Dean Sharp has a beef with the life insurance companies.He thinks many of them are selling us the wrong kind of policy - one meaning big money for them but insufficient benefits for us.
Though he sells some life insurance himself as an independent broker in Chevy Chase, when he talks about the industry, his words are harsh. He accuses the industry of exploiting the public and of perpetuating a "racket," a "scam," a "confidence game." Spokesman for the life insurance industry deny his charges.
Sharp's problems with the industry began back in the '50s, just after he left college. A classmate sold him a life insurance policy he couldn't afford, and he had to give it up at a loss.
Later, as assistant counsel to the late Sen. Philip A. Hart's antitrust and monopoly subcommittee for 11 years, he conducted public hearings on life insurance. That's when he became familiar with what he calls the "life insurance industry's abuse of its public trust."
Now at 47 he has assisted authors Peter Spielmann and Aaron Zelman in an argumentative guide to buying life insurance, "The Life Insurance Conspiracy - Made Elementary by Sherlock Holmes" (Simon and Schuster, $4.95 paperback, 171 pages).
Holmes and Dr. Watson get into the act in a 30-page novelized introduction to the complexities of buying life insurance. Holmes, as you might expect, saves Watson from the schemes of a London insurance agent.
What Sharp, who practices insurance law in Washington and also holds a degree in economics from the Wharton School, and his co-authors object to is the life insurance policy most often sold in this counrty, called "whole-life" (or "cash value" or "ordinary life") insurance. They argue you get a better deal out of a policy called "term." It is a criticism the industry has heard before.
"Whole-life," writes Sharp in the book's introduction, "is the most touted, most expensively advertised, and most wasteful kind of insurance to buy."
According to the story, an agent of Trupolitan offers to sell Watson a $10,000 "whoole-life" insurance policy. Should Watson die during the length of the policy, his bride-to-be would receive $10,000.If he lives and retires, he would get $10,000 if he chose to cash in the policy. Thus he would have insurance protection for his family plus cash at retirement, the Trupolitan man argues.
Holmes, however, is unconvinced. He dons the guise of a Trupolitan salesman, infiltrates the company and in a matter of days uncovers its business secrets. He concludes that "term" insurance offers a far better deal. First, the monthly premium charge for the insurance is cheaper. And second, the benefits to Watson's widow, should he die, would be much greater, in this case $30,000, $40,000 or more.
What Watson would not get is any cash on retirement. To make up for this, Watson would be well-advised to invest the difference in the cost of the two premiums. Even in a bank savings account, it would bring him a greater return on his money than a "whole-life" policy, the story argues.
The book moves to the present to illustrate the case of a 30-year-old man who decides to buy life insurance:
If he buys a $100,000 dividend-paying "whole-life" policy for 35 years, he could be expected to pay $1,636 in premiums a year, or a total of $57,260 over the length of the policy. If he buys a $100,000 renewable "term" policy, he could be expected to pay premiums of $14,938 over the 35-year period. At the same time he should put $42,322 the difference in the cost of the two premiums) in a tax-sheltered annuity program paying 7 percent. The total cost again: $57,260.
There are other variables, but according to the authors' computations, if the man lives to 65, he could be paid $145,000 from his "whole-life" policy and $285,000 from the annuity. If he died at 65, his survivors could get $248,200 from the "whole-life" and $305,000 from the "term" and annuity.
Sharp used these same figures in testimony last month before the Senate antitrust and monopoly subcommittee where he argued for truth-in-life-insurance legislation.
The book claims insurance companies promote "whole-life" policies because they make more money for them and their agents get bigger commissions.
"Term" is good insurance for a young man or woman who wants sufficient protection for a young family but at a lower premium cost than is available in "whole-life," says Marvin Kobel, spokesman for the National Association of Life Underwriters here. In 1978, he says, 50 percent of life insurance sold was "term."
But it is temporary insurance, he says, for specified time periods, and the cost of the premium usually goes up as the policy is renewed. "Whole-life" is for your entire life at the same premium. The need for coverage throughtout one's life has been demonstrated, he says. Many policies today are a combination of "whole-life" and "term."
Kobel doubts whether most people would systematically invest the difference in the cost of the two premiums so as to have a payoff from a "term" policy at retirement.
Spokesman Bob Waldron of the American Council of Life Insurance, the industry trade association, agrees. Sharp's arguments, he says, "do not meet the test of the real world."
Both sides do agree that an insurance policy should be tailored to each family. Whether it's "whole-life," "term" or a combination that suits your needs best, Sharp and his co-authors advise you to shop around before buying any life insurance policy. "Give your insurance-shopping the same time and care you'd give to buying a new car." CAPTION: Picture, Dean Sharp