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Briefly, the cash value type of life insurance policy involves the payment to the company of substantial overcharges in earlier years, when the true cost of life insurance protection is surprisingly small. During these years the companies can profitably assume the risk for a fraction of the amount charged for cash value type policies, as evidenced by the tremendous difference in premiums for their term plans. These overchanges are collected to pay or partially pay premiums at later ages. Should the policyholder cancel ("surrender") his cash value policy, the company is legally obliged to refund to him a portion of these overcharges. The companies prefer to call these overcharges cash values, or to cleverly label them as a "savings account" or a "retirement fund".
The cost per thousand dollars of pure life insurance protection begins to sharply increase between the ages of 50 to 60 and after 60 it begins to skyrocket. To imply that one can avoid this cost is patently illogical and, at best, wishful thinking. In the Alice in Wonderland world of life insurance sales-training, cash value agents begin to really believe that the longer an insured pays money to his company, the less his life insurance costs!
Because the policyholder writes only a single check (the one for the premium currently due) he tends to equate his policy cost with the check that he writes. However, the beginning of wisdom in evaluating policy cost is to consider the loss of interest on the account consisting of overcharges (cash values) and to then add this figure to the checks written annually to the company. The next step is to realize that since the overcharges are not returned to the estate of a death victim in addition to the face amount of the policy, the burden of payment of the death claim actually shifts yearly from the company to the insured's cash value account. Consequently, the amount of money at risk by the company (life insurance) decreases progressively, further increasing the insured's cost per thousand dollars of protection, as should be expected. To imply that the cost of life insurance protection does not increase with age is plain misrepresentation.
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