Nearly every life insurance blog I come across can’t avoid talking about the benefits of cash value when whole life is the subject of conversation. I’ve never heard an author discuss the dangers of cash value, which do exist. One reason for this lack of information is that so many authors give very basic, top-level explanations of a product. Countless websites recycle and regurgitate the same basic information about cash value benefits without taking a deeper dive into the potential harm. Another reason for this lack of information is that many authors are certified financial planners who usually only deal with high net worth clients. Their lack of client diversity gives them a narrow perspective for the use of a product. With that being said, let’s discuss the dangers of life insurance cash value.
Many seniors buy whole life policies that barely cover the cost of a funeral. Cash value is used to secure policy loans. If the insured dies before a policy loan is paid off, the unpaid portion of the loan is subtracted from the death benefit. If the policy barely covered the cost of a funeral, then any subtraction from the death benefit could severely jeopardize the purpose of the policy.
Cash value poses a problem for people of low income. Any unexpected expense becomes a financial emergency for this group of people, which causes them to look for a policy loan. If the premium was barely in the budget, the additional expense of a loan repayment may be too much. The most likely result of this scenario is a cancellation.
As an insurance agent, I am interested in the way new risk factors affect my industry. I searched the internet for news stories of life insurance and Covid-19. One news story seemed to paint a dire picture for people trying to get term life insurance. I wrote an email to the author explaining that term life insurance is traditionally the most difficult type of life insurance to qualify for, even under normal circumstances. Part of the appeal of term life insurance is low premiums. The only way to maintain low premiums is through a low rate of claims. To give you an idea, one life insurance company (I promised not to mention their name) told me only about 1% of their term life policies result in a claim. With a claims rate that low, any new risk factors could dramatically increase premiums. So it stands to reason that term life policies have additional underwriting restrictions for Covid-19 in order to protect premium rates.
My email continued by mentioning another type of life insurance policy that has been relatively unaffected by Covid-19: simplified issue whole life. Most simplified issue whole life policies haven’t made any changes to their underwriting guidelines. One of the few companies that made changes added a Covid-19 questionnaire and they temporarily reduced the maximum issue age to 75 (they normally issue policies to age 85). However, it’s important to note that even if a company doesn’t change its underwriting guidelines for Covid-19, people can still be denied coverage if they experience damage to major internal organs. Recent damage to internal organs usually has underwriting consequences regardless of the pathogen that caused the damage. Some insurance companies may not feel the need for Covid-19 restrictions because they already deny coverage for anyone with a recent hospital admission. If you have any questions, don’t hesitate to contact me.
Perhaps the biggest reason people hesitate to buy life insurance is the fear of it being too expensive. It doesn’t help that most websites providing instant quotes default to $10,000 of coverage. How did $10,000 become the default amount to quote? That amount of money is excessive for the growing number of people choosing cremation over traditional burial. By using $10,000 as a default, people might assume that’s the minimum amount that can be purchased, and they might be using that to determine if life insurance is affordable. Fortunately, much lower amounts of coverage can be purchased.
Every life insurance company sets a minimum amount of coverage, but all companies that I’ve seen do at least $5,000 for a minimum. Many will go down to $3,000. The lowest I’ve seen is $1,500. These minimums can be helpful for those on a very restricted budget (low income) who are planning for a cremation. A cremation with ceremony shouldn’t run more than $5,000. People who don’t want a ceremony can get away with lower amounts of coverage. Here is a quoting tool where you can put in $2,500 for a minimum. Finding coverage amounts this low is only half the battle because you also have to find agents willing to write policies that small. You don’t have to worry about that with Houston Life Insurance Plans. We will write any amount of coverage, no matter how small.
Some people may view life insurance as a mundane financial instrument to reduce risk. Viewing life insurance in such mechanical terms might last for a short time. However, any agent in the business for a while will witness the power of life insurance.
The power of life insurance can take many forms. Nearly all of my clients stand up a little straighter after buying a policy, as if a weight lifted off their shoulders. A few have claimed divine intervention brought me to them so they could be helped with life insurance. I imagine that agents selling over the phone miss out on this emotional experience. That experience, for me, is one of the most rewarding aspects of being an agent.
Agents who are only in it for the money usually don’t last long. Being an insurance agent is a labor of love, and that love drives me through the tough times when business is slow.
People often don’t know where to start when searching for Houston life insurance. Should you start your search in a brick and mortar life insurance office, or should you start your search on the web? Most brick and mortar offices are your nationally recognized car insurance agencies that also happen to sell life insurance. Although these locations have very good prices for car insurance, they are often the most expensive places to go for life insurance. One reason why they have more expensive policies is because of dividend payments to the policy owner (these payments are not guaranteed). Dividend payments can be converted to additional coverage. Over time, these small additions of coverage can really add up. However, you can forgo this expensive feature with a non participating policy (no dividend payments).
Non participating policies are very common outside the brick and mortar agencies. With a non participating policy, you choose the amount of coverage you want and that amount never changes. Contact us if you need to review your options for Houston life insurance.