TV Life Insurance

Dear Dr. Per Cap: 

My mom recently purchased life insurance from a commercial on TV.  You know the ones – no medical exam, no health questions, 100% guaranteed acceptance.  It sounds too good to be true.  Is it?

Signed, Doubtful

Dear Doubtful:

I’m familiar with the life insurance you’re talking about.  Whether or not it’s too good to be true depends on your definition of truth.

A few years ago I assisted an elderly woman who had purchased life insurance from one of the companies you’re describing.  She wanted the policy to cover future funeral costs to avoid saddling her family with a financial burden.  I took a look at her paperwork and learned she actually had two separate whole life insurance policies that she’d been paying on for about 4 years.

Unlike term life insurance with a death benefit that only pays out if the policy holder passes away, whole life coverage provides a more modest death benefit that accumulates cash value which a person can borrow against as a source of income.

In this case the two death benefits combined amounted to less than $4,000 which I suppose was enough to cover final expenses.  However her monthly payments for those two policies were over $40 combined, and because she’d been making those payments for a few years she had already paid over $2,000 in premiums.  That was more than half the amount of the death benefit already and she was in really good health.

At the rate she was going in just a few more years she would have paid more into the policies than they were worth, which just didn’t make any sense; especially when she could have just as easily put that money into a savings account and used that money to pay for final expenses.

I helped her cancel the two policies and by doing so she was able to claim the cash value she had accrued to date which was about $450.  Sure she was out the roughly $1,500 she had paid in monthly premiums but so what.  She was now free to save the money she was putting toward those premiums which added up fast. In fact she’s still alive today so I know she’s ahead of where she’d be if she’d kept the policies.

So back to your question -are TV life insurance products like the one I described too good to be true? 

The insurance they sell is real; however, it’s very expensive coverage for what you get.  And it’s primarily designed to appeal to older folks who might have trouble purchasing more affordable life insurance that requires a medical exam and more stringent underwriting.  

I’d say the way it’s advertised doesn’t really align with how the products actually work.  And because many people won’t take the time to read the fine print on those policies, they’ll probably end up with a product that doesn’t match their needs.

A better option is to help your mother review life insurance from more reputable mainstream insurance companies.  Depending on her age and health it’s quite possible she can still get quality coverage at an affordable price that fits her needs.