If you’ve listened to money expert Clark Howard for any period of time, you probably know how much he prefers term life insurance over whole life, universal life, indexed universal life and variable universal life insurance.
Insurance salespeople are famous — or infamous — for steering people into the latter categories. They typically pay high sales commissions.
Sometimes people will realize after locking into one of those policies that it’s not for them. Much like timeshares, it can be tough to break one of those insidious contracts. But it is possible.
What should you do if you want out? That’s what a listener of the Clark Howard Podcast recently asked.
How To Jettison or Sell a Variable Life Insurance Policy
How do I get out of a cash-value life insurance policy?
That’s what a Clark listener asked on the Dec. 15 episode of the podcast.
Jim in Florida asked: “I have a variable life insurance policy [and] I cannot afford the payment any longer. Is there somebody out there that I can sell that to and receive a cash buyer payout?”
What Jim is referring to — selling the interest in your policy at a price that’s less than the death benefit — is called a viatical. It’s a controversial way of essentially selling to the highest bidder on the open market.
Clark would rather you go to evaluatelifeinsurance.org and pay $150 to have the Consumer Federation of America evaluate your policy.
“They’ll be able to tell you what conversion privilege you have in this variable life insurance policy so that you will not forfeit too much of the value you put into it and still maybe have some amount of life insurance going forward. And it should get you more value out of it than selling it in the open market, if in fact there is a market for your individual policy.
“This is very relevant to people with any form of variable universal life, various forms of variable life or whole life where you’re buying something that’s a complicated product. These policies are impossible to understand. You need impartial, true expertise.”
Why Clark Prefers Term Life Insurance Over Whole Life, Universal Life or Variable Life Insurance
If you haven’t purchased life insurance yet, Clark prefers that you look into a level-term life insurance policy.
Clark only recommends whole life if you make at least $400,000 a year and want to tap into your cash value as a tax-free loan, or if you’re wealthy, in your 50s or 60s and are buying it for investment or tax purposes.
Term life insurance works for everyone else.
“There’s no more efficient way that exists to replace income than with a level-term insurance policy. They’re cheap, they’re simple and the amount of coverage you can buy for a very small monthly amount is fantastic,” Clark says.
He recommends a coverage amount that’s 10 times your annual salary. Life insurance is meant to replace your income if you have dependents and you die at an earlier age than expected.
Clark also recommends that you purchase term life insurance only from a company with an AM Best rating of A++ (or A+ if your term is less than 20 years).
It’s possible, but complicated, to get out from under a cash-value life insurance policy such as variable life insurance.
These policies are complex and require true expertise to understand them. Clark recommends using evaluatelifeinsurance.org to get a trusted expert to study your policy, and work toward a conversion privilege, rather than selling your policy on the open market.