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Best type of life insurance? Heated debate goes on

I don't often print a rebuttal to a rebuttal in this column, but today I'm making an exception.

A few weeks ago, I answered a reader's question about life insurance. In that column, Jeff Salisbury, a licensed insurance agent and the principal at Beacon Financial Planning in Cache, Davis and Salt Lake counties, said he thinks life insurance is an "abused" product. That's because life insurance policies often are sold to people who don't really need them, he said, or people are encouraged to buy the wrong kind of life insurance.

I followed up that column with another in which several people questioned Jeff's statements and touted the virtues of life insurance — especially universal or whole life policies.

That second column brought an e-mailed response from Jeff. And at the risk of opening this can of worms again, I've decided that his points on this complex issue deserve airing.

The question in the original column dealt with a young, single woman and whether she needed life insurance. One reader responded that a person could suffer a future health problem that would preclude him or her from getting an insurance policy. While Jeff acknowledges that could happen, he still is not sold on universal or whole life.

"Go ahead and purchase life insurance — but buy term, not the expensive whole life, universal life or variable universal life," he wrote in a follow-up e-mail. "Life insurance IS an important part of most people's financial plan. But term life is most suitable for most people in most circumstances."

That same reader said some whole life policies are "not bad savings vehicles," but Jeff wrote he would like to see one that is a good savings vehicle.

"It is really very simple mathematics," he wrote. "If the policy is generating generous commissions for the selling agent and profits for the insurance company, those expenses are dragging down potential investment returns."

Jeff also had strong words for a reader who gave an example of how much a person could save using a universal life policy. In this example, an insurance agent named Joel wrote about a female child, age 2, getting a $100,000 universal life policy with a premium of $35 per month, or about $1.15 per day. By the time the child was 40, the policy would be worth $400,000, Joel wrote.

While the numbers quoted in the column make such a policy look like a "phenomenal deal," Jeff wrote, those numbers cannot always be trusted. For example, he wrote, the example given assumed a 12.71 percent annual return on the insurance investment.

"That is an imprudent assumption since the S&P 500 has only averaged 10.7 percent during the past 40 years," Jeff wrote.

"Unfortunately, the unsuspecting public will base their decision to buy this policy on this erroneous projection that looks like a great deal, and the emotional and enthusiastic sales pitch that their purchase will give them 'happiness . . . confidence . . . joy . . . courage,' " Jeff wrote. "I have had many people sit across my desk who were sold these policies 10, 15, 20 years ago. In every single case of my personal experience, the projections given to them at the time of the policy purchase have not even come close to being realized."

When I called Jeff to clarify a few points in his e-mail, he concisely summed up his bottom line.

"Most people need life insurance, but most people end up with the wrong kind of insurance, and they end up with the wrong kind of insurance because it's a sales-driven distribution system," he said. "It gives incentives to agents to sell the wrong kind of insurance."

I'm sure many of Jeff's fellow insurance agents still disagree with his assessment.

The rest of us will have to decide who is right when we start shopping for an insurance policy. I would encourage you, again, to be careful. Try to find an insurance agent you can trust. Go into the transaction with a clear idea of how much insurance you need and the vehicle you want to use to get it. And, if possible, find out how much the agent and company are going to make on the insurance sale.

This may take a little research on your part, but it will be worth the effort. And hopefully it will give you the peace of mind that comes with knowing you bought the right insurance for your situation.

If you have a financial question, please e-mail it to me at gkratz@desnews.com or send it to me by regular mail to the Deseret Morning News, P.O. Box 1257, Salt Lake City, UT 84110.


E-mail: gkratz@desnews.com