Reader’s Question

Hi. I would just like to clarify some information about cash value of life insurance policy. My relative and I (separately) got quotes for a whole life insurance for each of us from a known insurance provider here in Colorado. When we compared our quotations, my relative will only pay for 10 years of her policy, while I will be paying the same amount of premium until I am 90 years old. Why is this? Are we scammed? We are of the same age, so now I am really confused.

Thanks!

Dana Lawrence

Boulder CO

Answer:

You should have told your insurance agents to go through the details with you. I am sorry that you are in a state of distress. However, there is a chance that you just misunderstood only the schemes or the mode of payment for your Colorado whole life insurance. I don’t think you got scammed. Just take note of what I will list here below so you can confirm it with your respective agents.

Remember that these insurance agents are trained to assess your needs – the right amount of financial security an individual must be seeking for himself or his family when the time comes like old age or death.

The difference in your quotations, especially the figures concerning the cash value of life insurance policy may be due to the mode or the payment scheme you and your agent picked or determined for you. For your relative, who you said will just pay 10 years for practically the same policy – she may have opted for the payment scheme wherein she can pay a constant amount only for a given time. In this case, she will be paying it straight for 10 years. Here, the cash value is used to offset the payments or premiums by its dividend values. Note that she has a lower cash value when she turns, let us say, 75 compared to what is quoted for you. Yes, you can get your own quote, too.

In your case, where you will be paying your entire life for that same amount, you will see that although you are paying regularly until the age 90, you will notice that the cash value of your life insurance policy actually increases, and the value of your death benefits, as well. So, in effect, what you have is actually a “forced savings” type of insurance. Just like in banking, when you continuously deposit money, its interest will be compounded, yielding a higher amount.