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Whole Life Insurance
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This post is a response to one of the readers who has recently posted a comment on this post. Therefore I do hope that, with this post, I can help to bring out some pointers on the cons of having the many of the same insurance policy types…
When Are There Cons To Having Too Many Of The Same Policy Types?
The existence of cons depends on the terms and conditions stated by various insurance companies. So it is always better to check with the Financial Planners representing each of them. Things worth checking out:
#1 The Maximum Amount Of Insurance Coverage
Some insurance companies tie the maximum amount of insurance coverage against Death and/or Critical Illnesses against a factor of one’s annual income. For example, some insurance companies may set 16 – 20 times of annual income as the maximum sum assured for a whole life or term insurance. So if you are earning $100,000 per year, the maximum amount of insurance coverage that you can get may be set as $2,000,000. Any amount beyond that may mean that you are over-insured and insurance companies may just pay up to that limit.
If you are thinking that it’s unfair since you have the means to pay the premiums, but do think of people who may take advantage, e.g. a person deeply in debt and unemployed but has some savings to tide him over… he decides to get a $1 million dollars term insurance to cover himself and he decides to commit suicide after a year (of which the premium paid is just a few thousands). This will be unfair to the Insurance Company and to the pool of policyholders, do you agree?
If given a choice to properly plan for yourself, would you trust a Book that touches on the topic of what you need to know about Insurance Products or a Financial Planner who is not a newbie in the industry and qualified to give proper advice? Or would you have the combination of both?
And if you are amazed by what is being asked above, it’s not something new as there are people who plan for themselves with the help of a book. Though there’s nothing wrong with that because there are some good books that give you proper advice and even proper steps to work through your budget to sorting out your priorities to knowing what’s the order of importance in terms of getting an insurance plan.
The only concern that one may have is grabbing hold of a book that do not really guide the reader much but only list down on what’s the highly recommended insurance plan(s) in that author’s point of view and penalizes the other types. For example, I came across an author who only endorses Term Insurance, penalizes Whole Life Insurance and favors a particular type of Stock Investment in the book.
A Client Who Followed That Book And Did Changes
I have the real-case experience of having a Client who contacted me to request for a termination of the child’s Whole Life Insurance after it has been in-force for the past five years and another five more years to go before that client stops paying for that policy for the child – just because that client has read that book that says Whole Life Insurance has high expenses and fees built-in and the client is expected to face heavy losses should the policy continues…
I advised that should the client really decide to terminate that policy, the client would expect to suffer heavy surrendering charges which can amount to 60 – 70% of what was being paid till date. The client says it would be best to follow that book and confirmed that it would be best to terminate it and suffer the initial bit of losses.
Another colleague did helped to persuade that client but seemed like the client has really made up the mind and that policy was terminated on that date.