How To Save Thousands By Rethinking Insurance Options

By Brooks Clark, CFP


Clark Financial Advisors

Reprinted from The Gadsden Times
April, 2007

Writer’s Note: This is the first of a two-part column reflecting my personal opinions regarding both the insurance and investment industries. These opinions are drawn from 30 years of experience on all sides of the table. While some industry representatives may take issue with my opinions, it is my hope to shed light on how you can make the best decisions about insurance and investing your money.

Have you ever wondered why there are so many people selling investment and insurance products? The reason that the giants of the “financial packaged products industry are so large is because there is a lot of money to be made in making sure that you are “financially secure. There are literally millions of insurance sales people and stockbrokers across the country all prepared to tell you how to insure or invest, but I believe that often potential investors would be better off diverting some of the funds they are putting into insurance and investments through stock brokers into different long-term options.

Let’s look at insurance first. There are certainly many honorable folks out there that are trying to do a good job for you within the insurance industry, and insurance can be an important part of your long-term financial plan for your family. But, let’s look at a couple of the important intricacies of buying insurance.
Here are two issues everyone should consider regarding insurance:

1. Re-evaluate cash value life insurance policies, such as whole life, universal life, variable life, etc. A recent review of the cost of a $100,000, 10-year level, term insurance policy for a male age 40 ranged in cost from $96 to $270 a year. Term insurance is term insurance no matter which company you buy it from; the only difference is the commission to be paid to the sales person. Other policies, such as whole life, universal life, variable life, etc. pay commissions that are higher than those of term policies. Many of these latter policies—universal life and variable life specifically—are represented as a combination of both investment and insurance, but it has been my experience that this is not a high yield form of investing. In 25 years of comparing projected cash values from simply buying inexpensive term insurance and investing the difference versus cash value policies, such as universal or variable life, I have yet to find a single cash value policy that ever gets close to providing the combination of insurance protection and savings as buying a term policy and investing the difference.
My opinion is that cash value life insurance policies charge too much for the life insurance inside the policy, have substantial administrative fees to be paid to the insurance company and substantial commissions to the sales person who sells you the policy. Unfortunately, these cash value policies are seldom “unbundled to allow you to carefully shop to see the pricing of each component of the package. If an insurance sales representative is not willing to “unbundle” the policy to show you these costs, just say no. Where these types of policies may be the best option is for someone who feels that they are not disciplined enough to allocate a specific amount of money to be saved or invested at regular intervals, someone who needs the requirement to pay into an investment system.


2. Do your homework. There are a number of excellent websites on the Internet that will walk you through an analysis to inform you about how much insurance you need. Armed with this information, confirming the amount of insurance you need and determining the cost of a 10-year level term insurance policy, you can either use the cost that you have discovered and shop carefully with your local agents or buy your insurance from a number of reputable companies that sell insurance on the Internet. You will be surprised at how often your local insurance agent can “match the cost faced with an informed consumer

Brooks Clark is a certified financial planner with Clark Financial Advisors in Birmingham, which serves clients throughout Northeast Alabama. Clark is originally from Anniston. His e-mail address is brooks@clarkfinancialadvisors.com.