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, South Carolina, Someone 65 or older can often buy a much larger policy for the same costs, Follmer says.

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54 Comments

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Jam Garcia

The best insurance so far is this one, it's new and very popular:

It’s really very good because your money can grow like an investment, up to 15%. Now if the stock market were to drop your cash value will never gonna go negative. You’ll still have .75% Still better than the bank or even than 401K because if the market crashes so is your retirement account.
Also for this type of insurance if you need access to your money while alive for whatever reason your loan rate is not 5-8% but only 0.75% and only in the first 10 years. On the 11th year of your contribution loan rate is 0%. It’s just like taking your money out. The best part of this is that it has a built it Long Term Care for when you get older.
So 15% cap, it's safe because you never go lower than .75%, it’s tax deferred. Comes out tax free and best of all it gives you protection (debt benefit for your family = face value + cash value accumulated).

I am an agent and I can provide you illustration with your numbers. Email me at jamx551@gmail.com

I can even give you easy-to-understand comparison (better than this article) between the following :

Term life
Whole Life
Universal Life (UL)
Variable UL
Index UL

April 30 2015 at 9:25 AM Report abuse rate up rate down Reply
Ruth

If you would like some advice from a real insurance advisor, email me. Ruthee3@aol.com.
The author of this article knows nothing about what he is speaking, and it is dangerous because people will listen to him. I can help you come to the right conclusion about the type of insurance you need based on your particular situation. There are instances where term insurance makes sense, and other times that permanent insurance makes sense. There is no "one size fits all".
Thank you.

March 23 2015 at 11:47 AM Report abuse +1 rate up rate down Reply
Bob

What is the best kind of life insurance to have? The kind that pays off when you die. Term insurance is just for that (a Term period). Whole life is for your entire life but beware some can increase their premiums later in life. There are some whole life policies that offer guaranteed premiums that won't increase if the premiums are paid properly. The premiums stop at age 100 and the policy is still in force. People who have group term life insurance can convert to whole life, but again that company may only offer policies with NO guarantees.

March 23 2015 at 9:23 AM Report abuse -1 rate up rate down Reply
lamsantosantos

They are all a ripoff,they take your $$$ then go make money with iron Wall St. for their gain and when you need it ,they don't pay! Who invented Insurance,what a RIP!!

March 23 2015 at 9:13 AM Report abuse -1 rate up rate down Reply
anthonygolfbones

I have company paid life insurance, they also offered additional life insurance which I started paying for 30 years ago, I retired 13 years ago and when I hit 65 years of age the additional life insurance premiums doubled, when I turned 70 they doubled again and the insurance company said that they would continue to double every 5 years, if I had known that 30 some years ago I would have never bought it, even the company paid life insurance is decreasing in value every year. I guess basically if you live long enough you won't have any life insurance. I won't be paying for the additional life any more, to expensive, may as well say they cancelled me, to old, not rich enough.

March 23 2015 at 8:48 AM Report abuse -1 rate up rate down Reply
Jay

The guy that wrote the piece about life insurance knbows nothing of what is involved with a policy. First on a policy that gains interest at 4.5% or more in yearly returns it beats the heck out of the banks that pay you one half of one percent less on your money. Next there are no federal liabilities for taxes on life insurance you must contend with. Then what about the extra such as a 50% pay out on first diagnosis of cancer and other such horrors when you will really need the money? The list goes on and on but I am just going to say that there are times where the internet is full of lies and misinformation about things and this is one of them.

March 23 2015 at 8:34 AM Report abuse +2 rate up rate down Reply
karpedyem1

Its sad to see someone STUPID advice on Insurance that has no clue as to its real advantags---whole Life just to point out one moronic blunder has a benifit that is so valuble the Gov would like to end it---that value is you can barrow 60 percent of its face value * (depending on the policy ) TAX FREE and since it is your own policy you do not EVER have to repay it-----maybe this fool works for the socialists like oliar that would love to change the rules and TAX this benifit---IDK but much of what he said is pure horsecrap---by the by I am not an agent---but I am informed!!!!

March 23 2015 at 8:21 AM Report abuse +1 rate up rate down Reply
Ron

My whole life policy is paid up. It's cash value is 3X what I paid in and earning 4 1/2 % interest. I think this bloger lives in his mama's basement and needs to join the real world.

March 22 2015 at 1:12 PM Report abuse +1 rate up rate down Reply
alfredschrader

Less than 1% of all GEICO life insurance has ever been paid out.
And the rest of the industry isn't much better.
Have you ever wondered how those firms can offer you $50,000.00 of life insurance for a dollar a month no examine required ?
You would have to pay them for 4,167 years just for them to break even.
They don't ever expect to pay you a cent same as Warren Buffett.
Did you ever wonder how Warren Buffett's Berkshire Hathaway stock went from
$19 a share to 200,000 a share ? Not from investing trust me.
He's clobbered millions out of their hard earned insurance money.
Think about it. Berkshire Hathaway shares didn't double, they didn't triple, they didn't quadruple.
They didn't even increase by ten times, something almost impossible, they increased by 1,000 times. Somebody got taken, trust me.

March 22 2015 at 6:15 AM Report abuse +3 rate up rate down Reply
kitharris1

buy a term policy and put the amount saved vs a whole life policy in an IRA.

March 21 2015 at 12:10 PM Report abuse rate up rate down Reply