Life insurance example

I've previously talked about the different kinds of life insurance and how term is best for most people.  I say most because I'm sure there are people out there who could benefit from the other kinds.  Getting to the point of this post, here's an illustration of a real insurance policy one of my friends was kind enough to share with me.  Obviously, the name and information of the person and the company have been redacted for privacy, and so the company doesn't sue me or whatever, but I've circled the points I'd like to draw your attention to.

This particular policy is a variable life insurance policy, which is a permanent life insurance policy with an investment component.  The policy has a cash value account, which is invested in a number of accounts similar to mutual funds.

Now that you've all snoozed off, allow me to put that in plain English.  Not only do your dependents get paid a bunch of money if you die (like a regular life insurance policy), but the insurance company helpfully invests your premiums for you, and you don't even have to croak to get paid!  How fucking cool is that?

"Of course, it costs a little more, but it's worth it."  
"What was that?"

"Oh, I was just mumbling that it costs a little bit more that term, but let me redirect your attention to something else."

"Wait, how much extra?"

"Ah, don't you worry yourself about that.  It's worth it.  Let me just dazzle you with a bunch of figures."

That's the gist of the spiel most insurance salesmen (or women, whatever, I'm equal opportunity) will run by you, and to the uninformed schmuck, it sounds awesome.  And it IS all fine and dandy, except for one crucial point they tend not to cover - these policies charge fees; a lot of them.

This particular policy you can see above was purchased at the beginning of November 2007, when the insured was 19 years old, for a death benefit of $400,000.  The monthly premiums are $116.50, and the current cash out value is just over $5,200.  To put that into perspective, a term policy for the same amount costs maybe $25 a month.  To date (11/2007 - 09/2015), this person has paid out $11,067.50 in premiums.

Did you notice the difference between the cash value and what was paid?  It's less than half.  That's not even taking into account the stock market returns.  Let's pretend this same person had purchased that $400,000 term life insurance policy for $25 a month, and invested the remaining $91.50 in an S&P 500 index fund.  The cash value today would be just over $12,000.

In summary, you're probably throwing your money away if you purchase anything other than a term life insurance policy.  If someone is trying really hard to sell you something (other than advice), they're not doing it to help you out.  They're doing it because it's lucrative.  And more fees for them equals more costs for you.

And they'll probably say something like this as well

Now for the obligatory disclaimer: I'm not a licensed financial anything (yet) so I can't legally give you advice for money.  This is all my opinion, and if you take my advice, that's on you.  However, licensed advisors like Dave Ramsey and Suze Orman (and pretty much anyone not trying to sell you a product) tend to agree with me.