In your 40's - Life Insurance Recommendations

IUL case study: Male age 40

June 1, 2023

10:38 AM

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In your 40's, indexed life insurance, Maximum cash accumulation IUL

Male age 40, preferred non-tobacco rate

Indexed Universal Life (IUL)

Goal #1: maximum cash value accumulation, income disbursements after retirement, no premiums in retirement

Design: minimum face amount, non-MEC (Modified Endowment Contract)
S&P 500 annual annual point-to-point with 100% Participation
5.00% index crediting all years
$500 monthly premium years 1-25, zero premiums thereafter to age 120
increasing death benefit years 1-25, level death benefit thereafter
maximum distributions years 26-30 (5 years) switch at basis from withdrawals to loans
$6,000 annual premium: guideline level premium $6,000.02 (non-MEC since it’s below guideline level)

Results: Company A
$104,115 increasing initial death benefit
non guaranteed results:
cash value accumulation $268,559 year 25.
Maximum disbursements for 5 years, $59,640 assuming 4.50% variable rate. total $298,200 distributions over 5 years. Total premiums years 1-25: $150,000; net outlay ($148,200)
the policy projects coverage to age 120 without further premiums.

Goal #2: target premium in order to build cash value and for coverage to last to age 120, flexible premiums for coverage to age 120 and cash value accumulation

Design: target premium
S&P 500 annual annual point-to-point with 100% Participation
5.00% index crediting all years
increasing death benefit all years

Results: Company A

$250 monthly premium (target premium)
$209,644 initial increasing death benefit
guideline level premium: $11,992.02 (maximum non-MEC annual)
maximum non-MEC annual premium $14,535.83, 7 pay test (annual)
monthly initial minimum premium $69.26
cash value accumulation $105,527 year 25

$500 monthly premium (target premium)
$491,287 initial increasing death benefit
guideline level premium: $23,898.08 (maximum non-MEC annual)
maximum non-MEC annual premium $29,071.64, 7 pay test (annual)
monthly initial minimum premium $125.29
cash value accumulation $216,825 year 25.

So with an IUL you can choose a target premium as your budget allows and have lots of flexibility to change premiums as circumstances warrant over the years from minimum to maximum non-MEC. A target premium will not build as much cash value as in the Goal #1 design, minimizing the face amount and the maximum non-MEC premium, but it does quite well in building cash value and that does give you a much higher death benefit.

Please call with any questions, and to find out the name of the high performing carrier quoted.

IUL comparison for maximum cash value accumulation and tax-free loans

by Sean Drummey

April 27, 2023

12:42 PM

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Age 44, In your 40's, Increasing death benefit, IUL, tax-free loans

Male, age 44, standard non tobacco

$200,000 annual premium years 1-10, zero premium years 11+: total premium $2,000,000
5.00% interest crediting S & P 500 index annual point-to-point, all years. This is not the maximum crediting allowed but helps compare carrier performance apples-to-apples.

structured maximum cash value accumulation, guideline level premium, minimum face amount, increasing death benefit, non-MEC guideline level premium test

Cash Value Accumulation (non guaranteed based on 5%)

Company A: $2,967,294 initial death benefit, year 20 cash value: $3,749,106, age 79 no lapse guarantee
Company B: $3,255,183 initial death benefit, year 20 cash value: $3,352,877, age 93 no lapse guarantee

Tax-Free Loans

Same structure as above except an increasing death benefit years 1-20, level death benefit years 21+, variable loan rate 4.50%

Company A: $803,212 loans years 21-25, total loans $4,0116,060 net outlay ($2,016,060)
Company B: $680,000 loans years 21-25, non guarantee lapse age 86

Comments: Even though company A projects clear advantages in cash value accumulation and policy loans, company B with its age 93 no lapse guarantee (NLG) indicates a fundamentally stronger product impervious to cost of insurance (COI) increases in or cap reductions, any carrier undermining of product support in the future.

Indexed Universal Life (IUL) quotes run April 2023. Please contact me to discuss these two competitive carriers.

Age 44, In your 40’s, Increasing death benefit, IUL, tax-free loans

Life insurance: needed and inexpensive

by Sean Drummey

January 24, 2013

1:42 PM

Leave a comment on Life insurance: needed and inexpensive

10 year term, Age 60, In your 40's, In your 50's, level term, preferred best, Preferred best rates, Preferred Plus Rates, preferred rate, rate classifications, standard, Standard Plus, term, term life rates

Morning Interior Maximilien Luce, 1890

My American consumers evidently have a limited understanding of life insurance, but life insurance is really not all that difficult. A competent agent can explain the basics in a few minutes. Most people need term life insurance which for most is inexpensive and has a fixed rate for decades. For example age 50, $250,000, 10 year term is $21.12 a month at preferred plus and $38.35 a month at standard; age 60, $250,000, 10 year term is $43.09 at preferred plus and $75.38 a standard.

It boils down to recognizing the need for coverage. Does someone depend on your income? What would happen to your children or spouse if you died? What are your family’s needs for estate planning?

It’s hard to consider one’s own death, but that becomes easier as you get older because people you know start dying. This usually starts in high school and accelerates in your 40’s and 50’s.

Applying for life insurance, even if you regularly see a doctor, gives you a broader understanding of your health. Life insurance, fully underwritten, the least expensive kind, requires a blood test and often a review of medical records, all at no cost to the applicant. The carrier then determines a risk classification: preferred best, preferred, standard plus, standard or substandard. It’s objective with measurable criteria. That decision can be very revealing because often doctors do not adequately inform patients of their risk, and people often do not know or adequately understand the state of their health.

Using an Indexed Universal Life (IUL) as a college savings plan: example of how it works

by Sean Drummey

January 17, 2012

5:00 PM

2 Comments on Using an Indexed Universal Life (IUL) as a college savings plan: example of how it works

In your 40's, Increasing death benefit for cash accumulation, maximizing cash value, MEC limit, tax-free loans

Using Indexed Universal Life (IUL) for college savings uses the same cash accumulation strategy as Indexed ULs for tax-free retirement income. Cash value grows tax deferred and is distributed as tax free loans. The IRS limits the amount of premium that can be put into a contract and keep the distributions taxed advantaged, rules for Modified Endowment Contract (MEC), so the goal is to put in the maximum premium allowed below that limit. In life insurance terminology, the guideline level premium determines the policy face amount. The death benefit is structured as increasing during the accumulation phase and level during the distribution phase.

Granted other options are available, but with an indexed UL, there’s downside risk protection with at least a 0% floor to index crediting, Lincoln has 1%. Also there’s a death benefit in the ultimate worst case scenario for the parent.

The starting point for the prospective policyholder is to determine how much premium and for how long? The countdown clock for college savings is simple: 18 years.

Male age 42, best health rate, $10,000 premium per year for 18 years. Amounts assume a 8.45% index interest rate, S & P 500 annual point-to-point index.

Carrier	Initial Death Benefit	Cash Value Year 18	Death Benefit Year 18	Distribution Years 19-22	Cash Value Year 23	Death Benefit year 23
						.
Lincoln	$225,000	$348,527	$574,527	$102,444	$67,157	$181,703

What if the market doesn’t preform that well? Be sure to review multiple index return scenarios. They are easily illustrated. Here are 5% index return projections.

Carrier	Initial Death Benefit	Cash Value Year 18	Death Benefit Year 18	Distribution Years 19-22	Cash Value Year 23	Death Benefit year 23
						.
Lincoln	$225,000	$246,646	$471,646	$59,658	$46,689	$207,551

Looking at a 10 year time span for $10,000 in premium instead of 18, the results didn’t work out very well: $37,021 in distributions assuming 8.45%. As in most savings plans, the earlier the start, the better.

Lincoln National Life Insurance Company: “Lincoln LifeReserve Indexed UL (2011)
Quote run 1/17/2012. Rates subject to change.

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

Surrender Charges on IUL

by Sean Drummey

November 28, 2011

4:57 PM

Leave a comment on Surrender Charges on IUL

Cash accumulation, Cash Value, Equity Indexed Universal Life Insurance, Estate Planning, In your 40's, In your 50's, Indexed Universal Life, Lincoln National Life Insurance Company, Modified Endowment Contract, Penn Mutual, Retirement income

It’s always good to know the rules for getting money back, so I compared surrender charges for indexed universal life (IUL) carriers. Surrender charges decrease on a declining schedule. For the carriers I compared, it takes between 10 to 20 years for those charges to completely go away. Not surprisingly, Lincoln and Penn Mutual were among those most favorable.

Penn Mutual is the best: no surrender charges after the 9th year, also no surrender charges in excess of target premium.

Target premium is a premium designed maintain a permanent policy for life. Mind you target is a guidepost for keeping the policy in force, how the policy performs may require more or less premium. With Indexed Universal Life one strategy is to over fund the policy above target to build additional cash value. Of the carriers I surveyed, only Penn Mutual and Old Mutual did not require a surrender charge on that portion of the premium.

For example, as in prior comparisons: male age 44, over funding an Indexed UL with $25,000 in premium for 20 years in order to generate tax free retirment income in the form of policy loans. With Penn Mutual this is a $590,000 increasing face amount policy, and the given target premium is $7,918 a year, but by over funding it with $25,000 in premium, just under the IRS limit for a Modified Endowment Contract (MEC), the policy builds the maximum permissible tax free cash value. That amount between $7,918 and $25,000 would not be subject to surrender charges at any time with Penn Mutual.

The least amount of surrender charges in the shortest period of time is a distinct advantage for an Indexed Universal Life in case there is a change in plans.

Sean Drummey
Contact for a free quote
Phone: (910) 328-0447
Email: spdrummey@gmail.com

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

by Sean Drummey

November 22, 2011

4:29 PM

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

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.

Scuba diving deaths North Carolina’s Megalodon Ledge

by Sean Drummey

October 18, 2011

11:20 AM

3 Comments on Scuba diving deaths North Carolina’s Megalodon Ledge

Age 59, American General Life Insurance Company, In your 40's

The Wilmington Star News reported two scuba diving deaths off the North Carolina coast one Thursday, October 13th and another on Sunday, October 16th. I’m following this sport more closely because my 10 year old son is strongly interested in diving and in particular in diving for megladon shark’s teeth. He has read Steve Alten‘s Meg and has become a fan of the writer and his series on megladons. Both deaths involved hunting for these prehistoric fossils at Megalodon Ledge. Donald Zantop, 59 years old was described by his wife as an experienced diver. Amy Pieno, age 48, was the co owner of a Outer Banks Diving in Hatteras, NC. Presumably as a dive shop owner, she was very experienced. Megalodon Ledge’s average depths are 100′ to 110′.

How safe is diving? Statistics indicate it’s relatively safe, yet diving’s environment does not allow for much margin of error, especially the deeper a diver goes. I’m just about convinced that most hazardous sports are for those who are in shape and fairly young. But hey, it’s your life, and as long as your only risking your own, it’s your choice.

Our family has had these discussion before about hazardous sports. Several years ago a kid in the area, about 10, was doing a motorcross event, did a face plant and died. I’d rather hold off allowing my boys do certain hazardous activities until they are 18. Then being of age, I can shake their hand and wish them well. Their fate is up to them. If as a parent I allow them to do something hazardous under age 18 and something goes wrong, part of the guilt is going to be mine. Always.

Divers and life insurance
Over the years I quoted life insurance for scuba divers and have several as clients. Rates depend on the average depths of dives and frequency. Best available rates are possible if diving is limited and not too deep. Over 100 feet is generally considered deep. The most important thing is to admit diving on the application. Some applications are more favorable than others on the look back period on diving history. They all ask if you intend to dive in the future, usually in the next 2 years. Prudential, Genworth and American General come to mind as carriers that offer the most favorable underwriting. Prudential in particular is favorable.

Universal Life vs guaranteed UL what works best depends on age

by Sean Drummey

October 12, 2011

2:53 PM

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Age 68, Cash Value, Estate Planning, guaranteed universal life, In your 40's, In your 50's, In your 60's, In your 70's, In your 80's, Universal Life

Universal Life, UL, has many different life insurance product designations. One of the most basic distinctions is whether it is a UL or a Guaranteed UL.

Guaranteed Universal Life (Guaranteed UL)
With guaranteed UL there is a lapse protection guarantee: as long as you pay your premium on time, coverage is guaranteed. Lifetime guaranteed UL is guaranteed to age 121. Great coverage: inexpensive, straightforward, easy to understand. Put premium payments on bank draft and forget about it. Is there a catch? No. Well, perhaps in a few ways: guaranteed UL’s lack flexibility on the adjusting the premium amount, the lapse protection is lost if the premium is not paid on time, and guaranteed UL’s do not build much cash value.

Universal Life (UL)
UL’s are called flexible adjustable life insurance for a reason. Premiums are flexible. There is a target premium. The real target is to make the life insurance coverage last for the rest of the policy holder’s life. Premium can be raised, lowered or kept the same to meet that target. It’s sort of like gas in the car. The idea is to have enough gas (cash value) to reach one’s destination, i.e. go beyond the person’s lifespan. At the policy’s beginning, target premium is typically set to age 100. The car’s (i.e. carrier) performance helps determine how much gas (premium) is needed. With a UL the holder is obliged to take a much more active role in management of the policy.

Does my age affect which type I choose?
Yes, generally select a UL in 40’s and 50’s, and a guaranteed UL in 60’s, 70’s and 80’s

Universal Life: 40’s and 50’s
When younger, in your 40’s or 50’s, you want the flexibility of regular universal life to lower or raise premium payments depending on your financial situation, to build higher cash value and to possibly replace your coverage for a better product later on.

For example:

Mrs. Wright, age 46, takes out a $250,000 universal life policy with the target premium of $150 a month. Five years later, her child needs braces and her monthly budget is tight. Since there is $3,000 cash value in her policy, Mrs. Wright, after reviewing an in force illustration, lowers her premium to $100 a month. One year later after getting back on better financial footing, Mrs. Wright increases her premium to $200 a month until the policy back on track to the original target of age 100. Later she is able to lower the premium back down to $150 a month.

Guaranteed UL: 60’s, 70’s and 80’s

When older, lock in a benefit amount for a set premium for life.

For example:

Mr. Ward, age 68, would like to leave $500,000 to his son. He chooses a guaranteed universal life product because the premiums are fixed and the policy is guaranteed to age 121. He has a secure retirement income and can well afford a fixed premium payment. He puts those payments on bank draft and can rest assured that this portion of his estate plan is secure.

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

by Sean Drummey

July 29, 2011

11:43 AM

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

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

Prudential New Product Review

by Sean Drummey

February 16, 2011

9:49 AM

Leave a comment on Prudential New Product Review

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.