• Report:  #399

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"THE TERMITE"(part 2)


The next question quickly leads to participant outrage -- the same

feeling I had when I first learned about it. The answer to this

important question reveals a deep dark secret that the life

insurance industry has carefully kept hidden from the American

public for the last 150 years. They know that if this secret was

ever fully exposed, no sane American would ever buy cash value life




asked them the square root of 5,422, I would get a similar response

--total silence. No one knows the correct answer! Had I been asked

that question prior to my time in the

library, I would not have known the right answer either.

Some people in the class respond, "The beneficiary?"

"Wrong, guess again." Blank stares.

"Okay folks, I''ll tell you. The life insurance company keeps it.


that extra premium you paid for so many years ( five to ten times

more than term) to build up an investment for the future was spent

in vain because the cash value vanishes - literally DISAPPEARS."

Someone usually asks, "Marsh, are you sure about this?"

"You bet I am. Read a cash value insurance contract. In it, buried

somewhere in very small print, is the statement that the insurance

company holds legal title to the cash value. THEY OWN IT, NOT YOU.

Their name is on it, not yours. And if the insured dies, they never

hesitate to keep it for themselves."

"But the beneficiaries still get something, don''t they?"

"They sure do," I reply. "They get the face amount of the policy,

not a dime more or less. But remember, they''d get that same face

value with a term policy at 1/5 to 1/10 the cost."

"But the insurance agent told me that the cash value belongs to me

and it was just like a bank savings account! IT''S MY MONEY!!!"

"Mam, I don''t want to upset you, but the cash value resembles a


savings account about as much as a shark resembles a goldfish." That

statement elicits both giggles and more frowns.

"But you can borrow the cash value . . . right?"

"Borrowing your cash value from an insurance company is NOT the same

as withdrawing money from your bank savings account because you must

pay the loan back, with interest, making this so called feature no

big deal. More about this later."

"Can we ever get the cash value?" someone asks.

"You sure can. All you need to do is ask your life insurance

company for it. But to dissuade you from taking what is yours, your

insurance company will cancel your life insurance coverage as a


"I thought you just said that they own the cash value. If so, why

do they give it to you if you ask them for it?"

"It''s because the sow is schizoid, meaning that it acts differently

under different circumstances. If you are alive and ask for it, you

can get it. But if you die, the insurance company gets to keep it.

Weird, huh?"

"None of this makes any sense."

"Believe me, nothing about cash value life insurance makes any


The product is totally bizarre."

By now there are a lot of unhappy campers in the room. It is not

pleasant for them to learn that the life insurance industry, with

its benevolent mom and apple pie image, plays lots of sneaky tricks

and is anything but benevolent. I will never forget what one

participant once said in disgust, "The good hands people apparently

have lots of dirt underneath their fingernails."

Another participant, who must have heard all he needed to hear, was

in no mood to relax when I announced a break. The burly 300-pound

gorilla grabbed his coat and left the room muttering something about

strangling his brother-in-law who sold him "chump change" whole life


The seminar continues . . .


The ability to borrow the cash value is endlessly hawked by the

industry as a major benefit of cash value life insurance. It''s


as the following illustrates.

"Folks, let me change your thinking on this matter. Let''s say that

you open a savings account at a bank with $5,000. In a year''s


you have a balance of $5,250 including the $250 interest you''ve

earned. Now you decide to withdraw the $250 in accumulated


Tell me, what would you say or do if, in a month, the bank sent you

a bill for the $250, plus interest?"

One participant once said, "I''d call out the Marines and scream

bloody murder. My bank would never do that . . . that''s my money!"

"You are correct . . . your bank would never do that because the

money in a bank savings account is really your money. You can demand

it from the bank anytime and you will get it with no strings

attached. What''s more, they will never send you a bill. But in the

zany world of cash value life insurance, things aren''t quite like

that because they treat your cash value withdrawal as a loan and

they will send you a bill.

"What''s even more amazing to me is that they have managed to

convince the public that this loan "feature" is some kind of a big

deal. If a bank did it, you''d scream. But when the insurance

industry does it, nary a whimper. They are lending you your own

money and charging you interest to boot."

" I see what you mean by the shark and the goldfish."

Someone once said, "All this talks about whose money is whose and

what money is which is scrambling my poor little brain. Whatever

happened to the good old KISS (keep it simple stupid)?"

"The sow deliberately murdered it. The insurance industry knows that

their greatest ally is misunderstanding and confusion. That''s how

they have managed to hoodwink so many people for so many years."

Then I hit everyone with another whammy. "Let''s say that you have

owned a $50,000 cash value policy for 10 years and that the cash

value is about $3,000. You then decide to borrow the $3,000 from

your insurance policy to pay your income taxes. But as fate would

have it, on the very next day, you have a massive coronary and die.

Now tell me folks, how much will the life insurance pay your


Someone always says, "$50,000, the face amount of the policy."

"Try $47,000. The insurance company will first deduct the $3,000

loan from the $50,000 face value of the policy before it pays out a

dime to the beneficiary."

"Why didn''t they just offset the cash value against the loan?


the cash value supposed to be the collateral?"

"Because, like I said before, they consider the cash value to be

their property. Thus, they don''t offset the loan against it. It''s

further proof that the cash value is not always yours.

"Do you all see all the madness and duplicity of it? The insurance

company paid itself back TWICE for the $3,000 loan . . . once by

keeping the cash value, and again by reducing the payment to the

beneficiary. Neat trick, eh? Now you are getting a glimpse of how

they manage to build such big tall buildings."

Someone says, "Seems to me that like the guy borrowed money from his



Life insurance agents trying to sell customers on a cash value

policy go to great lengths to illustrate how much customers will

earn on the policy. They do this with reams and reams of computer

printouts that overwhelm and thoroughly confuse their customers.

The question now is . . . really, how good is the investment and

what is the rate of return?

"More bad news, huh Marsh?"

"You could say that. The rate of return . . . well . . . it''s kind

of hard to figure, especially since the investment vanishes if you

die. If that happens you might say that the rate of return on your

investment is zilch."

"But what if we don''t die and cash the policy in for its cash


What''s the rate of return in that case?"

"Dismal, at best. For the first two or three years, there is no

cash buildup at all because of all the heavy loading charges.

Someone has to pay for the life insurance agent''s commission and


insurance companies will elect you. Add to that the cancellation

charges that you may be charged for having the gall to withdraw your

money. Notice that a bank has no such see or charges on it''s



"Folks, how many of you would open a bank savings account under

these conditions? I sure wouldn''t."

Someone produces lots of giggles with, " . . . not much pork on the


"Here''s another way to look at the situation. When people buy a

cash value policy, they think that they are getting both life

insurance protection and an investment in one package. But that''s

not true. No matter how much you slice up the sow, you cannot get

both. It''s either/or, but never both. What''s more, whatever you


end up with, the life insurance protection or the investment, will

be totally inadequate."

"Like I said, not much pork on the sow." More giggles.

"Now, would you all like to know how to have your cake and eat it

too?" Everyone sits with rapt attention waiting for my words of


"First, purchase a term policy that adequately covers your family in

case you die. Then take the difference in cost between that policy

and a cash value policy and buy an investment in your own name -- a

bank savings account, real estate, or shares in a mutual fund. Do

this and you will come out many thousands of dollars ahead because

you will get both - lots of family protection and the investment

with your name on it."


Someone invariable asks me, "Why do they sell this cash value

garbage and why doesn''t someone stop them?"

"Why? Because of the insurance industry and its agents make lots of

money from cash value insurance. Tons of it. The agents who sell it

make no less than 55% of your first year''s premium as a commission

and sometimes up to 105%. Contrast that to the measly 25% or less

that they earn on term policies. This is why Jack was never told

about term insurance. THE NAME OF THIS GAME IS GREED, GREED, AND


"As for why no one stops them, the individual fifty states regulate

the insurance industry. The Feds have no control over them as they

do with banks, savings and loans, and the securities industry.

Thus, we have fifty state insurance commissioners to protect us from

the wolves and very few of them have the guts or the brains to

challenge the industry for the public well being."

"You would think that as government agencies, they would protect the

public from the ravages of cash value life insurance. Instead these

toadies'' act as the life insurance industry''s agents, assisting


by letting this rip-off continue.

"One of the ways they do this is to freely disseminate to consumers

a pamphlet entitled "A Consumer''s Guide to Life Insurance, written

by the American Council of Life Insurance, an industry lobby. This

industry propaganda is the most slanted and misleading baloney I

have ever read. It is shameful that governmental agencies would buy

into this and freely disseminate it to the public. Talk about Judas

Goats . . .

"Political muscle? Here''s what the insurance industry did to the

Federal Trade Commission. In 1979, after investigating the life

insurance industry, the FTC issued a scathing report and promptly

ran into the power and wrath of the life insurance industry. Among

other things, they didn''t appreciate the FTC''s disclosure that


value insurance was paying, on average, a miserly 1.9% return on

investment. The FTC didn''t have a chance against these power

brokers. Soon after the report was issued, Congress passed a law

(guessed who instigated it) preventing the FTC from ever sticking

their noses into the industry again! NOW THAT''S CLOUT!"

"Marsh, would you do to make matters right?"

"There is only one cure for the scourge of cash value life



"C''mon Marsh, the stuff isn''t that bad."

I reply . . . "Considering massive number of people who have been

robbed by the sow in the last 150 years and the amounts involved, I

don''t think that a law declaring cash value insurance illegal is


severe. Maybe we should ask Zelda her opinion.

"To really fix matters, I''d dump the 50 state insurance commissions

and federalize the whole shebang."

The seminar continues . . .

"During the last few years I''ve had occasion to discuss cash value

insurance with agents, financial planners, and others who sell it.

I wanted them to tell me -- convince me -- why anyone should buy the

stuff. I hoped that everything I had learned was wrong, that I

missed something crucial in my research.

"However, once the agents figured out that I knew my stuff and had

tons of supporting proof, they dropped all of their well practiced

jargon and hype. Nothing they ever told me and nothing I ever read,

has changed my mind about cash value life insurance in the


"But what I did learn from these conversations was something about

their appalling ignorance. It was as if the people who sell this

junk never bothered to learn anything except what the industry

wanted them to learn. Some of them, amazingly enough, didn''t even

realize that their companies kept the cash value if the insured

dies. Can''t these people read? Don''t they realize the awful

consequences of their actions? Is money so blinding?"


Q. Marsh, this is not a question. I have read the Consumer''s Guide

To Life Insurance at home and I read it. It doesn''t say word one

about the disappearing cash value.

A. Why should they shoot themselves in the foot by mentioning this

little tidbit? Do you want to have some fun? As of today,

their toll free number is 800-942-4242. Call and ask their

representative about who gets the cash value if the insured dies. I

have done it several times and all I get is a bunch of hemming and

hawing. One rep said that it comes to you as "part of the death

benefit." That means that you are self insuring with your own money.

Q. Are you telling us to replace our cash value policies with term

right away?

A. YES! And do it as soon as you can. But be sure that you are

first covered by the new term policy before you dump the cash value

policy.And be aware that you might get a visit from an agent who

will try to dissuade you. They can be very convincing so watch out.

Q. Don''t they pay dividends on cash value policies?

A. They do pay you back money but it''s definitely not a dividend in

the true meaning of the word. The money you receive each year is

really a nontaxable return of your overpaid premium. In substance,

they are merely refunding to you your own money, your overpaid

premium. If you don''t believe that, call the IRS and ask. If it

was a real dividend, the IRS would surely tax it.

Q. Buy why?

A. To fool consumers into thinking that they are getting a return on

their investment. It''s a sales gimmick, pure and simple.

Q. My agent told me, "Why should you pay premiums for so many years

and get nothing back?"

A. This is another cute sales gimmick. Tell me, do you expect

something back on auto, health, or homeowners insurance? Why is it

only in life insurance that we are told we should get money back?

Q. Buying whole life insurance instead of term insurance sounds like

you''re paying $90,000 for a $15,000 car.

A. I''ll have to remember that one for my for my next seminar . . .


Q. If you don''t sell life insurance, are you still a CPA?

A. No, these days I spend my time inventing spelling and math games

for kids. It''s much more fun than accounting and taxes.

Q. What is this "split dollar" stuff I hear about for businesses?

A. It''s the same old cash value garbage wrapped up in a neat

package for the business sector. With it, the employer pays for part

of the life insurance and the employees pays the remainder. There

are a zillion of such plans out there but the net effects are the

same: the employee ends up with peanuts for coverage. Avoid this

junk like the pox.

Q. Doesn''t term insurance get very expensive as you get older?

A. This is the line of baloney that sells more cash value life

insurance than anything else. Yes, it does get expensive,

particularly for people over 60. However, an equivalent amount of

cash value insurance is always about 500% more expensive! The fact

that life insurance gets expensive is actually one of the best

reasons for buying term insurance, not cash value.

Q. But term life isn''t "permanent . . . "

A. The term "permanent" is a buzz word used by agents to sell cash

value insurance. All it really means is that the insurance is in

force until the insured is 100 years old. Since renewable term

insurance can easily be purchased to age 90, when most of us are

long dead, the word is meaningless. Besides,how many people need

life insurance at the age of 100?

Q. Doesn''t cash value have a lifetime level premium?

A. Yes, but believe it or not, this is a disadvantage, especially

for young couples raising a family. To compute a level premium over

your life expectancy, the insurance company simply averages out the

cost of your coverage for the rest of your life. This means that

you are paying much more for your life insurance when you are young

and can least afford it and paying less when you get older when life

insurance is not so important.And by the way, don''t forget that


insurance can be bought on a level premium basis for up to twenty


Q. How much coverage do I need?

A. As a rule of thumb, buy somewhere between eight to ten times your

yearly gross income. For most families, that means at least

$250,000 in coverage. That will cost a 30 year old nonsmoker about

$350 a year for term. A cash value policy for the same coverage

could run as much as $1,800 or more. Take your pick. But do not

rely entirely on this rule of thumb as you may need significantly

more or less coverage. That is up to you to decide, based on your

particular circumstances and life style.

Q. Does everyone need life insurance?

A. No. People who do not have dependents to protect certainly


need it. Nor do others who have sizable estates to protect their


Q. What about life insurance on my children''s lives?

A. Life insurance is a wonderful invention to protect dependents

from financial ruin if the breadwinner dies. That is its sole

function.This means that you should not waste money by buying

insurance on your children''s lives. Every available insurance

dollar should be on your life. But if you feel you do need some

life insurance on their lives, get term, of course.

Q. How about life insurance to protect my estate against estate


A. A bad bet. As Charles Givens so cleverly put it in his book,

Financial Self Defense, "When you buy a life insurance policy to

pay estate taxes, all you are doing is paying estate taxes before

you die instead of afterwards. That''s like paying income taxes on

money you haven''t earned yet." He has a point.

Q. What''s this I hear about vanishing premiums in Universal life


A. It''s a case of the old smelly sow playing more gimmickry tricks.

You know that in life that there are no free rides. This is

especially true when it comes to dealing with the insurance

industry. If your premiums vanish, all it means is that you paid

them too much in premiums to begin with.

Q. How do we know that you are not full of baloney and just grinding

your ax?

A. That is a fair enough question. My answer is that right now you

don''t know, but for the sake of your family, do some research and

find out for yourself. Take out some time and do some reading at

the library as I did. Isn''t the well being of your family worth

a few hours of your time? Your job, if you can do it, is to prove

me wrong about anything that I have told you tonight. If you can

do that, I will happily refund the cost of this seminar. But if

you cannot prove me wrong, then do what I am telling you to do.

Fair enough?

As for my ax, you bet I have one to grind! It is estimated that

most people own about two times their yearly gross income in life

insurance protection. That''s pitiful. That means that there are

millions of vastly under insured households in America . . .

millions of time bombs just waiting to explode.

Do you remember that what I told you about my client and how his

cash value policy robbed his widow and two children of a half

million dollars? I did not make that story up just to impress you.

It really happened. My guilt is real and so is my anger.

Q. Are you trying to say that a term policy makes em pay through

the nose if my husband croaks?

A. You betcha!

Q. The guy who sold me the policy last year never said one word

about any of this.

A. If he had, would you have purchased the cash value policy?

A. Not a chance.

A. That''s why he didn''t tell you.

Q. I have some credit life insurance for my home mortgage and car

loan. Is that ok?

A. Not ok. What you have is very overpriced term life insurance.

Dump them all and replace them with a regular good term policy.

Q. I am a member of AARP and I received in the mail an offer for

term life insurance. Since it is term, should I purchase it?

A. No. The stuff is extremely expensive term. In fact, it is a good

rule of thumb to never buy any kind of insurance from a mail offer.

I am surprised that the AARP would endorse such garbage.

Q. Any guidelines on where to get inexpensive term insurance?

A. No. I will not recommend any specific company. If I did, you

might think that I work for someone in the industry. But you should

know that there is is a wide variance in prices for this product, so

you must do some shopping. Get quotes from at least four companies

before you decide. Also, make sure that the policy is guaranteed

renewable and that you do not have to take another physical at time

of renewal. You do not want something called "reentry".

A valuable tip . . . Avoid having multiple term insurance policies

as they usually have a base policy fee. Combine all the policies and

pay just one fee.


Here is where I really lay it on thick.

"For most of us, life insurance is the most important purchase we

will ever make. That''s because so much depends on whether or not we

have adequately protected our dependents. In this arena, there is

simply no room for error. You will probably purchase life insurance

only a few times in your life so please make sure that you do it


Cash value insurance tries to accomplish two very worthy goals:

family protection and family savings. It doesn''t work. The two

goals rub each other the wrong way and cannot coexist together. If

you need protection, buy pure protection (term insurance) and as

much as you need to fully protect your dependents today. If you

need a savings or investment plan, that''s a separate financial

planning issue. But never buy a product (cash value insurance) that

attempts to fulfill both goals in one package.




* Cash value policies, such as whole life, are inappropriate for

most families. Too often such policies provide less protection

than families need for more money than they can afford.

Consumer Reports, September 1993

* Existing cash value policies, in almost every case, should be

replaced...When you die, the insurance company steals your

savings -- the cash surrender value.

The Canadian Buyer''s Guide to Life Insurance

* Term is the no-frills model of the life insurance industry. It

is relatively inexpensive, easy to understand, and in general, the

best value of the premium dollar. However, there is a good chance

that your agent will not discuss term insurance as an option for

your family unless you bring it up.

New Jersey Dept. of Insurance Buyers Guide To Life Insurance

* Agents make five to ten as much cash value life insurance policies

as they do selling term insurance policies of the same face amounts,

yet no disclosure of this fact is made to consumers. Policies are

not sold on the basis of consumer need, but on industry greed."

Ralph Nader

* Life insurance companies and their agents intentionally mislead

consumers about how much their life insurance policies will cost

and what those policies will be worth when they need them the most.

United States Senate, Subcommittee Hearing, 1993

* Never buy whole life insurance. The truth is there are no good

whole life policies. Not one. Not for anybody.

Charles J. Givens, "Financial Self Defense"

* Term is the wave of the future and the nation''s consumers will be

the real beneficiaries...Nothing I did in my eight years at the

Commission holds the potential for bringing greater economic

benefit to more Americans than the simple act of releasing the

FTC Report on life insurance.

Michael Pertschuk, former FTC Chairman

* Many families with cash value policies are tragically under


had they bought low premium term insurance, they''d have 10 times

the money, but agents earn bigger commissions by selling cash value,

so they often push it, even if it leaves a family short.

Newsweek, May 8, 1989 Jane Bryant Quinn

* Don''t buy any life insurance with cash values.

National Insurance Consumers Organization, 1982



Marshall Kay is a non-practicing CPA

who has a consumer interest in the subject of life insurance.

Mr. Kay lives in the Chicagoland area where he invents and

markets educational math and spelling games for children. He

appreciates Julie Larsen''s editorial contributions to this article.

Anyone wishing to order reprints of this pamphlet or to contact

the author can reach Mr. Kay by e-mail at [email protected].

* * *

3 Updates & Rebuttals


Defense of Mr. Kay

#2Consumer Comment

Thu, May 18, 2006

First in fairness Mr. Kay's first statement is not fully, and technically correct; however it is correct in effect. While the insurance company does not in reality keep your cash value, it has that effect as it is in Fact an ART (annual renewable term), actually a DT (Decreasing Term) with the savings feature added. There is IN FACT only one type of life insurance, and that is term. A whole life policy is built with, and on the guaranteed, rates of return and cost of insurance. Each year as the cash value increases the actual protection decreases, thereby keeping the premium, and face amount, level through the insured's lifetime. In one of the first Q & A questions this point is correctly made, and pointed out to the questioner that they are in reality self insuring, which is the correct description for this issue. So in reality what Mr. Kay has stated does not meet the fully correct legal definition of the process the effect is EXACTLY as he describes. The only difference between Whole Life and Universal Life, Variable Life, Or the million other names given to the product is that with these newer types the insurance is usually based on a current, along with a guaranteed rate as a possible cost of insurance (again a ART); another difference is that there is slightly more control over the savings feature, but with that comes added risk. Should the UL start charging the guaranteed rate, along with the guaranteed investment return most policies are designed to eat-up the cash value and self destruct at just the time the client probably needs the savings, instead of the insurance, but they get neither. Another point Mr. Kay points out, right before the questions and comments segment, I have also tried to get someone to convince me that the programs sold are not as bad as they seem, however in 12 + years as a financial advisor I have yet to find a program (Whole Life, UL, VL etc) that would even be equivalent to at basic term policy and taking the difference for investment. In fact in nearly every case the client could buy the term and burry the difference in a coffee can in the back yard for an average of 7 years (some more popular policies the breakeven time is in the range of 20 years). In short nobody, including some very senior managers have been able to supply a set of data in which the client was better off with their policy, for any purpose other then burial policy and even that if the life exceeded more then one to two years the benefit was exhausted. Actually, in most cases (60-65%) where an old agent and I were comparing programs in front of a client the agent leaves their company within 2-3 weeks. I guess they really didn't know, until someone shows them, even one Rep that had been a top sales manager for a major company for over twenty five years (he later worked for me). I do find one other flaw in Mr. Kay's logic and this one is not merely an example that matched effect, as above, but a real disagreement, that is Avoid having multiple term insurance policies. There should be two policies, NO MORE & NO LESS, policies for the average couple. The reason for this is the IRS Tax Code. In the twelve plus years I've been in the industry I have run across two (2) policies that were properly written to avoid being included in the deceased estate, thereby having the true effect of being taxable to the estate (beneficiaries). If the insured is or has a reasonable chance of accumulating enough wealth to be subject to estate taxes they should NEVER own the policy, because at death the IRS views (and it has held-up in court every challenge) sees the payment to the insured thereby increasing the estate by the amount. Rusty's Rebuttal Rusty what is wrong with your logic? It would seem you are the one that has not been properly educated, and now you expect the readers of this posting to believe the bull you're shoveling. Insurance is paid as a percentage of the first year premium, and while there are companies that pay the same percentage for term and cash value policies (about 1/3) nobody pays a higher amount on term then cash value because the benefit to the company is significantly higher with the added premium. Or are you making the point that YOU sell policies that under-insure the client if you sell cash value, which is significantly easier to sell building on the savings hype, while you would properly cover the client if they insisted on term, in which case you are a THEIF. For those others who may read this column commissions on all insurance products are paid based on the amount the company receives the first year of the policy, for an agent that ranges from about forty percent (40%) for a low level captive agent (tied to one company) to slightly over one-hundred percent (100%) at a independent General Agent level. As to his point that he sells a policy that cut a check for the face plus the cash account, yes there are what was known at first as type B Universal life policies, these names of type A B and even a C, have been around for years and in some circles still used quite heavily. What Rusty does not tell you is that type B cost more because the cost of insurance does not go down as you age so the price goes up. Rusty would FRUDUANTLY say that the costs do not increase, that is incorrect as the cost of insurance is internal within the policy and it is only seen in comparing the amount that goes into the savings feature, or a analytical review of the policy itself. The next point of problem with Rusty's comments are that a cash value is Permanent insurance when nothing could be farther from the truth. I have already explained that in cash value policies (with the exception of UL Type B, which costs significantly higher then the extremely high priced other cash value products) the protection fades away as the policy ages to the point that at maturity there is zero (0) protection, you are self insured. This process explains the SALES GIMIC of cash value and why Mr. Kay used the Keep if you Die analogy. Rusty GET EDUCATED yourself before you seriously hurt some widow with YOU'RE uneducated understanding of insurance. Now for Erin's Rebuttal Erin the only thing I can say for your write-up is at least it shows a SLIGHT more thought and insight into insurance then Rusty but you're still about as far out of reality as he. First thing to your First thing it seems that you have the concept of a CPA as a glorified bookkeeper, well several have taken positions with companies that have very little more then that, the license and training for such is among the most rigorous of all professions, and is THE ONLY truly professional designation dealing with personal, or business for some, finance. Of course your managers at whatever insurance company you work for will disagree with that, explaining that their CLU, or ChFC are far superior for that purpose, but let's explore that. First let's work with the education requirements, do you have even any idea of that, I doubt it. CLU and ChFC requires 8 classes, usually taken via distance learning (correspondence) with a small test after each class. There is NO prerequisite for ANY college, there seems to even be some indication that it not even require a High School Graduation. At least the CFP certification starting in 2007 will now require a Bachelor's degree before being eligible for the single exam covering 6 of the 8 classes mentioned above. Now lets find the requirements for the CPA designation, CURRENT requirements include an accounting or finance degree involving a minimum number of accounting classes totaling at least 150 credit hours, let's see those 6-8 classes mentioned for the CFP, CLU, and ChFC, above would count on the same scale as 3 credits each and most would not count as advanced credit. CPA and CFP requires two years under another CPA for CPA's or CFP for CFP certification, on this issue I have to acknowledge that I am unaware of the requirement for mentorship, however the American College (the certification grantor) has nothing on their website that I saw requiring and such experience. By real comparison the curriculum to obtain either of the degrees above other then the CPA would note even equal the last have of the sophomore and first half of junior years (total of one (1) year) of the CPA program at nearly any university. For reality's sake, and to clarify where I'm coming from I have two of the four certifications mentioned above, (Not the CLU or ChFC) and I doubt the classes for the American College certifications really would even qualify beyond freshman level coursework. While the CLU and ChFC classes had more sales issues then real Meat of understanding policies, and has no prerequisites, the University class for insurance in the accounting program had no sales segment in the program but focused the class on understanding the policies from a contract level to understand the policy itself, also it had a Sophomore class (Business Law) and two Junior classes (Personal Finance and Contract Law) as prerequisites. Both the Contract Law and Insurance class were taught by professors from the Law School in the adjacent building. The requirement for an Insurance Professional is pass a very basic test and have a company willing to appoint them. There is no other requirement in any state as of this date. I have in fact taken individuals from zero knowledge to fully licensed in all products currently being sold by the life & health insurance industry in less then a month. The previous statement included one individual that due to English limitation (birth language was Chinese) that had good comprehension but a reading speed of about third grade, so let's put this point to bed right now, nearly any person can get the licenses required for this industry. Also with any agent I have trained they will understand a policy by NWM better then a NWM agent, and policies of MET better then the MET agent, same with NYL, PRU, and most others within 2 months of first meeting them. As much as the industry wants the public to think so, this is NOT ROCET SCIENCE. Insurance companies teach sales techniques, NOT POLICY UNDERSTATNDING, and I would willingly concede to them their expertise in that. I would even go so far as to say that the average CPA has had more training in or relating to insurance then almost any, if not any, insurance professional currently in the practice of marketing insurance, Also the CE requirements for the state departments of insurance are much less then for the State board of Accountancy. Texas currently requires insurance agents to have 30 hours of CE every two (2) years while the AICPA requires forty (40) hours EVERY YEAR, a big difference, nearly 3 to 1. Plus CPA's are required to take several, to all extent and purposes, Law Classes, dealing mostly with contract law as part of the required curriculum, as I already elaborated to above. This along with the course material build to teach financial analysis might explain why Mr. Kay obviously knows more about insurance then you. Next even you seem to agree that families with large need would be foolish to try and cover it with Permanent life insurance, which as I explained above is even less permanent then term. The fact of the matter is that term and cash value have nearly identical laps rates (policy discontinued by one of the parties under the rules of the contract), in which case the client would have paid the significantly higher premium for no advantage (reality at a very high loss). Your quote of 1% is very misleading in that death claims are paid on both types of coverage, but those who understand the true, and only legitimate use of insurance, have the term while there is the need and then discontinue the policy, and as term is usually sold and bought my more sophisticated financial savvy individuals it is used for the purpose and then discarded, and in that same train of though would explain why term has a slightly lower instance statistically of contested death claims. You seem to have fallen into the trap in thinking that people need insurance till they die, while for someone living a normal life span that couldn't be farther from the truth! ! ! ! The intelligent use of insurance, of any kind is identical, to protect assets. The asset life insurance is designed, and needed, for is the protection of the financial impact (responsibility) the individual has to others. Once that responsibility is gone so is the need for insurance at all, but while the need is there the need is great. Like you say funding it with cash value is ludicrous. As to your comment of the nice bonus of the cash value, again I reiterate there has been no time in the history of the equities, or even the cash, market, where the outside savings of the cost difference being invested even in low yield, super conservative, investments did not totally annihilate the so called benefit of the savings feature. Plus as illustrated very well by Mr. Kay, and reiterated above by me the value is totally lost if the insured dies, some bonus. Erie here again is a point where you show your lack of knowledge about the insurance industry. When developing the first Revenue code that went into effect in 1913 during congressional hearings the issue came up about taxing dividends and the insurance made a major mistake in THEIR statement to try and keep insurance dividends non-taxable. That statement, BY THE INSURANCE INDUSTRY REPRESENTATIVES THEMSELVES was that Dividends from a mutual insurance company are not dividends in the normal since of the word, but a partial refund of an intentional overcharge. Now you expect us to believe that you know more then the heads of the companies, and actuaries that designed the process. WAKE UP! ! ! it is exactly as Mr. Kay explained, a marketing gimmick to which the industry made the mistake of putting on the record. Erie please do something very few agents have ever done, read the contract, if it is whole life the face amount will NEVER CHANGE, if it is a newer UL, VL or other the possibility of the face increasing is there due to IRS rules that require a insurance policy to maintain a certain ratio of coverage to balance. Yes I know what you're going to say next, what about my self insured comments above, Whole life was grandfathered for this revenue ruling which was posted for the new Universal life, and similar products. However, the concept of the premium never increasing is extremely deceptive, because the cost of the insurance DOES INCREASE each year just like ART, which is what it is in reality, it is just that the mortality costs are concealed within the policy and the insured only sees the premium. The next paragraph of your rebuttal again shows that you have no idea of the inner workings of an insurance policy. The PREMIUM stays the same, but the cost of protection increases yearly. Whole Life is the first modification of term, and the only one that stuck around for more then fifty years, but it is a Modification of TERM by adding a savings feature. The newer version are the same, just with different savings vehicles and savings characteristics. In so being all except UL Type B described above, are a ART (actually a Decreasing Term) with a savings feature. The client is ALWAYS better of with a side investment and seeing the cost upfront for the coverage instead of concealed neatly inside the most confusing legalese ever placed in a contract. As for the type B Universal Life (or any other name with the same basic concept) is a true ART with a savings feature and will later in life either disintegrate or call for higher premiums, because the cost of the coverage does in deed increase each year. The type A UL is able to potentially remain level through till eventual payout, if it does not exercise the company's right to pay and charge the guaranteed, but if it does these also will disintegrate, or call for higher premiums (letter from the insurance company advising that the cash value has been used up to pay mortality charges and admin fees, and that in order to keep the policy in force the then current amount of premium for the ART is due immediately). So in truth BOTH types of insurance (Still there is only one type TERM) increase in cost each year it is just that one is more visible, and honest and the other is not, but your comment that you pay more for term is not even bordering on, but insane. Erin I hope you read this and take a serious look at the issues I have brought up and take a look with a critical eye at the products you represent. Some of your last comments are approaching the correct point but you need take them a little farther. You are right that People should not view whole life insurance as and investment vehicle but you should have stopped there, once you put the return and data into a spreadsheet you will be convinced that there is no real market for the bundled product of insurance with a savings vehicle. You're comments have shown that you may have and (I believe do have) a real intent to benefit your clients, but seems that your experiences have been within the shelter of your managers or company. If you read any cash value policy to the point of understanding it, and I will say that will probably take quite a bit of work (I've had corporate contract law attorneys tell me that certain characteristics are not in their policies only to then show it to them) you will find that Mr. Kay is right and maybe you need to find another supplier for your products


Be careful what you preach

#3Consumer Comment

Fri, March 19, 2004

I am writing to sort of go along a little further with Rusty's comments to the original authors obviously one-sided and uneducated report. First thing, a CPA is NOT an insurance or financial professional in the sense that needs to be taken into consideration here. I am not belittling in any way your profession, I am simply saying that it is a completely different animal. Insurance and Financial services professionals go through extensive licensing and continuing education requirements, like CPAs, in order to be able to leagally practice. Now this doesn't make one an expert by any means, but it does give them more information than your average joe on the street. Permanent life insurance is not for everyone. Families with a large need would be foolish to try and cover that need with strictly permanent whole life. Term is also not the only solution. Statistics are out there that state, less than 1% of term policies ever pay a death benefit. The policy holders either outlive the coverage or dump it when the need they had originally goes down. In other words, term provides protection for a SHORT PERIOD OF TIME (5, 10, 15, 20 years usually). So, the policy holder has, yes saved money with lower premium outlay, but has just given that money straight to the insurance company and recieved nothing in return. Whole life, depending on the company issuing the policy, has that infamous cash value component that term does not. The feature is a nice bonus, but it is not a piggy bank to raid on a whim. It is in place in order to reap some living benefits of your policy and get back a little of what you have put in. If the company is participating, which means pays dividends, although dividends are not guaranteed, then taking some of the cash value is not the evil drain you make it out to be. If the policy is old enough and the policy pays dividends, in some cases it is possible to draw from the cash value and not pay it back and just let your dividends replenish the policy back to it's original state. Also, it is true that if have an outstanding policy loan upon death, the face amount will be lessened by the amount of that loan. However, whole life policies, in addition to building up that cash value, also increase in death benefit over the years. So it is possible to initially take out a 50,000 dollar whole life policy, let it grow for twenty years, depending on the company these figures are just to show a point, and in the end have a death benefit of 75,000 without ever increasing your initial premium. Permanent insurance premiums remain level for the rest of the policyholder's life, the premium is locked in at the age the policy is taken out and never increases. Term products, the premium increases over the years, depending on the length of the term you take out. In the end, you wind up paying more for term than you ever would for permanent because the older you are, the more expensive term gets to be until it reaches a point where the cost is just to great to keep it anymore. A mixture of term and permanent is usually a win win situation, but no one can ever tell you what you need until they sit down and talk with you and your family and decide TOGETHER what your needs truly are. People that say buy term and invest the rest have a good idea but investments and insurance are two separate entities. People should not view whole life insurance as an investment vehicle only, it can be a SUPPLEMENT to your portfolio. Trained, registered representatives are out there to assist you with investment choices if that is what you are looking for. All in all, before you bash an industry and it's professionals, you better have the knowledge and information ready that those individuals have. It's hard to argue a point when you don't have all the facts together. Most insurance and financial professionals are in the business of protecting people and helping them to achieve their dreams in the best way they can. It's a shame that a few dishonest and sneaky companies and agents have tainted the waters for those of us out there who are doing the job the way it is meant to be done. Research who you are thinking of doing business with, talk with friends and family or clients of that company and get their opinions before making your judgement. Please do not make generalizations and statements that may adversely affect someone's livliehood until you are sure that what you are saying has merit and proof.Be careful with your personal opinions, for they can be a double edged sword.


St Cloud,
The Truth

#4Consumer Comment

Sun, March 02, 2003

Obviously you have not been properly educated and likely have a connection to the fraud of an insurance company that I used to represent; the buy term and invest the difference crew of Primerica. I work for a company that offers both term and permanent life insurance products. As for your quote that agents make more off permanent products its not true. My commission rate, renewal rate, and total commission is much higher when i sell a term product then a permanent product. Secondly, if you have a good agent; like me, then they advise you which option to take to get your death benefit and cash value out of your policy. Yes this can be easily done. Please educate yourself so you are not misleading your well intending clients who want to protect themselves properly for a lifetime.

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