Herb Denenberg Column for December 01, 1998


Should you buy term or whole life insurance? That question is getting easier to answer because the price of term has come down dramatically in recent years.


Consumer Reports found that term life insurance coverage that cost $600 seven years ago, now costs only $275.


Term makes sense for most people for many reasons.


First, it delivers what you want -- insurance that pays upon death, without the great costs and complications of making an investment at the same time. In other words, term is pure insurance -- no cash-value, no investing. Whole life is roughly similar to an insurance policy with a bank account attached, but is much more complicated than that.


With whole-life, you are buying a complicated, near inexplicable combination of insurance and an investment. You are buying the insurance you need along with an investment you are not likely to understand.


Second, term carries a lower premium than whole life, because it does not include that extra charge for investing, which builds up the cash value in whole life. This means you are more likely to get the amount of coverage you need with term. With whole life, the premium is so expensive that needs usually can't be met. Depending on your age and other factors, whole life may cost more than seven times the price of term. For many people, whole life is simply too expensive.


Third, term is easier to understand and to comparison shop. As Consumer Reports puts it, it is a pure price play. In contrast, whole life is harder to understand, because of its complicated combination of insurance and investment, which in turn generates more difficulties in making price comparisons. With whole life, you have to take into account premiums, cash value and dividends, and when they are paid. This requires the use of a complicated index to put them into a single figure, and the would-be policyholder quickly gets the feeling there has to be a simpler and better way. There is. It's called term life insurance.


Fourth, because term is so much simpler than whole life, it can be marketed more efficiently and conveniently. Term is much easier to buy by mail order, over the phone, or over the Internet. This simplicity may in turn make for lower marketing expenses.


Fifth, term doesn't involve you in the kind of major loss you suffer if you drop it in a few years. For example, when you buy whole life your premium goes for insurance as well as an investment (in the form of cash-value). But that cash-value is slow to build up because of the fat commissions and expenses involved in the sale. So if you bail out early you lose much of your investment. In many cases, there is no cash value at the end of the first year.


James Hunt, the actuary for Consumer Federation of America, says Americans lose $6 billion a year through such early surrenders (bailing out of your policy for non-payment of premiums or other reason). He says about half of all policyholders bail out within ten years, and about 15 percent do so within the first two years.


Sixth, term premiums are usually low enough so you can afford to pay them once a year. This saves the extra charges insurance companies require when you pay on a monthly, quarterly, or semiannual basis. Whenever you get away from annual payments, you may end up paying the equivalent of a 10 to 20 percent interest charge for the privilege of paying the annual premium in installments.


Seventh, buying term protects you from some of the fraud and deception that goes into the sale of life insurance. Because of its complexity, whole life insurance is much easier to misrepresent than whole life. In fact, the whole life insurance product is so problematic that many life insurance agents don't even understand it, setting up the classic case of the blind leading the blind.


Most of the great life insurance scandals of the 1980s and 1990s have involved whole life insurance, not term, and have involved such leading companies as Prudential, Metropolitan, John Hancock, and Transamerica Occidental. Billions of dollars in fines and restitution have been paid because of these scandals. And the problem is far from solved and the reported and discovered scandals are just the tip of the tip of the iceberg.


Here are some ways of finding out what companies have the lowest premiums:


PHONE SERVICES COVERING MANY COMPANIES. There are companies that provide quotations on life insurance over the phone. One such service is AccuQuote at 800-442-9899. They told me their database includes over 250 companies.


When I called, they gave me quotations right over the phone, in a matter of a few minutes. They quoted on what they said was their lowest price company. They also told me they would send me the quotations in writing.


You can take the information from them and go directly to the company, or have them act as your agent.


You can also check them out on their Web site at, but the phone service is faster.


INTERNET SERVICES. They are springing up on the Web. According to Consumer Reports, Quotesmith is one of the most comprehensive services. It offers information on 150 companies. It's Web address is


INSURANCE COMPANIES THAT SELL DIRECT. Some insurers are especially efficient at marketing life insurance over the phone. For example, one outstanding company is USAA. It's quoteline is 800-531-8000.


AGENTS WITH GOOD DATABASE. You can also deal with an agent or broker who has access to a good database, which can be used to find the lowest cost companies. One such database is called Compulife which tracks the term rates of 170 companies and updates them daily. For a referral to an agent or broker that uses Compulife you can call 800-798-3488.


PUBLISHED SURVEYS. Consumer Reports, in its July 1998 issue, has a page listing some of the more competitive issuers of term insurance. Among many lost-cost insurers CR listed First Pacific, Lincoln National, Old Republic, and Security Connecticut. Of course, any such survey has to be interpreted with caution. First, rates do change over time, and can change at any time. Second, the survey reports certain ages (30, 40, and 50), and results might be different for your exact age.


TRADITIONAL SALES CHANNELS. Another possibility is to call your own life insurance agent and have a face-to-face meeting. A good agent can provide the detailed advice and counsel that helps in buying life insurance. But this category also goes with some cautions. Life insurance agents often push whole life rather than term (because of the higher commission that usually goes with whole life). And good agents are hard to find; you often get the other kind. 


(Herb Denenberg is a former Pennsylvania Insurance Commissioner and consumer advocate.)

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