Most comparisons of term vs. whole life (cash value) life insurance involve a number of interesting semantic devices. "Insurance Protection" of cash value policies is equated with "Face Value", and "annual Premium" is equated with "Cost". The two equations are used repeatedly to convince agents and the buying public that whole life insurance, over the long haul, is a better buy than is term (pure protection) life insurance.
This comparison is further obfuscated through the clever trick of reinforcing the misleading semantic device: first, by labeling pure insurance protection as "term" (a word with temporal connotation) rather than, let's say, simply "pure" (a word which accurately connotes lack of combining with savings): and second, by the companies' commission structures (low term insurance commissions) and training methods over many years. Agents have been discouraged from selling term life insurance for other than short durations and the companies have been uninterested in bringing to the buying public term (pure) life insurance protection renewable to older ages. Thus, the "trained" agent points to term (pure) life insurance protection as "temporary", reinforcing the first categorical error of misapplying a word connoting time ("term") to pure life insurance (protection unmixed with cash values). Further, by introducing the word "permanent" to describe the insurance benefit of cash value policies, even though the cash value account ("savings" element) steadily replaces the companys' risk (insurance), the matter is thoroughly equivocated. In addition, the word "permanent" has an emotional sales appeal when speaking of life and of death.
However misleading the above misnomers may be, nothing compares to the life insurance industry's use of the word "dividend" for sheer cynicism. The use of the word "dividend" often tends to separate, in the purchaser's mind, his premium outlay from the the category of other insurance (such as on his auto, his home, etc.) where it belongs, and to place it in the realm of income producing investments. That, in fact, by its own admission in court, is what the life insurance companies' selection of the word "dividend" was intended to do. In 1911 an income tax was proposed on life insurance dividends. Representatives of the industry protested, making it clear that their "dividends" were really not dividends at all. This matter is clearly (and repugnantly) set forth by quoting from United States Treasury Decision No. 1743, arrived at after listening to the protest by attorneys representing the life insurance companies.
Reduced to the final analysis the contention of the various companies are. . .
That dividends declared by participating companies are not dividends in a commercial sense of the word, but are simply refunds to the policyholder of a portion of the overcharge collected, which oversharge is merely held in trust by the company issuing the policy. Annually, or at stated periods, all, or a portion thereof, is returned to the person holding the policy. . .
It was vigorously contended by counsel repesenting certain of these companies that it was necessary in order to secure new business, to convince the prospective policyholder of the desirability of the same, and that this commercial necessity had resulted in the companies making misrepresentations of facts as to dividends to prospective purchasers of insurance, and that names and designations, having a single specific meaning in the commercial world and which were therefore attractive to prospective policyholders, had been adopted to represent transactions which they now hold are entirely different from that their name implies and represents, and from which the policyholder himself believed he was receiving and that business necessities had caused a continuance of these misnomers. It was represented that, in fact, there wre no dividends, but merely a refund of overcharges, which, for reasons above stated, were usually referred to as dividends.
"Commercial necessity" indeed! "Dividend" does have a nice ring to it, though, doesn't it?
These misnomers have contributed greatly to the widespread sale of cash value ("permanent") life insurance policies on which the companies make astronomical profits. The premium paying consumer, naturally, is the one who foots the staggering costs of the majority of these products sold over past years.
THE SOLUTION: Buy only TERM LIFE-INSURANCE.
NEXT: THOSE MARVELOUS GRAPHS!
