Yes

by D. Victor

Created on: December 25, 2009

To assess whether life insurance is worth the "high premiums", you must understand the value of a particular policy relative to its premium. The reality is that the benefits of life insurance exceed just the life cover. Another cogent aspect of reality is that not all life insurance premiums are justifiably high or higher.

Life insurance companies typically aim to offer more benefits, especially on cash value plans. Therefore, the question has more than one dimension. You have to relate the life cover you get against your premium but also factor in the value of additional benefits your particular policy may offer. Only then can you properly determine if life insurance is really worth it.

== Benefits of life insurance ==

The main benefit of life insurance is life cover. This may seem self-evident, but the truth is that insurers love to market the life policies in creative ways–sometimes even downplaying the significance of life coverage. They tend to emphasize the other benefits that go along with the life cover. The primary benefits of life insurance policies may include:

i) Life coverage
ii) Double indemnity
iii) Critical illness
iv) Disability coverage and income disability coverage
v) Cash value
vi) Pension savings

Naturally, the benefit package offered varies between life insurance policies—even policies of the same type. For example, you can purchase a Universal Life insurance policy with or without critical illness. In addition, once you choose a term insurance plan, you would not have cash savings as a benefit.

== Life insurance premiums ==

Although the title assumes that life insurance premiums are high, they may not always be high, depending on the benefits you choose. However, some life insurance premiums can really take a bite out of your budget, particularly for low-income earners. Term insurance is usually the cheapest form. Whole Life Insurance plans are generally the most expensive. Some insurers do not even offer Whole Life policy again, preferring to offer the more seductive Universal Life Plan. One point that many persons miss is that a high premium must be measured in terms of your budget and—most importantly—the value you receive in return.

Is life insurance worth the high premiums?

Unfortunately, there is no decisive answer. However, once you are getting commensurate value for your money, it is worth it. Sometimes, it is prudent or even necessary to have the life insurance policy. In some cases, paying a higher premium to get additional benefits can actually reduce the cost of those additional benefits. For example, some insurers offer Critical Illness coverage on permanent insurance plans. Those plans may offer similar benefits to a stand-alone Critical Illness plan but you might purchase them at a reduced rate as an optional supplementary benefit.

The major aspect of whether life insurance is worth the high premiums comes from the debate, "cash value versus term insurance." Several financial advisors opine that permanent insurance is a waste of time and that term insurance is best suited to your life insurance needs. They argue that the higher premiums of cash value plans are not worth the life insurance premium.

Many advisors agree that having life insurance is necessary for a period (a "necessary evil" in fact) but, for them, less (in terms of the premium) is more. It is true that higher premiums of cash value insurance do not always redound to your benefit. However, if you are so undisciplined that you would not save on your own, maybe you might be better off letting your insurer save for you. The higher premium of the cash value plan may actually be worth it to some persons in that regard.

Sometimes, insurers attempt to provide pseudo-benefits to justify high premiums. For example, a neat trick is to offer additional benefits (like disability coverage) but the coverage amount of the additional benefits are minimal. The client is satisfied that he is paying for additional coverage but does not realise he is not necessarily getting much more in return.

In many cases, the high premiums of life insurance are not worth it. Nothing is worth anything if you do not need it (or have a latent/future need). If a smooth insurance representative sells you insurance, but does not evaluate your needs properly, that life insurance plan may not be worth it—no matter how low your premium is.

There is also the case of insurers packing their life insurance as investment opportunities. Your insurance premium includes investment fees and charges. Therefore, you may pay higher premiums with no guarantee that the fund will perform well. In many cases, regardless of how well the fund performs, the insurer deducts those fees. Clearly, if you want life cover, you should not be paying unnecessary high premiums to get additional benefits that are not worth it.

Before you determine whether your "high" life insurance premium is worth it, you must assess your life insurance need and choose the right type of policy from the right insurer. You should also ensure that you know how much extra you are paying for the benefits—by comparison shopping or noting what part of your premium goes to which benefit.

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