Whole Life Insurance (What a Deal!)

Whole Life Insurance,  
<dripping with sarcasm>What a Deal!</dripping with sarcasm>

Short form (to save you from reading the explanation): Whole Life Insurance is a rip off.  Don't buy it!

Long form:

When you acquire a family, insurance becomes a mandatory obligation.  It's part of the deal to try to provide if you cannot any more.  Most employers provide some kind of life insurance, and in my experience, at a good price.  Far better then what you can get on your own.  This is what is referred to as "Term" life insurance.  You pay monthly, and are insured monthly against various "perils".  

Term life insurance is very cheap through your employer for a number of reasons.  The main two reasons are, they buy in bulk against a median age of the company, and the insurance companies almost never pay out.  The vast majority of employees leave the company long before death, so this is all profit for the insurance company.  Privately bought term insurance also rarely pays out because the customer often cancels or reduces the policy long before death as well.  

Then there is "Whole Life" Insurance.  This is sold as an investment.  "Give your family the the gift of better financial security" and "more secure financial future" are quotes from one brochure.  

Why?  Because these articles look better with an image embedded.

The accrued value is pathetic compared to any investment you can make, and that includes lottery tickets, which pay out approximately 45 cents on the dollar.   

My first encounter was with a Whole Life policy, issued by Gerber, yes that Gerber.  I was 24, and my grandmother gave me the policy that she had bought when I was born.  She was sold this thing and paid the policy for 20 years, on the idea that it would be worth something.  

The policy was for $1,000, which to be fair, was the price of an expensive funeral in the 50's.  And over 20 years she paid almost $1,300 into it.  The total cash value after 24 years was $360.  I was told by the insurance agent that they sold a ton of those policies way back then.  And, if you watch MeTV right now, they are still selling these policies.  "Help your child get off to a good financial start" is their catch phrase.  I don't know what the accrued value is but I am sure it's pathetic as well.  If anyone has applied for this "Protection", let me know.

I just opened a mailing for a whole life plan from United of Omaha.  I won't boor you with the verbiage extolling it's virtues.  Here are the numbers.  

For a coverage value of $10,000, the premium for a 60 year old male is $660/per year.

Cash value at 65:    $800

Cash value at 70:   $1,950  (God, these numbers are depressing)

Cash value at 80:    $4,200 

Investment paid in: $13,200

So, you would think that if I die tomorrow, my beneficiaries are up $9,340, a fair amount of which would go to a funeral.  But no, there is a caveat on page 2, "If you die from natural causes in the first or second policy year, the modified death benefit is 110% of premiums paid.  So the insurance payout will pay out $720 and $1,440 respectively.  Just enough for the widow to think, "He was an idiot, but at least we didn't lose money."