Category: term conversion

Term Conversion to Indexed Universal Life (IUL)

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January 10, 2014

2:42 PM

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2014, Age 100, age 100 guarantee, Age 120 guarantee, American General Life Insurance Company, Cash accumulation, Cash Value, Conversion, current assumption UL or CAUL, current illustration, exchange, guaranteed universal life, GUL, in force illustration, level term, no exam life insurance, no medical exam, no physical exam, term, term conversion, term life, Universal Life, universal life policies with secondary guarantees

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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.

 

 

Research on a Life Insurance Company

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October 26, 2010

10:25 AM

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term conversion

Low priced term with quality life insurance carriers is something a truly independent agent like myself must keep track of to present to their prospects and clients, so I began researching a carrier yesterday that is posting some very low prices on a comparative term quote engine.   (Since my research has been very preliminary, and not wanting  to misrepresent them, I will not name the carrier.)  I Google searched their name and went to their website.   I called up their marketing department and first asked about conversion.   Conversion is to age 70 and there is a guaranteed UL to convert to.

That sort of conversion is very likely part of any initial research an agent would do on a carrier.  Lowest price is one thing, it’s something a consumer can readily understand, but with term life insurance the second most important factor to evaluate is the carrier’s conversion options.  Conversion allows you to automatically switch your term into a permanent type product, whole life or UL, without proof of insurability.   Get a 20 year term policy today at preferred non tobacco at 45, and then at 65 convert it, let’s say, to a guaranteed UL, despite having had cancer and a heart attack.   Conversion might be your only game in town for plan B, if you want or need life insurance beyond the term period, and you’ve had health problems.

The carrier had conversion to age 70.  That’s good, about par for what’s out there.  The gold standard for conversion age is age 75.  Minnesota Life Insurance Company has conversion to age 75 with their Advantage Elite Term product.   Two other major carriers had conversion to age 75 up until this year, but have discontinued it.    I would recommend avoiding carriers with an age 65 conversion limit, since age 70 or 75 is way better.

The carrier whole life and  a guaranteed UL (G-UL) to convert to.   That’s good news too.  Guaranteed or no lapse universal life is what you would like to have for conversion, under a majority of circumstances, since it locks in coverage for life: pay on time and the coverage is guaranteed not to lapse.  Certain carriers recently have withdrawn their G-ULs for conversion, another spill over from the recession.   That’s very bad news for those policy holders.

The problem for an agent or consumer judging a carrier on conversion is that you have no idea what the carrier may offer 20 or 30 years from now and at what price.   You can look at the carrier’s financial stability, and the products and premiums on what they currently offer for conversion for some insight, but knowing what will happen that far into the future defies most measures of prophecy.   Only a sage life insurance analyst could have predicted what’s happened in the last 5 years to the industry.

That’s why usually my recommendation for best term is Genworth Life and Annuity’s Colony Term UL.  This term automatically converts to a UL at a set price at the term’s end.  You can see the UL’s premium’s price right on the illustration.  Genworth’s prices are amongst the lowest as well.

I did some financial research on a carrier.  There are ratings agencies: Fitch, A.M. Best, Standard & Poor’s and Moody’s.  The ratings agencies’s overall trustworthiness was tarnished in this recession, to say the least, but it’s a start.  To get any bad news first, I Google searched “Carrier X downgrades”.    It is not uncommon to get results on an insurance carrier from this.   The recession has certainly been a challenge.  The key may be into how they are responding to the recession.  The next search was “Carrier X outlook” gives information on the carrier’s prospects.

It turns out I won’t represent this carrier at this time.  An independent agent can’t always meet a carrier’s commitment requirements.