I was recently approached by several insurance salesperson about their life insurance products.  While I am usually skeptical about these types of stuff and would probably just send them off right away; this time it was through a friend of my wife, so I have the “obligation” to at least learn them a bit and come up some more “polite” ways to say no. 

During this time, I managed to learn some basics about life insurances.  First, they usually require you to pay a monthly premium to fund a death benefit, the amount of money your beneficiary will receive if you die before your term expires.  Your monthly premium will certainly depend on your death benefit amount, age, term length, and most certainly your health conditions.  If you just want to insure for death benefit over a fixed term, then that is the simplest form of life insurance which is term life.  Some more complex versions (universal life, whole life) also offer a cash value account in addition to the death benefit.  That is, portion of your premium goes to fund the death benefit while the remaining amount less administrative fees will go to your cash value account which works like an retirement account.  Of course the monthly premium for these cash value policies will be much higher than term life policies.  While I don’t disagree that some life insurance policies may be beneficial to some individuals, here are a few things to consider before letting salesperson lure you into signing up for one.

1. If you are busy and simple-minded people like me who may occasionally miss a bill payment or two, simplicity may be your friend. Insurance policy documents can be of tens and hundreds of pages and you better make sure you understand and comply with all the guidelines and requirements.  One missed action or payment may cause the whole policy to lapse (i.e. you lose all the money you’ve already paid them)
2. Unlike other loans, you can never take a break from the insurance payment. This is true even when you suffer financial hardships such as job loss or disability. The payment must continue or else your policy lapses and you lose all the money you already paid them.  And yes this is one area insurance companies are cashing in big bucks.
3. Insurance companies will try to market cash value policies as an investment vehicles, but the truth is that life insurance is never an investment, it is a spending to hedge the unexpected. You lose money the moment you start the policy and the longer you live, the more money you lose.
4. Death benefit may seem like a lot, but the truth is people tend to overlook those payments you made to fund the death benefit. If you were to leave those money in the typical retirement accounts, it can also grow to a substantial amount over an extended period of time (assumed you don’t do anything stupid of course).  So your beneficiary will really only benefit financially if you die sooner.  The longer you live, the better off you are to just leave those money in typical retirement accounts.
5. Salesperson often says they will custom build a package to suit your need, but the problem is the illustrators they use to calculate your premiums are designed by scientists and mathematicians working for the insurance companies. The illustrators are designed to maximize the profits for the insurance companies.  They design the games and asks you to play by their games, what are the odds of you coming out on the winning end?  You do the math.
6. If you are looking into the cash value policies, please be mindful that when you die, your beneficiary will only receive the death benefit and your cash value portion belongs to the insurance company. Should you decide to terminate the policy, you forfeit the death benefit and only the cash value portion belongs to you.

The bottom line is to be watchful.  If you are looking to sign up for a life insurance policy in order to gain and profit from it, I really urge you to think twice.  After all, greed for money is the root of all evil.  The following Bible passage should sum it all up:

“But godliness with contentment is great gain.  For we brought nothing into the world, and we can take nothing out of it.  But if we have food and clothing, we will be content with that.  People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction.  For the love of money is the root of all kinds of evil.  Some people, eager for money, have wandered from the faith and pierced themselves with many griefs”  1 Timothy 6:6-10

Please let us know your thoughts.  God bless!