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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
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.
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.
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,
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*
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
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.