Look at this ripoff advertisement that was in my mail box:
From an average person, this looks like a great deal. Ok, lets break it down:
Lets start with the $3.49/month you see. As anyone know, rates is heavily dependent on your age among other factors such as health, height, weight, coverage amount, etc. Its says "$1 pays for the first month. Then the rates are based on your current age and are guarantee for the life of the policy." That means after the first month, expect your premiums to increase dramatically. So the $3.49/month is really the policy fee with $0 coverage.
"Death benefits are paid free of federal income tax." Life insurance death benefits are never taxable. It is taxable when it is put into an estate.
"Coverage is also available for your spouse and other family members." Instead of covering you and your spouse in one policy, they want to sell everyone an individual life insurance policy. Do you know that each policy has annual fees of around $50 or more (depends on the company)?
"Benefits will NEVER be canceled or reduce for the life of the policy if premiums are paid on time." Well duh. If you pay your premiums on time, you keep the benefits. Its when you are late or miss your payments in which this company can cancel your policy or lower your benefits.
"Give your children a financial head start right now. Your policy also builds CASH VALUE and you can use the cash for your family's needs." This should a red flag to anyone who thinks life insurance will build a financial future for your child. If your child ever wants to take money out from the cash value, he or she would have to borrow it and the insurance company will charge 8% interest. The cash value will grow at a very low rate of return. If you bought $50,000 coverage on the child, it will take until your child reaches the age of nearly 100 years old (which is when the policy will expire) in order to have $50,000 in cash value. If your child dies, the insurance company keeps the cash value, but they pay the death benefit to the beneficiary (which is most likely to be you, the parent). Your child is never going to see that $50,000 until he or she is about 100 years old. What financial head start is the child getting? Absolutely none! If you really want to build a financial future for your child, open an investment account such as UGMA/UTMA and invest in mutual funds. If you want to send your child to college, open a 529 plan. If you really want to put coverage on your child, add a child rider to your life insurance policy.
In case you are wondering, this advertisement is for a whole life policy. As any financial expert knows, whole life insurance is a total ripoff. True financial professionals with moral ethics will tell you to buy term and invest the difference. Get the right amount of coverage you really need that covers any debts you have such as a mortgage, your children, and so on. At the same time, invest your money in equities. As times goes on, your savings goes up, your financial obligations goes down, and your children will become adults. In 20 to 30 years, what need would you have for life insurance if there's no one dependent on your income?
