How Whole Life Insurance is Sold
Term vs. Whole Life Insurance
When you or I think of life insurance, what we’re most likely imagining is term life insurance. You pay your premium every month, and if you die while the contract is active, your beneficiary receives a sum of money. It’s a very straightforward policy, and is generally the preferred product for seniors, retirees, and the general public.
However, because the plan is simple and relatively inexpensive, the insurance broker who sells you the policy receives a smaller commission than if they can convince you to buy another type of life insurance, whole life. Like term life, whole life insurance will pay out when you pass away, but this product is designed to cover you for your entire life, and generally costs around 10 times as much as an equivalent term life policy. This is partly to make up for the fact that the actuaries can’t estimate life expectancy as easily over so long a period, but also fuels another unique characteristic of whole life insurance: the cash value.
Understanding Cash Value and Surrender
The cash value of a whole life insurance policy supposedly functions something like a bank account: policyholders can withdraw money from it when they need it, and can store money in it when they have a surplus. Unlike a bank account, however, policyholders stand at risk of losing part or all of their funds if they can’t continue making the large monthly premium payments on their policy. Most whole life policies lapse within the first 3 years of purchase, and in that case it’s likely that the thousands of dollars of premiums have simply disappeared.
In addition, despite the fact that many brokers try to sell whole life insurance as an investment, the returns on the cash value account are dismal, and the insurance companies charge significant “management fees,” which our Santa Clara whole life insurance attorneys have seen drain what little profit policyholders make from these products.
Another risk for policyholders is that brokers may tell them that after am certain point, the cash value will have grown enough that they no longer need to pay premiums, and that the policy will pay for itself from the cash value and returns. Unfortunately for them, whole life insurance policies have seen significant increases in monthly premiums, and it’s not uncommon for consumers to receive a notice from the insurance company that all of the money they had is gone, they owe hundreds or even thousands of dollars per month to keep their policies, and they risk losing what they thought were secure retirement savings earned from decades of work.
Solving the Whole Life Insurance Problem
Many of the insurance policies that our Santa Clara whole life insurance attorneys see contain some or all of the flaws that we’ve pointed out. Many of them are over a decade old, and their owners are wondering why they’ve started receiving letters from their insurance company or why their broker won’t return their calls. One common piece of advice from financial advisors (at least from those who don’t profit off these products) is “Buy term and invest the difference.” Instead of settling for the feeble returns and significant pitfalls of whole life insurance, they advise consumers to keep their life insurance simple and invest their money more wisely.
Some of the major annuity and life insurance providers in California are:
- Aviva/Athene/Accordia Life Insurance Company
- Transamerica Life Insurance Company
- John Hancock Life Insurance Company
- Bankers Life Insurance and Casualty company
- Massachusetts Mutual Life Insurance Company
- Midland Life Insurance Company
- North American Company for Life and Health Insurance
- Pacific Life Insurance Company
- Prudential Life Insurance Company
- Genworth Life Insurance Company
- ING USA Annuity and Life Insurance Company
- Lincoln Benefit Life Company
- Metlife/Metropolitan Life Insurance Company
- Unum Life Insurance Company of America
- Voya/Reliastar Life Insurance Company
If you or a loved one has experienced whole life insurance fraud in California, contact the Evans Law Firm whole life insurance fraud attorneys at (415) 441-8669, or by email at firstname.lastname@example.org. Our attorneys have experience with complex financial contracts and large insurance companies. We can help guide your case through a jury trial or toward an equitable settlement. We handle cases involving physical and financial elder abuse, qui tam and whistleblower law, nursing home abuse, whole life insurance and universal life insurance, and indexed, variable, and fixed annuities.