LIFE INSURANCE GOBBLE-DE-GOOK?

Comparing the costs and benefits of life insurance policies is one of the trickiest problems in the entire world of personal finance. This is particularly true for senior citizens who might be vulnerable to the swift sales pitch that promises them coverage that they thought they couldn't get. Here's a case in point. If I get these sales pitches, then certainly tens of thousands of other people do too. It's my job to help you evaluate them. This particular one bothered me. It was offering up to $10,000 of "Graded Benefit Whole Life Insurance." Now, I've been writing about life insurance for more decades than I care to remember, but I've never heard of any called "Graded Benefit," and the sales pitch described it as such time and time again. Whatever it is, the pitch was made more alluring by these come-ons: "No medical exam"...."No health questions"...."Acceptance guaranteed"...."Premiums will never increase"....and that wonderful bit of mumbo-jumbo that was invented by the credit card hustlers: "Pre-Approved Application." (Translation: "Your application has been approved before you submit the application." Isn't that considerate of them?) Knowing that a lot of people would fall for this diabolical word-play, I took it upon myself to phone the company---a very big one whose name would be very familiar to you*---and ask them directly. I used an example from their mailer, which said that a male in his 60s could get the $10,000 coverage for about $60 per month, or $720 per year. So just what is "blended coverage"? Simply put, you get no insurance---repeat, with emphasis, NO INSURANCE---for two years. If you die of natural causes within two years and one day of the policy being issued, your estate does NOT receive $10,000. It receives only a refund of the premiums you paid plus a 10% kicker to your beneficiary. In other words, your estate would get back only $1,440 ($720 times two) plus another $144 as the kicker. That kicker is about what you could earn on a money market account at your bank. (If you die of accidental causes---very long shot---you are covered for the full amount from Day One.) Where the real knife-in-the-gut hurts is with people who didn't know what they were buying, and believed that they were fully insured from Day One, when in fact they weren't. Yes, after the initial two years and a day you are covered for the amount you bargained for. But, sadly, a lot of seniors are shooting crap with the insurance company, and their survivors end up empty-handed when they thought there'd be a nice chunk of money available for whatever. I asked the nice lady why the company didn't just say what "graded benefits" meant in the sales literature, so as not to mislead people. That's a question that answers itself. Obviously, if they said what "graded benefits" meant, they wouldn't sell much insurance. But by using gobble-de-gook instead of honesty, they lure the innocent and/or gullible into buying something whose worth is not what they think it is. Speaking of worth, you can buy a lot more insurance for a lot less money through well-rated companies. Run a search to compare life insurance costs, and you'll see what I mean. Note well that almost all insurance comparisons involve a lot of apples vs. oranges calculations. Do your homework with the help of a respected local agent whose reputation can be easily checked. * Remember that little asterisk in the fourth paragraph of this article? It's full disclosure time. I do not name names when referring to companies. If I say that company X is bad, you might think that all the others are good. If I say that company X is good, you might not research other companies that could be even better. Or, you might think that I am getting a kickback from company X. My objectivity is my best credential, but regretfully that means you're on your own to evaluate who you'll give your business to. Sorry about that. I point the way for you, but you're better off in the long run if you do your own research. This article supplements Chapter 17, pages 472-492 in Personal Finance. Access the textbook by clicking on the box in the right column.