Muck Wrote:I also believe in BTITR, but I too have insured a small sum in a whole life policy with CI coverage, as I am not aware of any term plan that can cover CI to age 99. If anyone knows of one I would be most grateful and would replace my child's whole life policy with that.
There seems to be a fundamental misunderstanding here.
An insurer actually operates 2 separate businesses. One provides insurance coverage. The other provides investment services.
When you buy a whole life policy, the insurer splits the money internally among the 2 businesses. Some of it is used to pay for insurance cover. The bulk of it is invested.
Over time, the insurance coverage becomes more and more expensive. So the cover is reduced. Eventually there is no insurance coverage at all.
Conversely, the invested sum grows with time.
Why are these 2 aspects important? Because the insurer only presents one value - the policy coverage - to the policy holder. The policy holder does not see that:
1. In the early years, most of the value in the policy coverage comes from the insurance cover, and very little comes from the invested sum. This is also why the cash value is so low - the money (less commissions to the agent) has not had time to grow.
2. In the later years, there is essentially no actual insurance coverage, all the value comes from the invested sum. This is why the policy cash value can exceed the original cover purchased - because the invested sum has grown significantly.
When you buy term and invest the rest, you can clearly see the 2 components. But when you buy a whole life policy, the insurer adds the 2 components together so you only see the total value.
Remember that the insurer only makes money when you DON'T claim on the policy. So a term life policy that covers to age 120 (for example) is a sure-lose policy for the insurer. But a policy that covers to age 65 can be profitable because most people today live beyond 65, so the insurer expects many such policies to expire unclaimed. Covering to age 99 will mean a very high claim rate, hence a very high premium.
You can see for yourself how expensive a term policy that covers to age 99 is, compared to one that covers to age 65. Most people are dead by 99 i.e. the insurer will lose money paying the claim. Hence the astronomical premiums. For CI the premiums are likely to be even higher (lots of different illnesses versus only one type of death) so the insurers don't bother to offer it, as they expect the take up rate to be very low.
If you buy a whole life policy, the insurer probably doesn't bother to provide any coverage beyond 65, most/all the coverage after that is actually coming from the invested money. So do the same for yourself, buy insurance coverage to age 65, and self-insure from your investments after that.
As usual, YMMV.