I just got the weirdest email from my dad. Apparently I’ve had a Knights of Columbus whole life insurance policy since I was a baby that they’ve been paying into for years.
Now that my 30th birthday is coming up, the coverage is “no longer available” and they want me to continue the policy. Here’s a funny explanation from the salesman about why I should buy whole life vs. term:
Arthur Williams, Associate Professor of Insurance at Penn State University, has published an article for the Journal of Risk
and Insurance regarding the fate of term insurance policies. Here are the conclusions:
1) After 5 years, 58% of all policies were terminated or converted.<- Yes, that is the point of TERM insurance - seems to me like it was a success, haha
2) After 20 years, less than 2% of all policies were in force.
3) After 20 years, less than 1% of policies resulted in death claims.
In other words, the odds are 100 to 1 against term insurance ever becoming a claim.
Anyways, I took a look at this policy and holy wah is it confusing.
I’m trying to build a good case to send to my dad about why this is such a god-awful idea (or maybe it isn’t? I don’t know - honestly, this thing is like trying to read Braille), because, you know, whole life insurance.
I think this is how it’d work:
Annual premium: $191.60
7-Pay Premium (WTF is this??): $488.06
Each year I’d earn something called “cumulative paid-up additions,” which is apparently this: “purchases paid-up insurance,” whatever the @#$^ that means.
Here’s where I think they’re trying to sell me or trick me somehow. If you multiply how much you invested into this thing - i.e., $191.60 per year - by how many years you’ve paid in and compare it to what you’ll have gotten back, it seems like a great deal. Here’s what I’ll have paid and earned if I croaked at 31 and 80:
Age 31: Paid $191.60 in premium, death benefit $20,000, no cash, $0 "cumulative paid-up additions"
Age 80: Paid $9,580 in premium, death benefit $20,000, $12,670 guaranteed cash, $13,745 “cumulative paid-up additions”
In other words, if I live till 80, I’ll have paid $9,580 and earned $46,415.
There’s also some mumbo jumo in here about how I can use this policy to “supplement my retirement” but I can’t see any description in how that would actually work. Does the policy table below give you any clues into how this would work?
Guys, help me build a case against this policy! Or, why should I take it if hell hath frozen over and it actually is a good deal? Help me figure this out - whole life insurance policies confuse the #$%& out of me!
More info: I have $55k in student loan debt (my mom would pay it back if I died, she is the cosigner), no kids, and my husband will be graduating soon into a high-paying job, so it’s not like my income would be needed on that front. From what I can tell, if I did have life insurance, all I’d need is a term policy to cover the student loan debt until I pay it off in <10 years.