Magazine article The CPA Journal

Are You Buying Life Insurance or an Illusion?

Magazine article The CPA Journal

Are You Buying Life Insurance or an Illusion?

Article excerpt

Yesterday's insurance products were quite easy to understand. You had a choice of whole life or term life. Today, we have annual renewable term, guaranteed level term, universal life, variable universal life, variable whole life, blended whole life and term, second-todie (universal, variable, whole life, and blends), and first-to-die written on a minimum of two lives. In addition, there are hybrids of the above mentioned products.

Can the consumers possibly understand what they are buying? Unfortunately, more often than not, they are buying illusions. Variable life "illustrated" at a 12% return or, even worse, on an historical basis or universal life illustrated with assumptions that interest rates will increase in years 11 through 15, 16, through 21, and thereafter are just examples of what is being presented by insurance agents. With the age of computers, the agent can qualify as an illusionist, somewhat like Siegfried and Roy. Illusionists make tigers disappear. Many products being sold today also will disappear when you most need them!

One major life insurer has decided that unless a policy illustration "holds up" after reducing dividends by 1 1/2% they will not permit the agent to make the sale. Unfortunately, when presented in a competitive bidding war, the legitimate insurance professional is at a disadvantage. Unless professionals such as CPAs and attorneys take a more active role with the clients, more often than not, the proposed insured will probably be duped or not truly understand the potential pitfalls of the products purchased.

Are all agents trying to fool the public? I believe the answer is no. I also believe, however, that many agents are selling products that they don't thoroughly understand. Is that as bad as duping a client? I'm not sure, but the outcome could be similar!

How many clients buy insurance as an "investment"? Great deal? Wrong! How many individuals buy insurance and are told, "You only pay ten premiums and the policy is paid in full." Wrong! Some policies that have been sold this way will never vanish. There are some class action suits against some major insurance carriers due to these misleading sales practices.

The September 18, 1995, issue of the National Underwriter correctly points out that some policies purchased in the late 80s had projected to pay premiums for 10 years "give or take a few years. …

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