Tag Archives: term 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.

Term Life Insurance Sales Lower In Second Quarter

There was a sharp increase in the number of life insurance policies sold in the first quarter of 2010 when compared with the same time period in 2009. ?And now the second quarter of 2010 has posted another strong increase. ?Compared with the second quarter of 2009, annualized premiums for individual life insurance policies were up 7% in the second quarter of this year.

Whole life, universal life, and variable universal life are all being purchased more this year than last year. ?But term life insurance did not show gains; annualized premiums for term policies dropped 11% in the second quarter of 2010. ?I find this interesting, given that term life insurance tends to be the most appropriate choice for the majority of the population that needs to secure death benefits.

It’s possible that the slowly-rebounding economy is responsible for the shift from term to permanent life insurance products, and for the overall upswing in total annualized premiums. ?For the last couple years, the recession has meant that most of the country has been tightening their budgets. ?Term life insurance policies are a lot less expensive than permanent policies, so for people who needed to buy life insurance during the recession, term products were likely more popular. ?But now that the economy is showing signs of recovering, people may be more apt to purchase higher-cost permanent life insurance policies that grow cash value or include an investment component. ?It will be interesting to see how the numbers play out for the rest of 2010… will term life insurance policy sales bounce back, or will the growth of permanent policies continue?

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.

Life Insurance Popularity Increasing

The first quarter of 2010 has seen an sharp increase in the number of life insurance policies purchased, compared with the first quarter of last year. ?It does make sense that after the economic problems of the last couple years, that people would be more focused on managing risk now than they were before the recession. ?Term life insurance is especially appropriate now for risk-averse clients, as it is an inexpensive way to provide financial security for one’s family, without concerns about stock market volatility.

Certified financial planner Carl Richards had a great article on the New York Times blog last month, about why life insurance shouldn’t be treated as an investment. ?The napkin drawing is chuckle-worthy, but it also makes a really good point: ?for most people, it’s a better idea to keep investing and life insurance as separate entities. ?There are exceptions, such as people who need to generate cash upon their death to pay estate taxes on assets like real estate or a business that they would like to pass to their heirs without selling. ?For situations like that, the financial obligation won’t diminish over time and the life insurance policy needs to be permanent. ?But for most people, the need for life insurance does indeed diminish over time as children finish college and mortgages get paid off and net worth grows. ?For many people, the need for life insurance after retirement is low, as there is no longer an earned income that would need to be replaced.

For people who still have many years of work ahead of them – and many years of financial obligations – now is a great time to look into securing life insurance. ?A term life insurance policy will allow you to lock in the premium based on your current age, and is a great way to protect your family’s financial future without taking financial risks.

What You should Know About Permanent Life Insurance

A recent article on CNN Money lists five things you should know about permanent life insurance:

1. ?It might be more coverage than you need… or at least coverage for longer than you need. ?Because permanent life insurance is so much more expensive than term life insurance, people might get a lower face value than they really need, but end up with life insurance long after their children are grown and the house is paid off. ?It usually makes more sense to purchase a less expensive, higher face value term policy, which will truly provide financial protection to your family while they need it – ie, while children are young, college still has to be funded, and payments are still being made on the house.

2. ?It may not be your best investment. ?The idea with permanent life insurance is that it provides a death benefit, but also builds cash value via investments. ?But for most people, it makes more sense to purchase insurance separately from investments. ?It’s hard to tell where your money is being invested in a permanent life insurance policy.

3. ?But in rare cases, it’s just the ticket. ?I would say that these are very rare cases, but they do happen.

4. ?The right flavor makes all the difference. ?Deciding among the three types of permanent life insurance policies (universal, variable, and whole) will likely require extensive research and/or a meeting with a financial advisor.

5. ?Dumping a policy will cost you. ?It takes many years for the cash value in permanent life insurance policies to build up to a significant amount of money. ?If you cancel a term policy early, you’ve only paid for the life insurance protection you got during the years you had the policy. ?But if you cancel a permanent policy in the first 10 or 15 years, you will likely have paid a lot of money (above and beyond what you would have paid for just having the death benefit of a term policy) and get very little in return. ?A permanent policy is really only appropriate if you know that you’ll stick with the policy for the long term.

Permanent life insurance is a good option for some people. ?But if you choose to purchase it, make sure that your decision is based on independent research or advice from a qualified professional who does not have a vested interest in your decision. ?The premiums – and thus the commissions – are significantly higher on permanent life insurance policies; if the person advising you to opt for a permanent policy is also making a commission based on the policy you buy, you might want to get a second opinion.

Do You Have Enough Life Insurance?

Earlier this year, Louise and I came across this forum thread about a family and their life insurance situation. ?It’s a sobering conversation for sure, but one that inspired us to increase the amount of life insurance we have. ?Before we read that thread, we were content with our relatively small face value term life insurance policies. ?They would be enough to pay off the mortgage with some left over, but we weren’t really looking at the big picture. ?We have a toddler now, and if one of us were to die young, it’s important to us that the surviving parent would be able to focus primarily on raising our son, rather than scrambling to make a living while taking care of him at the same time.

If you have life insurance through your employer, be sure you know how much coverage it provides and how far that would go. ?If you need to add additional life insurance coverage, a basic term policy of 20 or 30 years will probably do the trick. ?Premiums are based on age at issue, so the younger you are when you get your policy, the less you’ll pay for the life of the policy. ?And since life insurance policies are medically underwritten, the healthier you are, the better rate you’ll get. ?The time to make sure that your family is protected is today.

Regular Term Life Or Return Of Premium?

If you’re looking at term life insurance, you might be considering a return of premium policy. Return of premium policies are more expensive than traditional term policies, but you get all of your premiums back at the end of the term, assuming you’re still alive.

Determining whether return of premium life insurance is a good choice depends a lot on your own habits, goals, and tolerance for risk. Let’s consider a hypothetical situation of a 35 year old female who is looking for a $1 million, 30 year term policy. Let’s say she can purchase a traditional term policy for $650/year, or a return of premium policy for $1175/year.

If she buys the traditional term policy, she will spend $19,500 on the coverage over the course of 30 years ($650 x 30). This money is gone forever, but it has done its job of purchasing peace of mind for her and her family.

If she buys the return of premium policy, she will spend $35,250 on the coverage ($1175 x 30), but if she is alive at the end of the 30 year term, she will get the entire amount back. This option costs a total of $15,750 more than the traditional term policy, so the trade off between the two policies is what she could have done with that money if she had purchased the traditional policy instead.

Here’s where an investment calculator comes in handy. The return of premium policy will cost $525 more per year than the traditional term policy. We can use an investment calculator to determine what sort of return she would have to get on that money if she invested it on her own, in order to end up with at least a total of $35,250 at the end of 30 years (since that’s the amount she will end up with if she buys the return of premium policy).

There are numerous online investment calculators that you can use. Each person’s situation will be different in terms of taxes (ie, one person might choose to invest the difference between the premiums in a traditional IRA, with tax-deferred growth, while another person might put the money into a taxable brokerage account) so I’m focusing solely on the growth of the money without taking taxes into consideration. Here is an example of a simple calculator that you can use to determine the effective rate of return that the return of premium policy is giving you.? For our hypothetical lady, we can input 30 years, an initial principal of zero dollars, and an annual investment of $525.? We can reduce the tax rate to 0%, but if she is investing her money in a taxable account, that amount will have to be increased.? Then we can move the little blue arrow on the rate of return line until the investment total (in blue at the top of the calculator) gets to at least $35,250.? For our lady, this happens at 4.8%, at which point, her investment would be worth $35,324 after 30 years (if she invested her money in a taxable account, her rate of return would have to be higher to offset the loss to taxes).

So if this lady were to get average returns of more than 4.8% in another investment vehicle, she would be better off getting the traditional term policy.? But if she likes the idea of a guaranteed rate of return and forced savings, she might be better off with the return of premium policy.? The final decision will be up to you, but understanding the numbers behind the premiums will likely make the decision easier.

Term Life Insurance

Term Life Offers the Best Value

A term life policy pays out its face value only if you die during the selected term. Normally, if you have not used the death benefit when the term runs out, the policy expires. However, return of premium policies are becoming very popular as an alternative to typical term life insurance and even whole life and universal life policies. Building cash value with a permanent policy means paying high premiums (2 to 3 times as much for the same coverage). While an unused term policy can feel like a waste. Return of Premium (ROP) term is an easy and effective new solution that splits the problem down the middle. It starts out like term life insurance with one extra promise from the carrier: If you pay your premiums and you live, we’ll give you your money back. On a normal 20 year level term Colorado life insurance policy the ROP benefit may cost about 30% more, but that extra premium will effectively earn you a 6-7% return over the 20 years — just enough to earn you back everything you’ve invested. What’s in it for the life insurance company? Your loyalty. Colorado life insurance companies spend a lot of money to get your business, and only start making a profit if you stick around more than five years or so. ROP gives an incentive for their customers to stay for the full term. And, for those that don’t, the carrier made an extra 30% on those guys — and used some of it to pay you a solid return on your money for sticking around and living. So if you know that you are going to be insured for the entire term, then think about paying a little more for the ROP benefit and getting it all back in the end. We would be happy to give you the price of a term life policy and compare it with the same amount of ROP term and do the math to see if ROP term would be a good investment.