You are considering buying a whole life insurance policy. The agent prepares and prints out an illustration. It is 10 pages long with rows of columns and terminology you have no idea about. What should you focus on? Let’s take a look.
A whole life insurance policy is a staple of the industry. It is a policy that carries not only a death benefit, but allows you to build up savings within it that are invested to grow tax free in different ways. The policy is more expensive than a term life policy, but comes with the tax free growth advantage that is not available with the term version.
The first thing to look at with these policies is the premiums. A policy is only helpful to you as long as it is in force. If the premiums push the bounds of what you can realistically afford, you are probably going to end up dropping the policy. That more or less defeats the purpose of buying it in the first place!
The second thing to consider is the cash value column. This is projection of how money will grow in the policy as you pay premiums per the dictated schedule. Importantly, this is just a projection and you should treat it as such. I personally tend to view it as a marketing tool in that the numbers tend to entice one to buy the policy with great expectations.
To know what the insurance company really thinks about the growth potential, you’ll need to focus on the guaranteed cash value. This is exactly what it says. The life insurance company will guarantee this growth, which you should then treat as the bottom line value of the policy. Hopefully you will do better, but at least you know this is where the bottom line can be found.
The final column to focus on is the surrender fees. This is an arbitrary fee that the insurance company charges for termination of the policy or, more importantly, the withdrawal of money from the cash value. You want to make sure this fee isn’t going to eat too much of your cash value.
Whole life insurance policy illustrations can be intimidating. Don’t let them be. Focus on these four issues and you should do fine.
About the Author
Barry Milton writes about life insurance settlements for UFCAmerica.com.