If you spend anytime around a traditional life insurance agent/broker discussing which type of life insurance you should own, then you’ve undoubtedly been told to opt for whole (or universal) life over term life insurance. And one of the most commonly used statistics to build the case for owning permanent life insurance over term life insurance is the fact that less than 1% of term life insurance policies ever pay a claim.
Sounds like a waste of money to pay all those premiums to an insurance company knowing there’s a 99% probability that your policy will expire before you do…right?
In fact, the old follow-up point to presenting this statistic to a prospect was to note somewhat glibly, “of course it’s so cheap, when you design a product to almost never work you can pretty much give it away.”
No manipulation in that statement at all (can you feel me rolling my eyes?).
So much time is spent focusing on the slim odds of a death benefit payout probability that most people forget to ask the naturally obvious follow up question:
What percentage of whole life insurance policies pay a claim?
This statistic isn’t widely quoted by life insurance agents, and I’ll propose a theory later on that might shock a few people.
So what’s the answer? A lot lower than you might imagine.
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