Tips When Shopping For Whole Life Insurance



The following are tips to follow and traps to avoid when purchasing whole life insurance.

Trap

Be wary of overly optimistic projections of values for dividends on 'participating' policies. The trap is set to make you believe that dividend results will be higher than the average long-term performance.

Due to the power of compounding, this trap could cost you thousands of dollars.


Tip

If the survey involves illustrations of 'participating' policies (policies offering 'dividends'), please remember that 'dividends' are projections and not guarantees of future results or performance.

Demand a written disclosure of long-term past performance and of present performance. Also demand a full disclosure of the projections and projection rates used on the illustration.


Trap

"Premium Offset" illustrations which promise a "quick-pay" arrangement where the policy will be "paid-up" early using "policy dividends".


Tip

Remember, life insurance policy 'dividends' are usually NOT GUARANTEED!

Unless the company is prepared to provide you with a written guarantee of a minimum level of dividends, it is best to make very conservative assumptions of very low dividends or no dividends at all.


Trap

Overly optimistic projections and assumptions of fund growth in 'Universal life" policies.

This trap is vicious and can lead to significant, unplanned, additional costs.

'Universal Life' policy contracts are meant to combine the advantages of term insurance with the advantages of favourable tax law and regulations and with the advantages of choice of investment options. 'Universal Life' policy contracts can also be an effective and powerful estate planning vehicle. On the other hand, non-guaranteed investment options that may be offered could (unless otherwise guaranteed in the contract wording) create losses rather than gains.


Tip

Ignore overly optimistic projections and return on investment assumptions that sound too good to be true!

Deal with independent agents/brokers who have the knowledge and experience and who are properly equipped to independently compare the various Universal Life offerings on the market.

When purchasing a 'Universal life' policy or any other type of policy, demand full disclosure of the terms and conditions of the policy contract.



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