5 Life Insurance Policies You Really Need to Cancel

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Life insurance is sold based on one thing: fear. Fear of dying, of being injured. Fear of a catastrophe befalling you or your family. If worrying about death isn't enough of an inducement, there's the financial fear of not being able to replace a breadwinner's salary once they're gone.

Insurance companies know this, and they use those levers. And they should: Financial peace of mind in the face of loss is exactly what they're selling.

But some types of life insurance just aren't worth buying, because the policies aren't used often and don't provide much of a return on the premium. You're better off putting that money aside in an emergency fund for that rainy day, if it ever happens. Here are five life insurance policies you probably want to think about canceling if you have them:

1. Life insurance for a child. Term life policies are meant to replace an income if someone dies. Unless your child is a model or actor and is bringing in a major share of the family's cash, your offspring doesn't need life insurance.

Gerber Life Insurance Co. advertises a $10,000 policy for "pennies a day" that could be used to cover funeral expenses. The chances that a baby born in the United States will die in childhood, however, are extremely low.

"Child life insurance policies are sold to parents and grandparents by preying on their emotions," says Eric Stauffer, president of ExpertInsuranceReviews.com.

If you really want to have coverage in case you need to pay funeral expenses for a child, add a cheap rider to your term policy that would cover them for $10,000 or $15,000, but don't have them on a separate policy, says Liran Hirschkorn, an independent life insurance agent.

"Most Americans don't have enough life insurance themselves and should not be buying life insurance on their children," Hirschkorn says. "This is especially true if you have some savings and have the funds to pay for funeral costs should the worst happen."

2. Whole life insurance. Unlike a term life insurance policy, which only runs for a specified number of years, whole life insurance covers the policyholder's entire life. The policies are more expensive than term life insurance because the risk is for a person's whole lifetime.
But they also have a cash value, which grows over time, and which the policyholder can use or borrow against. This makes them an investment, though not a generally high performing one. It's especially not a good deal for young people, says Matt Becker, a financial planner who has written about the subject.

"Life insurance is great when used properly. Whole life insurance is usually just expensive and burdensome," Becker says.

Stauffer says he had a 28-year-old client ask him if he should keep the $10,000 whole life insurance policy his parents have been paying on for his entire life, or take the cash out. They did the math, Stauffer says, and found that his parents had paid close to the entire death benefit in premiums, but the cash value was only worth $2,000. He cashed it out and invested the money.

3. Industrial life insurance. Also called accidental-death insurance, these policies often have low values and cover you in the event of mishaps such as losing an eye or limb at work, or dying in a car wreck or fire at work.

"It all sounds good, but [this type of policy] is riddled with exclusions,' says lawyer Mark Hankins. "The policy was once sold door-to-door to laborers with weekly payments and known as the 'Little Giant.' Its creator boasted on his deathbed he had never paid a claim."

4. Guaranteed Issue policies. These are life insurance policies that don't have any exam requirements -- they don't even make you answer any questions about your health -- so they can be quick and easy to get, says Hirschkorn, the insurance agent.

"The issue is that these policies are expensive, and also don't pay out the full death benefit in the first two years," he says. "This type of policy should only be considered as a last possible resort for someone with major health issues that can't get approved for a regular policy, not for anyone else where it would be a waste of money."

5. Final expense insurance. With a typical death benefit of $10,000 to $25,000 for people 65 and older, the policies are meant to cover a funeral and other expenses after someone dies. TV ads promise coverage for a "few dollars a day," but even at that low price, it isn't worthwhile, says Justin M. Follmer, a wealth adviser and insurance professional in Charleston, S.C., Someone 65 or older can often buy a much larger policy for the same costs, Follmer says.

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43 Comments

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Gregory Michaels

Terrible advice. You are generalizing about insurance products. All insurance products are not created equally. I know this because mine have none of these negatives. People will blindly cancel policies based on these recommendations, instead they should be looking into their contracts for details. And not taking financial advice from someone with no knowledge on the subject.

Friday at 12:22 AM Report abuse rate up rate down Reply
julian.stevenson

This writer is clueless. Cancel your subscription to this blog, that's what you need to do.

Do some homework before you try to write a blog about something. You obviously have no financial experience.

For 1, you talk about term life on a baby then reference the Gerber grow up plan. Guy, that's a whole life policy.

And yes, the odds of your child dying or extremely low, let's just say they are 0. Does that change anything? No. If you did some reading occasionally you would know that the purpose of that plan is to grow money for college savings.

See, whole life insurance for many people is an investment. It grows and it can have substantial growth over a period of time. You keep talking about insurance here like you know what you are talking about but the problem is these topics have nothing to do with insurance and everything to do with investment decisions.

"Life insurance is sold based on one thing: fear. Fear of dying, of being injured."

This has nothing to do with insurance. No one is trying to sell a Gerber Grow Up plan to cover child death expenses. How do such stupid people get any writing opportunities. And this guy used to be a magazine writer? No wonder America is a nation of morons who are up to their eyeballs in debt, they've been listening to idiots like this for over 2 decades.

April 24 2014 at 4:00 PM Report abuse rate up rate down Reply
wag40

One last comment : Less than 3% of term insurance ever pays a death benifit and these policies are usually those that have premiums paid by employers, most are riders on your work health coverage.
If leaving a job most tern companies will allow you to convert to a cash building policy which will stay in force as long as it is funded properly (vert important especialy if you are uninsuable!)

April 04 2014 at 5:34 PM Report abuse rate up rate down Reply
wag40

would still take issue (pun intended) with adding kids as riders in this day and age is risky. Many companies give a cerain time limit after the main insured dies, for a spouse or a child to change a policy into their name. People who I have dealt with in this situation are not in the right frame of mind to realize that the coverage ended during their grief. Everyone has value and I wouldn't sell a spousal or child rider unles my client insist on it. Each member of the family should have their policy --It can make things much less complicated and the client doesn't need to feel that an agent is just lookig for extra business. He or she is doing right by their client.

April 04 2014 at 5:21 PM Report abuse rate up rate down Reply
ctman937

Term insurance is only the cheapest if you die...if you don't die it's the most costly...term insurance Is what made insurance companies rich

April 03 2014 at 5:24 PM Report abuse rate up rate down Reply
Carl A Logan

The average cost for a funeral today is about 10K and you could save that much for a funeral if you live to 70 yrs old. ARU35 you say you cash value is now 51K? you better check again. You pay for 3 things but you only get one. Which one do you want you family to get.

For all the years you pay your auto insurance, or your home owners insurance, do you get anything back when you stop driving or after you sell your home and go to a nursing home or die? Why do they also not have a cash value/loan withdrawal also?

April 02 2014 at 1:55 PM Report abuse rate up rate down Reply
Lorne Marr

Insuring a child can be valuable for many reasons 1) You lock in at low rates 2) Many plans allow you to upgrade the coverage without a medical and 3) Many parents would need significant bereavement time should a child pass away.

Good points on Accidental Insurance.

April 02 2014 at 7:27 AM Report abuse rate up rate down Reply
Dominick

I disagree about the whole life Ins. I purchased a WL Policy when I bought my home at 33 yrs.
old. I took WL Policy out because 1. If I passed it would pay off my House. 2. If I lived the
& house was paid off I would get cash value back 3. If I took out a Mortage protection Policy
(like Allstate) & lived I would have paid all that money & get nothing back.

April 02 2014 at 7:12 AM Report abuse rate up rate down Reply
Douglas Hom MD

The writer fails to explain exactly where Whole Life Insurance makes a lot of sense. Since it does generate cash value as well as a death benefit that passes down without taxation, it is particularly worthwhile for the very wealthy to use it as part of an estate and retirement planning tool. Term is great for pure coverage when you are young but if you are older, Term is very very expensive and at the end, you get nothing. It is true that small Whole Life Policies are of little use to those of limited wealth, but for those a little higher up the economic ladder, there are many advantages to Whole Life that are not explained to young people. This article does not address that niche nor explain why this product is the right tool for a particular job.

April 02 2014 at 4:15 AM Report abuse rate up rate down Reply
1 reply to Douglas Hom MD's comment
Carl A Logan

You pay for 3 things but in the end you only get one. Take you pick. do you want the protection, savings/cash value or the death benefit. And if you borrow from the cash value, do you have to pay it back and at what % rate. In the cash value side it would be counted as income by the IRS. If you don't pay it back what happens to the death benefit amount..
For all the years you pay your auto insurance, or your home owners insurance, do you get anything back when you stop driving or after you sell your home and go to a nursing home or die? Why do they also not have a cash value/loan withdrawal also?

April 02 2014 at 1:14 PM Report abuse rate up rate down Reply
Douglas Hom MD

The writer fails to explain exactly where Whole Life Insurance makes a lot of sense. Since it does generate cash value as well as a death benefit that passes down without taxation, it is particularly worthwhile for the very wealthy to use it as part of an estate and retirement planning tool. Term is great for pure coverage when you are young but if you are older, Term is very very expensive and at the end, you get nothing. It is true that small Whole Life Policies are of little use to those of limited wealth, but for those a little higher up the economic ladder, there are many advantages to Whole Life that are not explained to young people.

April 02 2014 at 3:57 AM Report abuse rate up rate down Reply