term - Life Insurance Recommendations

The Level Above Term Life Insurance

July 15, 2016

4:45 PM

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2016, guaranteed universal life, GUL, No Lapse Guaranteed Universal Life, term life vs universal life, whole life vs guaranteed universal life

What is the best type of life insurance term or permanent? It depends on the individual’s situation, but certainly term life insurance and one permanent product called Guaranteed Universal Life (GUL) are straightforward and similar in concept. A Guaranteed UL, also called no-lapse Universal Life, like term has a fixed premium for a set period of time, up to an age 120+ lifetime guarantee. Of all the permanent life insurance products, Guaranteed Universal Life offers the lowest cost death benefit. Pay on time and coverage is guaranteed, and the premium is guaranteed never to go up. All you need to figure out what time period is best and affordable. The only real debate between term and guaranteed UL is the comparative cost for the length of coverage. For example:

Canterskill_Falls,_Catskill_Mountains,_and_Rip_Van_Winkle_Rock

$250,000 coverage, Male, age 48, super preferred, monthly premiums:

$25.06 10 year term
$29.51 15 year term
$37.99 20 year term
$58.22 25 year term
$63.29 30 year term
$172.21 age 90 Guaranteed UL
$213.25 age 120 Guaranteed UL

In this example, as in most cases, 30 year term covers is less expensive than coverage to age 90. The higher premium is a function of the odds of outliving the policy. Check out the Social Security actuarial life table for life expectancy for your age. This table gives the life expectancy of a 48 year old males as 31.61 years. If you want a more individualized life expectancy try here.

Historical

Universal Life (UL), also called Current Assumption Universal Life (CAUL), has been around since the 1980’s. UL products promised higher cash value accumulation than whole life insurance, but did have a lifetime coverage guarantee. Many of the those UL products sold in the 80’s and 90’s under performed. When cash value sinks to zero in a UL policy will lapse, or terminate, unless bolstered by ever higher premiums. As a result consumers lost confidence in the death benefit protection of Universal Life. In the early 2000’s the life insurance industry responded by adding a “no-lapse guarantee” or “secondary guarantee”, typically a lifetime guarantee, as a line of UL products. These Guaranteed Universal Life (GUL) products, a.k.a. Universal Life with Secondary Guarantees (ULSG), have done quite well in the life insurance market, since they offer a lifetime coverage guarantee for substantially less than whole life. Most consumers, especially those in their 60’s and 70’s, for estate planning purposes are interested in low cost lifetime death benefits guarantees, not cash value accumulation. In recent years the Great Recession and regulatory changes winnowed down the number of carriers offering GUL products, but there are still multiple carriers who offer them, giving the consumer a wide range of competitively priced options.

update with revised quotes: 01/09/2023

Term Conversion to Indexed Universal Life (IUL)

by Sean Drummey

January 10, 2014

2:42 PM

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This week I was drawn by a client inquiry into analyzing the merits of converting a term policy into permanent. A term policy’s ace in the hole is its conversion privileges. Health conditions may arise as the decades go by. No matter how much one’s health may have changed for the worse, if still within the conversion period, a policy owner can convert all or part of the term policy to permanent without evidence of insurability at the original rate classification. Be sure to ask about conversion when shopping for term. It’s the second most important consideration after lowest premium.

For the American General term policy I was reviewing, they currently offered term conversion to either an Indexed Universal Life and a whole life product. The indexed universal life product “AG Extend IUL” offers a no lapse guarantee rider to age 100. That’s really great news for American General term policy holders: fixed premium and coverage guarantee to age 100. It would be better to have one to age 120 and beyond, but a lengthy guarantee is much better than not one of all. It’s one step above the 5 to 25 year no lapse for other Indexed UL or current assumption UL products.

One of the problems with Indexed Universal Life is uncertainty on how it will perform over time. Illustration shows non guaranteed projections, and they are very speculative in both the interest rate given, and how it’s shown at that rate for all years. An agent would be tempted to show the maximum interest rate allowed by the software. Carriers based those rates based on historical averages, as in the S & P 500 over the last 30 years. So an illustration may shows the S & P 500 annual point-to-point at 7.75% or 8.00% in all years. Yes, each and every year. The S & P certainly doesn’t perform like that in real life. In all years for a 45 year old that projects a positive return, each and every year, for 75 years. I run my IUL illustration a 5%. It’s more conservative projection but still a very uncertain projection because actual performance of the indexed may vary considerably and the carrier can change cap rates, participation rates and policy charges.

That’s why a lengthy guarantee on an Indexed UL like is “AG Extend IUL” is valuable. Set the premium to the age 100 guarantee and then down the road the policy holder can evaluate actual performance and make changes accordingly to save on premiums if that age 100 guarantee is no longer necessary. So for example, start an Indexed UL at age 54 with premiums that guarantee coverage to age 100. Then when 75 year old and in declining health, request an inforce illustration, and project how much premium the policy will need to have coverage to age 85.

If a Guaranteed Universal Life product is offered for conversion, generally that’s a better option to take, especially for those in their 60’s or 70’s. If only a current assumption UL or Indexed UL is offered, funding it adequately, setting the premium high for plenty of cushion for cash value accumulation is well advised. Have the agent show illustrations with coverage cash value to endow, or worth the face amount, at age 100. Those run at target or $1 at age 100 might have more appealing premiums but might end up being underfunded for the long haul.

Term life insurance and conversion

by Sean Drummey

September 11, 2013

3:18 PM

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20 year term, 30 year term life insurance, 68 years old, 71 year old, 71 years old, Age 68, Age 70, Age 71, Conversion, exchange, term

Carpe Diem

In follow ups with clients and talking to life insurance term policy holders shopping for coverage, I am struck again and again how important conversion is to term life insurance. The lowest term price is the easy part to figure out. Conversion is the quality feature. If you have a health problem during the term period, conversion may be the only game in town for new coverage. For example:

Timely conversion:
John, 42 years old and in excellent health, starts a $500k 30 year term policy at the preferred best rate. At 61 years old he has a heart attack. At 62 years old with the term coverage ending, he converts $250k of his term coverage into a universal life policy at the preferred best rate, no underwriting, by just signing a couple of forms.

Past the conversion deadline:
Jill, 51 years old and in good heath, starts a 20 year term policy with the preferred non tobacco rate. At 68 years old she develops stage I breast cancer. At age 71 with the term policy ending, she discovers her conversion period ended at age 70. Instead of converting her policy at preferred a year before, the most favorable offer she finds for new coverage available has a flat extra charge of $7 per thousand for 5 years at the standard rate.

Pay close attention to which carriers has the best conversion options when shopping for term. Policy holders note term conversion or exchange rules and the deadline for conversion as a vital record.

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

by Sean Drummey

August 12, 2013

4:14 PM

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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.

Licensed Agent: Sean Drummey
phone: (910) 328-0447
email: spdrummey@gmail.com

James Gandolfini’s estate tax and the role of life insurance

by Sean Drummey

August 7, 2013

10:46 AM

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James Gandolfini, actor extraordinaire of The Sopranos, who died recently of a heart attack at age 51 apparently has left his heirs subject to a sizable estate tax. Tax experts noted that they will likely end up owing a significant amount partly due to his residing in New York. State estate taxes vary considerably depending on which state you reside in.

I was struck by this comment in one analysis as to the very practical role of life insurance in estate planning.

At a minimum, an irrevocable trust should have been set up for Mr. Gandolfini to use to pay insurance premiums toward a life insurance policy that would have covered expected estate taxes, Mr. Wolfe said.

Gandolfini did set up a $7 million life policy for his son in a irrevocable life insurance trust (ILIT). To give the benefit of doubt, he may of set up others. Life insurance is not required to be in the public domain of probate. One lesson to come out of this is to add life insurance regularly especially when remarrying and having children. Insurability, the ability to obtain coverage, can be an issue when adding life insurance later in life. Fully underwritten life insurance involves a blood test, and depending on age and coverage amount, an EKG and medical records. In Gandolfini’s case at his age in the absence of identifiable heart disease his rate classification probably would have depended almost entirely on his weight according to the carrier’s build chart.

Estate planning with minor children makes term life insurance an option. There’s 10, 15, 20, 25 or 30 year term depending on the age of the child and how far it is prudent to carry the coverage out. Term is inexpensive and conversion allows on to exchange the term into a permanent policy without proof of insurabilty during the term period.

For permanent life insurance the first and foremost estate planning tool is Guaranteed No-Lapse Universal Life locking in coverage to age 120 or beyond. For other situations and goals the options include current assumption Universal Life, Indexed UL or on the upper cash value and benefit end a Whole Life plan.

AARP life insurance simply much more expensive

by Sean Drummey

June 14, 2013

12:00 PM

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I first posted about AARP’s high priced life insurance program two years ago. Has there been any reform to that profit mill taking advantage of seniors? No. AARP member options are only among the most expensive.

AARP now promotes “The AARP Life Insurance From New York Life” on a separate website. It’s “exclusively for AARP members.” Their mission statement: “To help make it simpler for AARP members to apply for affordable life insurance protection, AARP selected New York Life to provide a life insurance program just for its members.” (italics mine)

simple = more expensive

The AARP New York Life insurance web page has three choices, all of them no physical exam, i.e. paramed exam. Simple. Higher priced simplicity.

Are you in good, average or even slightly below average health? Focus on fully underwritten life insurance requiring a paramed exam. It’s free, at home or wherever you choose at your convenience, takes about 20 minutes and saves you a considerable amount of money.

Best value in rapidly descending order:

full underwriting: paramed exam
simplified issue: no paramed exam
guaranteed issue: no health questions

Unsure if qualified for fully underwritten coverage? Find out. You’d be surprised. Type 2 diabetics with good control can get standard rates. Always check first before applying. Even if a simplified issue product is advisable, shop around for the lowest prices. There are much better deals than those offered through AARP.

Doubly more expensive permanent

For example, $25,000 permanent coverage female 66 years old, monthly premiums

$70.00 Transamerica at preferred non-tobacco, GUL*, age 121
$74.00 Transamerica at standard non-tobacco, GUL*, age 121
$127.52 AARP Life Insurance program from New York Life, age 121

Why would an organization, supposedly acting in its members best interest, not promote fully underwritten life insurance options? How about: ease of issue, faster turn around, lower labor costs, higher premiums, higher profits.

Term: At your age?

Term is to replace lost income or to cover a debt like a mortgage. If there is a shorter duration need, term life insurance might be suitable, but generally retirees should get permanent life insurance for estate planning and final expenses, not term. Outlive the term period, and there’s zero benefit. If for some reason term is needed, get fully underwritten coverage. No physical exam term is much more expensive. The AARP program term rates are five-year age bands: e.g., 65-69, 70-74. Tiered rate term insurance is an inferior product and much more expensive. Level premium term is the best. The rate is the same for the entire term period.

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

Licensed Agent: Sean Drummey
phone: (910) 328-0447
email: spdrummey@gmail.com

* Guaranteed Universal Life (GUL), also called no-lapse Guaranteed Universal Life, look for lifetime no-lapse guarantee level premium to age 120 or age 121; three major life carriers have GUL products starting at $25,000.

Product and carrier details:
Transamerica Life Insurance Company: “TransACE”
Genworth Life Insurance Company: “Colony Term”

quotes 6/14/2013, rates subject to change

Life insurance: needed and inexpensive

by Sean Drummey

January 24, 2013

1:42 PM

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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.

Life Settlement: seniors watch out

by Sean Drummey

September 29, 2011

2:51 PM

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Accelerated Benefit, Accelerated Benefits, Accelerated Death Benefits, Cash Value, life settlement, Life Settlements, Living Benefits, Policy Review, Seniors, Stranger Owned Life Insurance, Term Life Insurance

I wrote in this blog about stranger-originated life insurance this Monday, and the next day Imperial Holdings, Inc., a company in the life insurance settlement business, had its headquarters in Boca Raton, Florida raided by the FBI. No charges have been filed. Life Partners, Inc., is another company in the settlement business, is also under investigation. Allegations for Life Partners focus on misrepresentations to their investors.

Regardless, seniors interested in a life settlement need to be wary of the life settlement industry. Finra investors provides an excellent overview of the issues involved.

Make sure to contact an independent agent to review all your options before signing over ownership of your policy. Ask your company for an in force illustration. Explore options such as: Continue reading “Life Settlement: seniors watch out” →

Turning 70

by Sean Drummey

September 23, 2011

4:07 PM

The need for life insurance

by Sean Drummey

September 9, 2011

1:07 PM

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Age 56, Age 61, Age 66, Age 71, Estate Planning, guaranteed universal life, Term Life Insurance

Since September is life insurance awareness month, here a few thoughts on the need for life insurance.

Real life testimonials of life insurance beneficiaries are compelling. Neil Frankle of the WealthPilgrim.com has a memorable personal story of being orphaned at 17 and unexpectedly receiving $25,000 in life insurance that his father inadvertently signed up for as a loan condition.

Yes, but aren’t the odds of dying before one’s time fairly rare? Modern life is certainly not as prone to unexpected death as it was 100 years ago with tuberculosis, cholera, typhoid scarlet fever and pneumonia. There was the flu pandemic of 1918 and another could conceivably happen. The West Coast could see an earthquake on the order of magnitude as the San Francisco earthquake of 1906.

But in America today, on a day to day basis, the main risk to one’s life is in a car. It’s routine to travel at speeds above 50 mph, trusting your life to drivers passing by who may be drunk, distracted, unskilled or infirm. Fatalities run around 33,000 a year in the US. It’s possible to be another one, and entirely not your fault.

If you are raising children, get some life insurance. Term is cheap. Don’t let your kids down.

For example, Genworth, preferred non tobacco, 10 year term rates for men, $100,000 in coverage:

age 31 – $8.11 a month
age 36 – $8.37 a month
age 46 – $13.64 a month
age 51 – $19.68 a month

Genworth has $50,000 10 year term that’s even cheaper. Woman’s rates are even less than for men.

Continue reading “The need for life insurance” →