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I remember when I was a little girl, the family insurance agent would come to the house each month (my husband has the same recollection) to collect that month’s premium for life insurance.

Life Insurance

The Life Insurance Octopus—Rosemary Jenkins

My mom and dad and my brother and I were each covered. At a certain point down the line, the premiums would be paid in full and the policy would eventually pay the full face value upon death of the insured (that is, in fact, how it worked upon my mother-in-law’s passing).

Since those heady days, such policies not only have become a thing of the past but the whole business is so complicated and convoluted that the average person is at a loss as to what to do to make the best choices for themselves and their families.

So many choices. Which is best for your circumstances?

When my husband and I married decades ago, we bought a life policy for each of us—believing we had purchased a type for which premiums would never change and our beneficiary would get full payment whenever one of us passed away.

All of a sudden, we received a notice in the mail that my husband’s policy would be cancelled once he reached the age of 84 even though we were always on time with our payments and had paid on it for years.

Then, all of a sudden, we received a notice in the mail that my husband’s policy would be cancelled once he reached the age of 84 even though we were always on time with our payments and had paid on it for years. That letter was soon followed by one to the same effect for me. The policy would not only be worthless at death but there could be no cash withdrawal at that time either. It was explained that based upon the bean-counters’ speculations, the money the insurance company expected to accrue to cover death benefits had been diminished dramatically after the precipitous fall of the stock market—and heaven forefend the insurance companies should make a lesser profit!

After researching the situation, we felt we had no choice but to ask that our cash value be surrendered after receipt of those letters so that we could re-invest it into a new instrument with a different company. Even at that, the bottom line was that we would be covered for half as much, for twice the premium under the new company’s guidelines.

Recently, I have had misgivings about our choices all over again. Even with relative confidence in the wisdom and knowledge of our insurance agent, would we find the advice of our new representative entirely trustworthy and reliable?

I am still not completely confident about the direction we should take henceforth. In the meantime, however, I want to share with you the little I have been able to ascertain about the uncertainties and qualms one might have with regard to this or similar situations.

There are basically two types of life insurance, but each has a variety of subcategories (some overlapping others in their offerings) that can make selection an unsure thing:

Term Life is the one largely advertised on television these days. This is best for the young parent who wants to make certain the spouse or partner and children will be covered in a way that can maintain their lifestyle. This is the kind of risk protection one might seek in the same way that one does when purchasing homeowners’ and apartment renters’ insurance in case of fire or theft and earthquake and vehicle coverage.

Term policies are usually for 10 or 20 years and are less expensive for a lot more coverage. The reason for this is that it is unlikely that the average term-life insuree will die between the ages of 20 and 40. Purchasing such a policy does seem to be a good idea for what it is. After all, who can know ahead of time about a deadly car crash or sudden heart failure? On the other hand, the company gets your dollars generally without ever having to pay out a dime.

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The good thing is that rates will never vary and the pay-off will never decrease. Some term life policies allow the insuree to convert at a later time to a permanent form of insurance.

Then there is Whole Life. Supposedly, your premiums and death benefit remain the same during the ‘life” of the policy.

Unfortunately, there are several options under this category that, to me, are utterly confusing. Even a brain surgeon might have difficulties sorting through the intricacies of the litany of policy choices available:

Traditional Whole Life is meant to maintain the death benefit and premium but, often, as the insuree ages, the premium could increase until the cost is out of reach and rather prohibitive for the average consumer.

For example, for one policy I investigated, the client was paying $70 quarterly for a $30,000 policy. The insuree had been paying this amount religiously for over 30 years when suddenly he was told that the payment would increase to $375 per quarter (and if paid monthly instead, the payments would equal almost $600 for the same period). On top of that, all cash value had been eliminated as of the time the notice was sent out. He felt he had no option but to cancel the policy altogether, an action that favored the company which had accumulated more than $10,000 (plus interest) in payments without ever having to make a payout! What a scam! When the policy was initially purchased, none of those possibilities were ever introduced or discussed with the then-potential client.

Then there is Universal Life. This is more flexible than many policies. It is usually less expensive than Whole Life but more than Term. Premiums and death benefits can vary along the way. Universal Life is sort of a mixture of Term and money-market investment whose return is not guaranteed. Higher administrative fees also accompany this type of policy.

Similarly, Variable Life does not have a guaranteed payoff. The investment is linked to the variables of the marketplace. The beneficiary “wins” if the market goes up but loses if the market takes a nosedive. These are the most expensive because of the volatility involved.

Regardless of the policy you choose, it’s important to note that life insurance isn’t a policy that is strictly to protect against one’s death. Ideally, our loved ones will only need to exercise the policy in event of our untimely death. Though we have to remember that “life happens” whether we like it or not. Should an emergency arise, like terminal illness, you may want the ability to sell your life insurance policy. Hospital bills can quickly drain a family’s emergency savings. Becoming financially ruined while alive will negate any benefit to your loved ones upon your death.

There are indeed too many choices yet, possibly, only one is right for you. In the final analysis, as usual, Buyer beware! Read the fine print. Perhaps retaining an attorney who is expert in understanding such instruments is what is best for you.

Little or nothing can be done after the fact to mitigate unforeseen problems. However, there are some possible options for becoming whole again. You can contact the California State Insurance Commissioner’s Office (right now under Dave Jones) if you believe you are being victimized. Sometimes, a class-action law suit is warranted and can be initiated if there are sufficient grounds found in order to file a claim.

Rosemary Jenkins

Rosemary Jenkins

Remember, “trickery” at the hands of the life insurance companies may not be against the law. That is why we must be very careful when making such important, life-changing decisions. We cannot afford to be rash. We must educate ourselves and seek advice when we have doubts. Our own finances, let alone that of our families’, can very well be at stake.

Rosemary Jenkins