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Agents are trained by the companies to sell the highly profitable cash value "life insurance" (pure insurance plus the cash-value account) in preference to pure (term) life insurance. Should a prospect be impressed by the low cost of term insurance quoted him by another saleman, the attempt to dissuade him generally goes something like this:
I have nothing against it (term insurance) ... in fact, I sell it. But it's only temporary insurance. When the term is over, say 5 years, you have nothing. Period. And if your family still needs protection, the premium for another 5 year term would be a lot higher. A policy with cash values is permanent; part of the premium goes into guaranteed savings that grow and are yours if you ever decide that you do not need the policy anymore, after retirement, say. All the while you pay at the nice low rate for your present age. *
In the next step, the trained cash-value salesman often produces those marvelous graphs which, he contends, illustrate his point by purporting to compare the costs of whole-life vs. term insurance.
The properly trained agent, from the companies point of view, never understands the gross MISREPRESENTATION which he must regularly perpetrate. Ignorance of this fact is ironic; the simple fact is that the term premium curve, representing the true cost of life insurance, is the very same curve used by the companies to compute the mortality costs in the cash value policy!
Thus, such graphs comparing premium are simply invalid as cost comparisons because of the endowment element in the cash value policy. Yet such graphs are used to dissuade the purchase of term insurance and can only be regarded as completely misleading and totally irrelevant. **
If MISREPRESENTATION is indeed a legitimate concern of state insurance commissioners as part of their regulatory fuction, is it not all the more incredible that these graphs depicting misleading and invalid "cost comparisons" continue to be widely used by the agents selling cash value life insurance policies? Is it conceivable that policy-holders so persuaded to purchase cash value contracts may have recourse at law, by claim of fraud, for the recovery of financial damages from the companies?
* Hospital Physician", June 1968, p. 57.
** A Legal Analysis of the Sale of Life Insurance", by Randall A. Hendricks; Houston Law Review, Vol. 6, No. 4, March 1969, p.823.
THE SOLUTION: Buy only TERM LIFE-INSURANCE.
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