Insurance Tip #4: Blending term and whole life coverage into one policy is the secret your agent doesn't want you to know
Filed under: Insurance
This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!Let's say you have determined that you need "permanent" insurance. Probably, you made this decision because you are convinced that you will hold the policy for a very long time, maybe even up to the time you will die.
However, as an educated consumer, you know that the commission on many of these products can be 100%, or even more, of the first year's premium. Obviously, this is going to cause the policy to accumulate relatively little cash value in the early years, to compensate for this high selling cost.
What if you could get the best of both worlds: permanent insurance with high initial cash values?
The good news is that you can.
The bad news is that your agent probably won't tell you about it because it may clobber her commissions.
A blended policy combines term and whole life coverage into a single policy. Over time, the term portion of the policy is replaced with whole life. Generally, the term portion has a lower commission rate.
The bottom line is that a blended policy can result in lower premiums, higher cash values and higher death benefits because of lower sales costs.
Blended insurance is not right for everyone. The death benefits build up more slowly than with a traditional whole life policy that has a fixed death benefit. However, it is vastly underutilized because it is not aggressively sold.
If you are considering insurance, ask your agent about blended policies. Unfortunately, there is a broad range of these polices and determining which one may be appropriate for you can be somewhat complicated. If the amount of the premiums at issue justifies the cost, consider retaining the services of a fee-only insurance advisor to assist you. See the Bonus Tip for details.
See 10 more insurance tips from Dan.
Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books, 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).
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Reader Comments (Page 1 of 1)
9-07-2008 @ 9:29PM
CHRIS said...
OF COURSE BLENDING TERM AND WHOLE LIFE MAKES MORE SENSE. YOU GET WAY MORE INSURANCE FOR THE TIMES THAT YOU REALLY NEED IT. CRIME IS UP, PROTECT YOUR HOME AND FAMILY. GET YOUR STUN GUNS, TASERS, PEPPER SPRAY, MACE, HOME SECURITY SYSTEMS, WWW.YOUBSAFE.COM
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9-07-2008 @ 10:04PM
Rhett O. Millsaps, Sr. said...
I was an insurance agent for 7 and a half years and sold this policy like water. Not all agents are in the "me first" attitude you are promoting here. I offered my clients information on high end term, the difference in term and whole life, and I believe everyone should have both at some point. Everyone should have $25K in whole life insurance, period. As much term as they can afford, converting it to whole life as they grow income and understanding of the product. Times and needs change, so for anyone who is buying, be aware that alot of options are there and not every agent is the evil that is implied here.
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9-09-2008 @ 3:20PM
William said...
I am in Insurance business for a while myself, I think AOL report is so non-sense. Different people has different needs, Size 12 shoe is good for people has big feet, it would be stupid for a person with small feet to buy a size 12. It all depends on the circumstance. The product itself is no secret, most people can find out how an insurance program work either from the policy or simply ask questions.
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9-14-2008 @ 9:32PM
Jim said...
I have been selling and servicing all types of insurance for over 26 years from Life, Long Term Care, Health/Disability, Auto, Home, Liability and also Investments. Agents have been regarded as untrustworthy by many consumers for years. I've worked with hundreds of agents, good and bad, in my 26+ years with the same Company.
Yes, it is a good idea to have some knowledge of any product or service that you purchase or contract, but ultimately you need to trust a professional in that field. As far as insurance goes, there are good reasons for both term and whole life and there are hybrids, as well.
I'm not sure why Mr. Solin wrote that "the bad news is that your agent PROBABLY WON'T tell you about it because it would clobber her commissions" . It appears to me that he has decided that the majority of agent have their own interests first. I have survived in this industry for as long as I have because I put my client's interests first. Perhaps Mr. Solin had another idea in mind like disturbing the consumer so he could sell the books that he listed.
My clients trust me and approximately 95% have stayed with me. There is certainly a reason to be careful who you deal with in any industry. The first thing that I would recommend in the insurance industry is dealing with a career agent. There are too many agents selling insurance part-time while working in another job. They don't have much to lose if they are held accountable for hurting someone if they already have another job.
Second, check out the agent with the Department of Insurance. Also, make sure the Company has strong ratings for financial strength and claims paying ability. Other than that make sure you are comfortable with the agent's presentation. If he/she is a good listener, makes sense and appears altruistic and professional, there is a good chance you won't get hurt. It never hurts to pray about it, either.
Everyone has different needs. I don't think a flat $25,000 in whole life and the rest in term is appropriate for everyone, either. Some have a need for more whole life and others have no need for any whole life at all. I do find it very interesting that you can talk to 100 agents and you may get 100 different ideas on what your insurance portfolio should look like. And many of them are not wrong. Many times it is the viewpoint the agent has about what he hears are the client's goals and objectives.
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