Category: In Your 20’s or 30’s

Cash value life insurance vs. term and invest the difference: is that the only choice?

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August 12, 2013

4:14 PM

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1 year point-to-point, 20 year term, cash benefit, Cash Value, cash value insurance policy, chronic care benefit, hybrid life insurance policies, hybrid long term care insurance and life insurance, In Your 20's or 30's, Indemnity Benefit, indexed life insurance, Indexed Universal Life, life insurance and long term care, life LTC hybrids, Lincoln Life, Lincoln National Life, Lincoln National Life Insurance Company, long term care life insurance hybrid with return of premium, preferred rate, reduced paid up life insurance, Return of Premium Term, Return of Premium Term, ROP term, S&P 500, SBLI, SBLI of Massachusetts, Universal Life

Last week Seeking Alpha posted an article where a 38 year old man, presumably an investment broker, passed on his life insurance agent’s advice for a permanent life insurance product with a $5,000 annual premium, and instead choose term coverage for $600 a year. He took cash value life insurance to task with the self-serving advice to buying term and investing the difference.

OK.  No real argument there. At age 38, or for that matter for any working age person, term offers more bang for the buck, and that’s the most affordable way to replace lost income and thus protect a spouse or dependents.  But did this gentleman get enough coverage?

Term: How much and how long
He’s to spend $600 a year in premium.  Let’s review the most competitive rates and see what $600 a year buys.  A male preferred non-tobacco with SBLI (Savings Bank Life Insurance of Massachusetts), $800,000 of 20 year term is $596 a year. 25 year term $525,000 face amount is $600.75 a year with SBLI.  The rule of thumb is had 7 to 10 time one’s annual salary in life insurance. If he has children, there’s a college fund to consider.  Whether this individual got sufficient coverage depends on how much he makes, but keep in mind the goal is to get an adequate amount, and if affordable extend coverage to retirement age or to a point the children would be expected to have finished their secondary or post secondary education: age 22 or age 26.

Term and Permanent:  Two Plans – Two Purposes
Term verses permanent life insurance is a fallacious argument, as if it’s either one or the other. You can set up two policies: one term to replace lost income during your working years and a permanent for estate planning and to build cash value.  For this 38 year old, instead of a $800k 20 year term, how about a $100,000 of permanent life insurance and $700,000 in term?  A $100,000 Indexed Universal Life “Lincoln LifeReserve Indexed UL Accumulator” with Lincoln National, increasing face amount, targeted to endow at age 100, is $1,511 annual for male, age 38, preferred. That quote assumes 5% interest on S & P 500 index, annual point-to-point. At 5% that projects $33,803 cash surrender value and a $133,803 death benefit after 20 years.  Add a $700,000 20 year term with SBLI for $529 annual, that comes to $2,040 annual total cost for the two plans, and the Indexed UL is a very flexible premium, up or down depending on index returns or personal finances. This way after 20 years this person, now in his late 50’s, doesn’t have to encounter much more expensive choices in establishing permanent coverage for estate planning and with the right plan a chronic care or LTC rider in case LTC is needed.

There is also return of premium (ROP) term.  $800,000 20 year ROP term is $3,072 annual with American General for a 38 year old male at preferred.  In 20 years that guarantees $61,440 cash back or $170,218 in paid up life insurance.  After 20 years that paid up life insurance might be an appealing choice.  You could do a mix of ROP term and regular level term to lower that cost.

Please contact me for a free and confidential quote.  Many more options available.

sean's profile picLicensed Agent:  Sean Drummey
phone:  (910) 328-0447
email:    spdrummey@gmail.com

John F. Kennedy’s life insurance letter at age 30

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January 9, 2012

11:46 AM

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In Your 20's or 30's, whole life insurance

The National Archives and Records Administration has contributed over 100,000 photographs and documents to Wikimedia Commons, including these two regarding President John F. Kennedy.

Kennedy’s $10,000 life insurance policy in 1947 in all likelihood originated during his Navy service during World War II.  Looks like he’s wearing his PT-109 tie clip in this 1962 photo.  Pierre Salinger grew up in cool gray San Francisco, also ex-Navy, so he deserved presumably being kidded for bundling-up out on the water in September.

Best Indexed Universal Life (IUL) for retirement income: How does AXA Equitable measure up?

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November 22, 2011

4:29 PM

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Cash accumulation, Cash Value, Guideline level premium, In Your 20's or 30's, In your 40's, Increasing death benefit, Increasing death benefit for cash accumulation, Indexed Universal Life, Internal rate of return, IUL, Maximum cash accumulation Indexed UL, Maximum cash accumulation IUL, policy illustration, Transamerica Life Insurance Company

Which is the best Indexed Universal Life (IUL) carrier for tax-free policy loans for retirement income?   AXA Equitable has been in 2011 a consistently leading seller for Indexed UL.  Let’s compare AXA side-by-side with other carriers to see how it performs.  AXA product features include four index options.  But beyond reviewing specs like rate caps and guarantees, the most useful way to evaluate carriers is to run policy illustrations using the the same premium and death benefit and compare projected returns.

The Indexed UL structure employed here is to overfund premiums with the minimum amount of death benefit to stay within IRS rules for tax advantaged life insurance.   Then in retirement income take the maximum amount of  tax free loans while still retaining a lifetime death benefit.

This Indexed UL strategy is an alternative for someone in their 30’s, 40’s and 50’s to directly investing in equity markets for retirement.  IULs allow you to take advantage of market gains without the downside risk.

Here’s what it looks like for a male age 44 putting in $25,000 a year for 20 years, and then starting at age 65 taking the maximum out in tax free policy loans for retirement income for the next 20 years, while retaining at least a $100,000 death benefit to age 121.  The death benefit starts at about $540,000 for each carrier and increases for years 1 – 20.

Carrier Cash Value
Year 20		 Death Benefit
Year 20		 Loan Amount
Years 21-40		 Cash Value
Year 41		 Death Benefit
Year 41
Lincoln  1,072,791  1,611,714   145,602  826,476  1,115,403
North American  1,144,104  1,683,029   147,248  658,775     981,056
Minnesota Life  1,100,898  1,655,898   137,217  584,737     876,987
John Hancock  1,085,171  1,323,908   139,719  614,556    913,093
Transamerica  1,065,637  1,630,637    95,000  215,254    346,582
AXA Equitable     995,284  1,534,207    86,402   98,473    212,604
Aviva     972,524  1,527,524   120,188 *
*yrs. 21-31 only		    83,677    204,366

I quoted AXA Equitable’s S & P 500 current rate which assumes 7.55% which is below the 8% plus range of S & P 500 rates assumed by other carriers, and that does have something to do with its lower cash value and death benefit accumulations on the chart at year 20.

Regardless,  AXA only uses a variable  loan rate which is currently illustrated at 3% policy yeas 1-10 and 2% thereafter.   The rate is the greater of 3% or published monthly average Moody’s Corporate Bond Yield.  Guaranteed not to exceed 15%.  They do not offer a fixed rate.

Since those loan payouts are not competitive with Lincoln’s 5% fixed rate or higher variable rates assumed by the other carriers, AXA Equitable does not appear be competitive.  Best way to find out which carrier is right for you is to request that I email you free quotes in the form of policy illustrations.

Carriers & Products quoted:

Lincoln National Life Insurance Company:  “Lincoln LifeReserve Indexed UL  (2011)”
North American Company for Life and Health Insurance:  “Rapid Builder IUL”
Minnesota Life Insurance Company:  “Eclipse Indexed Life”
John Hancock Life Insurance Company:  “Indexed UL”
Transamerica Life Insurance Company:  “Freedom Global IUL II”
Aviva Life and Annuity Company:  “Advantage Builder Series IV”
AXA Equitable Life Insurance Company:  “Athena Indexed Universal Life”

call Sean (910) 328-0447
email: spdrummey@gmail.com

Disclaimer:  Information and quotes are current and accurate to the best of my knowledge on November 22, 2011.  Product features and rates are subject to change.  Quotes are non-guaranteed projections based on current interest rates and cost of insurance. Tax information is general information only. Please seek professional tax advice for personal income tax questions and assistance.

Term vs. Permanent it’s all a matter of age

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July 29, 2011

11:43 AM

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Below Average Health: Substandard, Impaired Risk, Estate Planning, Final expenses, guaranteed universal life, In Your 20's or 30's, In your 40's, In your 50's, In your 60's, In your 70's, In your 80's, Term Life Insurance

Should one choose term or permanent life insurance?   Granted every situation is different, but a general guideline is simple.  Go by the age you need to cover.

Term before retirement and permanent after retirement –  Term to replace a breadwinner’s lost income: permanent for final expenses or estate planning.

Term –   pre-retirement

  • 20’s:  30 year term
  • 30’s:  30 year term
  • 40’s:  20 or 25 year term
  • 50’s:  10 or 15 year term
  • 60’s:  10 year term

7 to 10 times annual salary is general rule of thumb. Most important: get something with affordable premiums.  If need be, drop back on the term length, rather than the face amount, for affordability.

If you have children, get term long enough to cover your youngest child past college age.  For example, if your youngest is 9,  a 15 year term.   9 + 15 =  age 24.    It used to be that age 22 was the benchmark year for college graduation, but since the 5 year plan is more the norm, so you may want stretch it out a bit more.

Permanent  –    post-retirement:  60’s, 70’s, 80’s, 90’s

Ideally, start a separate permanent policy in your 30’s, 40’s or 50’s.  If not, permanent is available into one’s 80’s.  If unhealthy, you can convert your term policy into permanent in your 60’s.

First choice: fully underwritten life insurance, which requires a blood test and medical records.  It’s less expensive, and you get more coverage.  There’s a big industry out there, including AARP, that misleads seniors into needlessly expensive no exam term and permanent. That coverage is only plan B if very unhealthy and for permanent only.  Don’t be fooled into no exam term.

North American currently has the best policy for final expenses, a $25,000 guaranteed universal life.

For estate planning purposes there are guaranteed universal life policies at whatever coverage level that suits your objectives.  The most choices are for coverage at $100,000 or more.  Please refer to my sample quotes by age.

Images: Wikimedia Commons

Whole Life is better under age 40

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May 16, 2011

4:40 PM

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In Your 20's or 30's, In your 60's, In your 70's, Universal Life, Whole Life

I was running $100,000 permanent life insurance quotes today for a woman in her late 30’s.   I quoted MassMutual for whole life.    Premiums for guaranteed universal life with PennMutal were about half as much.   But I recommended whole life even though it was more.  Being  under 40 the quality of whole life is worth the extra price.

With a participating whole life’s dividends like MassMutual,  the face amount increases over the years: $101,000, $102,000, etc.   There is also paid up insurance.  Whole life has guaranteed cash value and dividends will increase the cash value higher.   Over time the policy holder will have many options as those dividends and cash value increases to vary their premiums.

With the guaranteed universal life it’s a fixed course.  The face amount remains level.  $100,000 all the way.  That’s my biggest concern with setting a level face amount too in one 30’s.  What will $100,000 be worth 40 to 50 years from now?   The payments are level but if you miss a couple of payments, changing banks or whatever, you may rescue the universal life with the cash value, but the lifetime guarantee is broken.

Granted with a universal life (UL) you can opt to structure it with an increasing face amount and to endow, worth it’s cash value, just like a whole life. But it’s not guaranteed to do so like whole life.  When you add whole life type features into a UL, the premium rises so close to a whole life you might as well go for the real thing.  That is when you’re in your 20’s or 30’s.

Now when you’re in your 60’s or 70’s it’s a different story.   You don’t have time to build up cash value in a whole life and the premiums are much higher.  A guaranteed UL is better.

Prudential New Product Review

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February 16, 2011

9:49 AM

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In Your 20's or 30's, In your 40's, Product, Term Life Insurance

Prudential has introduced “PruTerm WorkLife 65” life insurance which waives premiums for one year if you are unemployed.   This is geared for a breadwinner in their 20’s, 30’s or 40’s with a spouse or children to protect.

Good idea Prudential.  But at what cost?  I ran $500,000 quotes for a male at age 35 and 45 covering them up to age 65, best health rate.   Prudential was about 30% higher than Genworth Life & Annuity at age 35 and about 40% higher at age 45.

Conversion with Prudential is to age 65.   Conversion means switching the term to permanent without health evaluation.  Genworth’s Term UL has a fixed rate conversion to universal life.   Prudential, like nearly all other carriers,  leaves the conversion’s cost and product selection up in the air, depending on what’s offered at the time of conversion.  In the last few years this has proven to be a minefield.   Some carriers have severely limited their conversion options in a very unfavorable way.   Conversion is the second most important factor to choosing term life insurance after price, and right now, hands down, Genworth is the best for conversion.

Term to permanent: Conversion is Your Ace in the Hole

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January 31, 2011

12:24 PM

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Companies, In Your 20's or 30's, In your 40's, In your 50's, In your 60's, Term Life Insurance

Often something is better than nothing.  If you need life insurance, and can’t decide what to get, or can’t afford a permanent policy as big as you need, get term life insurance.   Then at least you can convert the term to permanent, even if you’ve developed a health problem.   Term is generally all about lowest price, but conversion options is where quality comes in.  Genworth has the best conversion with their new Term UL.  It’s a fixed price from the get go, locking in the universal life premium rate to age 105.

I got a 10 year term policy after my first child was born.   At that point, I needed the most bang for my buck, in case something happened to me.   I’m still healthy so when the term ends I can shop for the best deal.  But many people run into health problems, and that’s where conversion comes along.   Many people in their 60’s end up converting their term policies.