Tag Archives: permanent life insurance

Increasing Premiums For Universal Life Insurance

Most people who have financial dependents have a genuine need for life insurance. ?But for the majority of those people, a simple term life insurance policy can fulfill that need in a relatively uncomplicated, inexpensive manner. ?A term policy purchased in early to mid adulthood that lasts for 20 or 30 years (with a fixed premium during that time frame) will protect most families throughout the time when they are financially responsible for children and debts like mortgages. ?After the children are grown, and the mortgage is paid off, and especially after retirement, there is much less of a need for significant life insurance death benefits for most people.

For some people with more complex financial situations (such as a family business that they would like to leave to their heirs, for example), permanent life insurance may be a more appropriate choice. ?But such policies are much more expensive than term life insurance, and tend to be more complicated too. ?For people who really only have a genuine need for the protection offered by term life insurance, the investment benefits associated with permanent life insurance can usually be obtained in a more straightforward manner by simply investing the additional premiums that would have been needed to purchase permanent life insurance.

Although permanent life insurance products can be a useful tool for some clients, purchasing them might not be truly the best financial move for many people who might be better served by a basic term life insurance policy and a separate investment program to accumulate money for later in life and/or to pass on to heirs. ?However, the commissions for agents who sell permanent life insurance is significantly higher than the commissions for term life insurance policies, in part because the policies themselves are so much more expensive. ?This can potentially create a conflict of interest if a client is taking policy recommendations from an agent who will receive the commission for whatever policy is ultimately purchased.

In a reminder that Universal Life insurance (a form of permanent life insurance) premiums are not fixed, a recent class action lawsuit in CA ended with a federal judge ruling that Conseco Life Insurance Co. cannot triple premiums for 50,000 policy holders who have had their policies since the late 80s and early 90s. ?The courts got involved because the proposed premium increases were so significant, but the complexities of universal life insurance include a lot of flexibility in terms of premiums. ?If interest rates drop (as was the case for people who bought policies in the 80s, when interest rates were much higher than they are today), future premiums can increase significantly. ?Although the court has ruled that Conseco cannot triple the premiums for those policy holders, there’s no set limit for how much premiums can increase. ?Older policy holders who have had their coverage for decades can find themselves unable to keep their policy in force if premiums rise beyond what they can afford.

Anyone in the market for a life insurance policy should be well aware of the differences between term life insurance and permanent life insurance, and should understand the long term implications of each type of coverage before selecting the best option for their particular situation.

Disability And Long Term Care Riders On Life Insurance Policies

One of the advantages of permanent life insurance is that there are all sorts of riders that you can purchase along with the policy. ?Two that could be particularly useful are available through The Hartford: ?The LifeAccess rider and the Disability Access rider. ?The LifeAccess rider aims to take the place of a long term care insurance policy for people who have life insurance but not a separate long term care policy. ?The Disability Access rider provides a safety net for people who don’t have short term disability insurance coverage (the rider does not provide long term disability coverage).

Sales of the LifeAccess rider are up 80% nationally (the rider was first introduced in 2007) in the past year, and that may have something to do with the rising price of long term care policies recently. ?The rider can be added to a permanent life insurance policy for a cost ranging from 5% to 15% of the cost of the life insurance policy. ?The rider will generally be less expensive than a long term care policy on its own, but the cost of the permanent life insurance will be much more than the cost of a term life insurance policy with a similar face value. ?For most people, it probably makes more sense to purchase a term life insurance policy and a separate long term care policy. ?But for people who have a genuine need for a permanent life insurance policy, adding a long term care rider could make a lot of sense. ?In addition, the LifeAccess rider is more leniently underwritten than stand-along long term care policies, which might make it an attractive option for applicants with less than perfect health.

The Disability Access rider has been available from The Hartford for a little over a year, and costs an additional 6% to 10% of the cost of the life insurance policy. ?It has a monthly benefit cap, and a lifetime cap of up to 24 monthly payments. ?The monthly benefit cap is calculated when the policy is issued, and cannot exceed $5,000. ?The money can be used to protect the insured’s lifestyle/income in the event of a disability, or to pay for a buy/sell agreement or key man insurance policy depending on the insured’s business situation. ?As with the LifeAccess rider, this rider only makes sense if the insured truly has a valid need for a permanent life insurance policy and is able to pay the premiums that it entails. ?For some people, it will be a good option, although term life insurance and a separate disability insurance policy might be a better choice for a lot of people.

Comparing Life Insurance Options

This week’s Cavalcade of Risk included an informative article at the Consumer Boomer blog about how to compare different types of life insurance policies. ?The article did a good job of detailing the major differences between term life insurance and permanent life insurance (both universal and whole) but not much was said about the cost differences, other than to note that the permanent policies are “more expensive”. ?Permanent life insurance is dramatically more expensive than term coverage – often ten or twenty times as much in annual premiums. ?For some people, the benefit is worth it. ?But for most of us, it makes sense to buy a term policy and keep our investments separate from our life insurance. ?But either way, the Consumer Boomer article provides a good summary of how the various types of coverage work. ?If you’re in Colorado and you’d like to get quotes for your particular life insurance needs, we’re be happy to help.