Clark Howard Term Life Insurance

Clark Howard is a Radio, Television, and Podcast Star. He is opinionated about all things consumer concerned and has a significant following online and in the personal financial world. Clark is vocal about life insurance. And we at Whole Vs Term - have appreciated and usually agreed with him and his approach to life insurance. To that end we have created this post / article to review some of our similar feelings about the best uses of life insurance.

Note: Most of the "Clark Quotes" we have used, come directly from his website. These may not technically be Clark Howard words as often as they are articles taken from Clark's website. Nonetheless we believe they contain his opinions on the matter based on having listened to hundreds of his podcasts.

"Clark recommends what’s called Level Term Life Insurance. ‘Level term’ means you pay one flat rate year after year for the length of the policy. This policy will replace your income should you die prematurely.You buy it for periods of 20 or 30 years and the premium stays the same during the life of the policy." Source

Level Term Life Insurance is a type of term insurance. The other major types (of term) could be considered Decreasing and Increasing Term.  Truth be told those two other versions - just are not around much anymore.  Usually the word level gets dropped - People just call it Term now. In fact if you were to request a decreasing term policy, chances are an agent might not be able to provide you one.

We are completely on board with Clark's recommendation about buying Level Term Life Insurance.

Term insurance is available in all sorts of lengths of time. The most common are 10, 15, 20, 25, and 30 years.  Banner Life Insurance is now said to be even offering a 35 year term.

This statement I believe to be somewhat true. Although it is not necessarily true 100% of the time for 100% of the people - Universal Life Insurance has numerous disadvantages. There are numerous types and kinds of Universal Life Insurance. These include: GUL (Guranteed Universal Life) IUL (Indexed Universal Life) and VUL (Variable Universal Life.)  Of the three the GUL may be useful for certain people that really want a lifetime of coverage.  And that lifetime of coverage is beyond the lengths of term available.

IULs and VULs are often sold as an "investment opportunity."  In the past - this investment has run into numerous issues given the flexibility that these products allow.  Recently the Wall Street Journal wrote a scathing report titled: Universal Life Insurance, a 1980s Sensation Has Backfired. "Universal life was a sensation when it premiered, and for some years it worked as advertised....That was when interest rates were in the high single digits or above. Today, rates are completing a decade at historically low levels, crimping the savings accounts."  This issue has now come to manifest itself: "The result is a flood of unexpectedly steep life-insurance bills that is fraying a vital safety net."

It is clear that the Universal Policies (in my opinion) were often miss-sold.  Hence the term Radioactive could be considered correct.  If these policies have failed in the past - does this make them right for you now?

"With variable or indexed universal life, you’re promised — in mind-numbing language going on for page after page — that you get a magic policy that’s a savings account, an investment account and an insurance account all in one....

The policy illustrations show that you will pay premiums for some time and then magically the policy will take care of itself. But in practice, it hasn’t worked out that way."  Source

Clark Howard's thoughts on Universal Life Insurance can ring true to many consumers that have purchased it. In general most consumers should not mix their insurances and their investments. One of the major additional issues that is rarely discussed is that Investments that are mixed with insurance require you to pay yearly premiums.  And if you fail to make a annual premium payment or two, then your entire savings account might just be at stake. Your FDIC Bank Savings Account does not operate like that.  Neither does a typical 401K.

Besides did you really want and/or need life insurance forever?

"Whole life is a type of permanent life insurance. Most people who agree to buy this kind of insurance regret it sooner or later. Here’s why.First, the investment fails because the costs associated with whole life and variable life are extraordinarily high. As a result, relatively little of your premium goes to the investment.

The rest gets eaten up in costs.It also fails on the insurance side because of the cost. Whole life premiums are sometimes 10 times greater than similar term policies. As a result, many people who get stuck with whole life usually can’t afford to have all the life insurance they need."  Source

These comments about Whole Life Insurance from Clark's website are in general what we have written about numerous, numerous times on this website. Consider our seminal article about Why Term Life Insurance usually beats Whole Life. Or our simple article How to Save 246,000 on Life Insurance. There are just so many headwinds for whole life insurance to come out ahead and it rarely does.  The opposing idea of buying and 'investing' with whole life insurance is often known as Buy Term and Invest the Rest.

Clark's site notes (of Whole Life) that High Costs eat into your investment. Our experience is that in general whole life insurance returns are much lower than overall stock market performance.  One additional issue is that so much of the first couple of years of yearly premiums get eaten up by commissions and other random marketing expenses.

They note that sometimes Whole Life Insurance is often 10 times greater. I believe that they are being generous. Ten times is often the average. I have seen it 12 or 14 times the cost, depending on the situation of course.

"Too often, we’re sold insurance products with massive commissions and a high cost. That’s a formula for failure when you have to pay the premium, and it sets too much of us up for a lapse in coverage....Money expert Clark Howard recommends what’s called Level Term Life Insurance"  Source

An old adage in the world of insurance agents is that Term Life is Bought and Whole Life is Sold.  Consider reading this story of a family that is pushed to buy whole life insurance.  Even for relatively wealthy families Whole Life Insurance is often just too expensive. That does not stop many insurance agents from passionately pushing it. Permanent forms of insurance typically pay insurance agents a much higher total dollar commission than term. This is potentially a source of a conflict of interest.

There are numerous reasons for some people to consider this interesting product though. Some of the best (and few) reasons to consider whole life insurance include: For Special Needs Trusts, Business Purposes, Those that can not qualify for term (and don't have a group option), and possibly for the Super Wealthy. There are some people for whom buying term (and investing the rest) does not work well. But - In general for the vast majority of the population Term is the Way to Go!  

Term Insurance has no investment component, it is essentially just pure insurance.

"Do you have young kids or a spouse or significant other that depends on you financially? Then you need life insurance!And don’t forget about stay-at-home spouses. Should a stay-at-home spouse pass away, the remaining parent would have to suddenly pay for childcare and everything else a stay-at-home parent does on a day-to-day basis. That’s why it’s essential the parent at home have a policy too."  Source

This Clark Howard quote on his website deals with something that we have been pushing for years. Both Parents, Working or Not, Need Level Term Life Insurance. Too often families assume that just the person with the job need insurance coverage. This is patently false.  In many situations the Working Spouse should go out and get around perhaps ten times earnings. While the spouse should get less than this, perhaps five times (spouses earnings.)  The exact reasons for this are a bit complex, let us just say that insurers do not like to write more insurance on the non working spouse than the working spouse.

Non working spouses / parents need insurance because they do do work (they just don't come home with a paycheck.). It is just work that many of us just take for granted and do not assign a monetary figure to. Stay at Home Moms and Stay at Home Dads - Beware, you too need term.

• "How much life insurance do you need? The simplest rule is 10 times your income.
• Look for insurers that are rated A++ from AM Best as a signal of their financial strength and their likely claims-paying ability down the road.
• Only buy life insurance where you work if you have health problems. Otherwise, I prefer you to qualify and go through medical underwriting so you can buy a policy on your own. Most of us don’t stay at the same place forever and you may not have a right to take that insurance with you."  ​Source

Clark's Guide contains three Best Practices about buying Term Insurance.  And on the whole I agree with him on about 95% of it. Lets go through his suggestions one by one with some of my additional opinions.

• Getting Ten Times Earnings in life insurance coverage. Yes, this is generally a good idea. There are far more complex and accurate measures to calculate how much insurance you truly need. But the 10X rule is not a bad starting place.

• Clark suggests (it seems) that you only purchase insurance from Insurers with an AM Best A++ Financial Strength Rating. I agree that consumers should check financial strength ratings and I believe that you should try and stay in the A range. My opinion is that rather than just focus on the A++ companies is to open it up to the A++ and A+ carriers. Why?  There are only a handful of A++ companies and if you stick to them, you might end up having to pay significantly more in certain situations.  (According to my calculation, Nationally there are more than 125 A+ and A++ rated life carriers.) There are two reasons for this. First off the base rates might be higher and second, if you have a minor condition you may end up only being offered Preferred from an A++ carrier vs Preferred Plus from an A+ carrier.  Is the extra plus (+) really worth say $400 more per year for a twenty year term policy?  I often do not think so and I have looked at the statistical possibilities vs the increased cost.

• Clark Howard and I completely agree about using your Group Life Insurance if you have health issues. I might add the word 'major' to this recommendation as in: Use Group Life Insurance if you have Major health issues.  These could be Cancers, MS, Major Coronary Issues, etc.  But nonetheless we agree on his statement. People with minor health issues can now often qualify for independent term policies, whereas ten years ago they may have been declined. Keep in mind that some group life policies allow you to port your policy to a term policy of your own. This is not always suggested, but it can be useful.

Clark Howard's marketing mantra is 'Save More and Spend Less'.  Considered by many to be a personal financial guru, Clark Howard is from Atlanta Georgia. Clark graduated from Central Michigan University in 1977 and somehow managed to (initially) retire just ten years later in 1987 at the age of 31!. He did this by starting a Travel related business in 1981. During his stint in travel he began to get used to doing Radio Talk Shows, often giving travel advice and how to save money when you travel. A private company offered to buy him out and he accepted and retired.

After his initial retirement, Howard got into broadcasting both on Radio shows and Television.  For a brief time Howard had his own television program on HLN (Headline News Network.)  Currently he has a Westwood One Syndicated Radio show that is also available online through podcasts. Clark Howard's show can best be summed up as a Personal Finance Expert with tips on travel, money, insurance, consumers security and safety. He has a huge loyal following. (Editors Note - I may be one of them.)

Clark Howard is a member of the Georgian State Defense Force (an auxiliary unit of the Georgia Department of Defense.) He is also an all around stand up individual and actively donates his time and money to various charitable causes including (but not limited to): Volunteer Action, Inc., The Big Buddy Program, and Career Action.  According to his website he and his listeners have built 43 homes for Habitat for Humanity.

Clark Howard did not authorize or approve in way shape or form, this article. We pulled words, comments, phrases in the most accurate method possible: Directly From his own website.  The quotes pulled appeared on his website and lend themselves to his direct comments (the author of this article) has heard him make dozens of times about insurance and insurance related matters.  Clark Howard has never endorsed this website nor the author. He has, on hundreds of occasions endorsed Term Life Insurance.  He has suggested on numerous occasions that Whole Life Insurance only makes sense for those making about $300,000 per year.

We believe in Term Insurance and So does Clark Howard.  We have run the Whole and Term numbers 'lots' of times, and rarely find that the concept of Buy Term and Invest the Rest does not end up being the better choice. We are purveyors of the Buy Term and Invest the Rest philosophy.  We believe Clark Howard is as well.

If readers find any issues with this article or the comments pulled from Clark's site, we would greatly appreciate your comments as we are always looking to correct any errors that have been made.  Please feel free to email us at sales@marindependent.com or add your comment in the box below.

Thanks Again for Reading our Article.