my policyholder.
--W- And if you know that a company which might currently be pm jecting a relatively low "net cost" can become a "high net cost" company by the simple process of reducing the a mount of the premium refund.
-X- And if you know that the high participating premium conts sous an admitted overcharge, and that all of the major mutua. life insurance companies have, in the past. missed pre jected returns by 10%. 20%, 50%. and also that the house on occasion, failed to return to the policy hokies a single penny of the premium loading.
And if you know that if, as they claim, mutual life insuranea panies sel! life insurance at "cost", then this cust be excessive and poorly controlled, or there would be po "guaranteed cost" companies,
-Z- And if you know that a high mutual premium rate is the totale solely on the grounds that excess premiums are met wie! but that because, from a simple bookkeeping stand excess sales commissions, taxes, and operational es penses, preclude a total return, then certain doubt must cloud the feasibility of mutual life insurance purcha*
And if you need life insurance, and if this alphabet of " ifs pour sufficient to deter you from purchasing the excessive prek mium participating type policy, then it is suggested that such a purchase be made. It is certainly better muh better - than doing without insurance protection
Reprinted from MEDICAL ECONOMICS, December 6, 1971. Copyright © 1971 by Medical Economics, Inc., a subsidiary of Litton Publications, Inc., Division of Litton Industries, Inc., Oradell, NJ 07649. All rights reserved None of the content of this publication may be reproduced, tored in a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise) without the prior written permission of the publisher.
Probably not, this physician suggests. Twice burned by overpriced policies, he now uses an eye-opening method of calculating the true cost of coverage. His price comparisons show why term life can be the best buy.
By H. Thomas McSwain, M.D. Thoracic surgeon, Dallas, Tex.
"You get what you pay for,” runs Both agents came well recom- the adage--and life insurance mended and worked for com- men enthusiastically echo that panies with good reputations bromide. Yet in my experience, Yet both sold me insurance at a life insurance is precisely where price about 10 times higher than you're least likely to get what I would have paid for another
kind of policy that would have My experience has been pret- provided the protection I want- ty painful. When I graduated ed. That kind, a variety of pure from college, I was sold a 20-pay- term insurance, is known as year- ment life insurance policy with y renewable term. out so much as a hint that any The premium for 20 payment other kind of policy existed. life at age 35 is about $30 for When I got married a few years each $1,000 of protection. For later, another company's agent yearly renewable term, the pre- “reviewed” my earlier policy, mium is $3 or less. In the event of pronounced it good, and sold me death, which is what the policy. another of the same type but holder is insuring against, both twice as large as the first. Again, deliver $1,000 to the beneficiary. no other kind of insurance was Then why would anyone buy the even mentioned.
more expensive policy? The an
swer, I believe, lies in the ignorance of the buver--an ignorance all too often cultivated by the insurance agent
Since my two brushes with recommended agents from reputable companies, I've done some studying. My conclusions:
To begin with, the very expression “life insurance" is a mis
nomer. As one admirably direct creases with age. And in spite of insurance advertisement put it: what he may be told, the insur"We all have to die Therefore, ance buyer (an't beat the morthere is no way to insure our life tality tables by taking out his --there can only be insurance policy when he's young. He simagainst our untimely death." ply spreads the payments out And it is to share that risk of
pre- over a longer period. Neither can mature death with others that the prospective policyholder life insurance is best applied. win by buying insurance with
The cost of insurance in- the mystical lure of “cash
Calculating the actual cost of life insurance
Most ways to figure life insurance costs are designed 70 per cent chance of winning, according to spokes- to compare policies that differ only slightly--Com- men for the insurance industry. pany A's ordinary life policy with Company B's, for On the chart, the cash value is charged with an in- example. But the system Dallas surgeon H. Thomas terest factor, on the assumption that the policyhol- McSwain describes in the accompanying article is der could earn 6 per cent on his money if it weren't specifically designed to compare dissimilar policies. tied up in the cash value. True, the insurer credits In the example here, it is used to compare an ordi- some interest (typically, 2 to 342 per cent) on the cash nary life policy with the same company's five-year value. But that interest won't be available to the renewable term policy.
beneficiary if the policyholder dies while the insurThe key factor in McSwain's approach is that he ance is in effect; only the policy's face amount will insists life insurance be assessed strictly in terms of be paid in that case. The insurance policy must be the cost vs. the payout in the event of death while the cashed in before that “inside" interest buildup is policy is in force.
going to be of any benefit to the policyholder and In the example on the opposite page, covering a his family. man who takes out insurance when he's 35, the cu- Effectively, the insurance company is risking only mulative cost of term is less than that of straight life the difference between the policy's cash value and almost until the term policy expires at age 65. Liter- the face amount if the policyholder dies while the ally overnight, however, the over-all cost of the insurance is in effect. Thus, the true amount of prostraight life is cut almost in half as you walk away un- tection shrinks steadily as the policy's cash value insured—just as with the term policy-but with the builds up, and the real cost of straight life, rising just cash value in your pocket. In effect, you've won your as steadily, eventually reaches three times the bet with the insurance company, a bet you have a amount billed on the premium notice.
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