Universal Life - Life Insurance Recommendations

Hybrid life long-term care looking even better after Prudential’s exits LTC market and increases premiums

March 14, 2012

5:37 PM

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Cash accumulation, guaranteed universal life, hybrid long term care insurance and life insurance, Increasing Death Benefit / increasing cash value option, Increasing death benefit for cash accumulation, Indemnity Benefit, Indexed Universal Life, life insurance and long term care, long term care life insurance hybrid with return of premium, Prudential life insurance

Prudential announced it will stop selling individual long term care (LTC) insurance policies at the end of March. Prudential ranked fifth in the LTC market. They will still sell group products.

In 2011 Prudential announced rate increases on its first and second generation individual LTC policies. The premium rate increase percentage requests were substantial: 18% or 32% on the first generation product, and 15% or 30% on the second generation. That higher tier of increases was on plans with a cash benefit rider. The actual increase for those policy holder depends on what each state’s Department of Insurance approves. From what I reviewed, states were approving most of what was requested and premium increase letters were going out this year to Prudential LTC policy holders.

All individual long term care insurance policy holders have to worry about rate increases. In contrast with a hybrid life insurance LTC policy, the policy owner is able to lock in a fixed premium for life with a guaranteed UL plan. For those with other retirement or estate planning goals, Indexed UL plans provide an opportunity for cash accumulation and increasing death or long-term care benefits.

Cash value in Guaranteed Universal Life

by Sean Drummey

March 6, 2012

4:37 PM

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Banner Life, Cash Value, guaranteed universal life, MetLife, No Lapse Guaranteed Universal Life

To follow up on a post last week comparing non guaranteed interest rates for seventeen major life insurance carriers, Met Life 5.45% was the highest and Banner the lowest at 3.00%. But non guaranteed rates are a secondary consideration with Guaranteed Universal Life products, as these were.

For example, compare MetLife’s “Guarantee Advantage Universal Life” with Banner’s “Life Choice UL”: $250,000 Face amount, age 63, female, preferred non tobacco rate, lifetime guarantee no lapse.

Annual Premium	Carriier	Guaranteed Interest Rate	Current Non Guaranteed Interest Rate	Guaranteed Cash Value Year 20	Non guaranteed Cash Value Year 20

$3,724.44	Banner	3.00%	3.00%	$20,854	$20,854
$4,568.02	MetLife	3.00%	5.45%	0	0

With a Guarantee UL, also called no lapse guranteed UL, the lowest premium is the most important factor, locking in lifetime coverage fixed premium. Cash value is usually not a factor at all, but can come into play in a few important ways.

1. Cash value acts as a safety net if premium are not paid on time to prevent the policy from lapsing. That’s the biggest risk and challenge of a no lapse UL. Can the policy owner make timely payments for 10, 20 years or longer? That’s a detail that can be missed when juggling accounts or switching banks. The bank draft should be set up to be fool proof. If a mistake is made, missing two or more payments, cash value can rescue the error.

2. Drawing down cash value instead of premiums if the policy holder is in failing health or terminally ill. On a level face amount policy, whatever cash value becomes irrelevant when the policy holder passes away. The policy will only pay out the face amount. It’s use it or lose it with cash value. Proper management of cash value in any universal life policy can save the policy owner thousands in premiums.

Banner’s guaranteed UL builds guaranteed cash value making it one of the top guaranteed ULs on the market. Banner also has very competitive premiums. Metlife’s non guaranteed 5.45% projects $12,860 cash value in year 10, but declines steadily thereafter as age related cost of insurance rises. Metlife’s premium is much higher for the same coverage, with the non guaranteed rate only a marginal factor in the early years of coverage, Banner has by far better plan.

Quotes run on 3/6/2012 to the best of my knowledge and are subject to change, as are non guaranteed rates.

Carriers and Products:
MetLife Investors U.S.A. Insurance Company: “Guarantee Advantage Universal Life”
Banner Life Insurance Company: “Life Choice UL”

Indexed Universal Life (IUL) vs. Guaranteed UL vs. Term: the ages of man

by Sean Drummey

December 14, 2011

11:47 AM

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guaranteed universal life, Indexed Universal Life, IUL

After reviewing a number of consumer brochures for Indexed Universal Life (IUL), here are some thoughts on appropriate life insurance products.

30’s, 40’s and 50’s
The most basic and inexpensive life insurance product is term. If you have children, make sure your death benefit figure is adequate to cover lost income and to provide for college. A sense of obligation and prudence directs many parents pick up a $250k, $500k , $750k or $1m term coverage. Really, 10 year term is not expensive.

It may be a great idea to start an Indexed UL, (IUL) for retirement planning, but one compelling strategy involves a minimum death benefit to maximize cash value. If you happen to get into killed in car wreck, die from cancer or whatever tragic early demise in your 30’s, 40’s or 50’s, the unspoken big question at the funeral will be, “How much did he leave?” or “she leave?” not, “How much cash value was in the policy?” What to cover both bases? Consider two life policies: a term to replace lost income, and a permanent for retirement and estate planning.

55 and over
It’s simple. Get a Guaranteed Universal Life, (GUL) also called No Lapse Universal Life. Lock in coverage a fixed premium to age 121. Put it on bank draft and let it run. Rock solid guarantee. It’s a competitive market, so premiums are favorable. Death Benefit starts at $25,000. The better quality GULs build a fair amount of cash value, and that may be used in your declining years to offset premiums.

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.

Life insurance to pay off a reverse mortgage

by Sean Drummey

October 11, 2011

9:55 AM

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Age 62, Age 73, guaranteed universal life, In your 60's, In your 70's, Indexed Survivorship Universal Life, Joint survivor guaranteed universal life, Survivorship Life Insurance, Survivorship Universal Life

First let’s assume a homeowner does adequate research including taking a long hard look at the disadvantages and alternatives decides a reverse mortgage appropriate for their situation. Granted, many homeowners will need every penny of this money, but some may desire to tap into home equity for discretionary funds and have broader goals. For example, those who want an heir to keep the house, life insurance is a means to pay off the reverse mortgage’s loan balance.

For those in average or better than average health, life insurance is readily available in one’s 60’s, 70’s, and even 80’s. For joint policies only one of a couple needs to be healthy to qualify; the other can be uninsurable.

There are two forms of life insurance: term and permanent. Term level premium ends in 10, 15 or 20 years, so in generally term is not suitable to cover a reverse mortgage’s lifetime commitment. For permanent there is whole life and universal life, which comes in many forms. The best product to cover a reverse mortgages is guaranteed universal life. It’s fixed rate and coverage for life, usually to age 121. All the policyholder has to do to is pay the premiums on time. Couples can get joint coverage, also known as second to die coverage, with a joint survivor guaranteed UL. How much does a guaranteed UL cost? There are sample rates by age on the right hand side for individuals. Please contact me for your own personalized quote. Here’s an example.

Mr. and Mrs. Jones, both 73 and in good health, needs funds for retirement but want to leave their lakeside home to their daughter, so they decide upon a reverse mortgage. They qualify for a lump sum payment of $250,000. They take out a $350,000 joint survivor life insurance policy so their daughter may pay back interest and principal on the loan, and also as a contingency against declining home value. A $350,000 joint survivor guaranteed UL with Prudential is $650.00 a month, at the preferred non tobacco rate.

If this couple were in average health, this Prudential joint coverage is $887.00 a month at the standard rate. To show you how joint policies compare to individual, using this example a $350,000 individual policy for a woman is $768.38 a month with Lincoln National and $1,009.23 a month for a 73 year old man with Banner Life.

Keep in mind the heirs can be the owners and beneficiaries of life insurance policy and pay a portion or all of the premiums.

Ruling to contest Stranger-Originated Life Insurance: dead pools precedent

by Sean Drummey

September 26, 2011

5:12 PM

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Age 72, Charitable Gifts, Delaware, guaranteed universal life, life settlement, Stranger Owned Life Insurance

Bloomberg reports on a Delaware court ruling which opens an avenue to curb stranger-originated life insurance. Life companies now can contest the owner’s insurable interest even after the standard two year contestability period.

Normally, life insurance implies an insurable interest. A wife who depends on her husband’s income has an insurable interest, if he dies. Two business partners who depend upon each other to run a company have an insurable interest. Normally, insurable interest and an income to benefit ratio keeps everything in line. The whole concept is to cover a loss, not to make a profit. For example, a man makes $50k a year. His wife takes out a $500k life insurance policy, 10 times his income, and sleeps better at night knowing the her and the children will be able to replace his lost income if he dies.

But investors, strangers with no insurable interest, have also gotten involved with life insurance seeking profits. Let’s take, for example, an investors finding a 72 year old man in average health, and convince him to take out a $1 million dollar policy on his life by paying him a lump sum to transfer ownership. Age 72, male, standard non tobacco premiums on a guaranteed UL are currently $38,415 a year. Best health rates are $28,346 a year, but in the logic of this type of deal, it’s better to find someone less healthy; they don’t live as long. Investors pay the premiums and collect the $1 million when the insured dies. This is called stranger owner life insurance or SOLI for short. The practice has an unsavory history.

By the mid-18th century, purchasing policies on strangers had become a popular form of gambling. Investors often placed their money into “dead pools” insuring the lives of well-known public figures, particularly those with such problems as gout or alcoholism, or those who were likely to be challenged by political enemies and engaged in duels. Such “investors” would often offer targeted insureds lavish dinners and “a drink or two on me”–or would use other means to assure the certainty and accelerate the realization of their investment.

How much of an impact this court ruling will have depends on how broad an interpretation is for the term “stranger-originated”. Typically, the insured is initially the owner, and then assigns ownership to a stranger a short time after policy issue. Application now have specific questions about intent of the policy to be assigned, so transfers of ownership will be looked upon closely for more traditional insurable interest.

Reversing ground on stranger owner life insurance is good news. Speculating on someone’s death is bound to lead to abuses, and speculation on life insurance, where policies are issued regardless of need, runs up the cost for the legitimate consumer.

Turning 70

by Sean Drummey

September 23, 2011

4:07 PM

Financial planners may be wrong on life insurance

by Sean Drummey

September 22, 2011

12:15 PM

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Age 55, Age 70, guaranteed universal life, In your 50's, In your 60's, In your 70's, Policy Review, Universal Life

Do you have a life insurance policy purchased in the 1980’s or 90’s? It’s time for an independent review. Do not necessarily expect the agent or financial planner that sold it to you to give you objective recommendations on its status. I reviewed a policy this week where a financial planner gave years of bad advice and continued to do so, even as the policy projected to go off the cliff. A financial planner may be unqualified, too busy or lack the financial incentive in revamping your life insurance coverage. Here’s what you should recognize if you bought a policy in that era:

Do not assume the policy is whole life. Generally, they are universal life (UL). There’s a big difference.

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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.

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Small permanent life insurance in your 60’s and 70’s

by Sean Drummey

August 8, 2011

2:42 PM

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Age 68, guaranteed universal life, In your 60's, In your 70's, Whole Life

Looking for a smaller life insurance policy for final expenses? What’s best? It depends on how much coverage you need.

American General Life recently sent agents and brokers a notice that they were lowering their prices on the whole life product, called American Elite Whole Life. They had pretty good prices already, so I looked into it. For example, a $10,000 whole life policy with American General for a female 68 non tobacco is $48.20 a month. That beats Liberty Bankers Life $51.97 a month. Both are “non par” or non participating whole life: no dividends and so the face amount is level; it will always be a $10,000 benefit. American General has paid up insurance. That’s a plus if you decide to stop paying premiums. You would have the option to surrender the policy for its cash value or keep a smaller paid up policy. For example, after 10 years this 68 year old female would have the option of taking $2,330 in cash value or keeping $3,918 in paid up insurance. American General however requires full underwriting, meaning a blood test and possibly a review of medical records, for people over 55. Liberty Bankers life is simplified issue, no blood test.

In contrast a $25,000 guaranteed universal life policy with North American is $47.68 a month at their best rate, $50.26 at preferred non tobacco and $64.03 at standard non tobacco. This required full underwriting: blood test and usually medical records.

$25,000 of coverage for $50.26 a month or $10,000 for $48.20 a month? Easy choice. You pay about the same for a $25,000 guaranteed UL as a $10,000 whole life. Both offer permanent life insurance coverage at a fixed rate. American General’s whole life only real advantage is if you terminated the policy. You have the choice of the guaranteed cash surrender value or reduced paid up coverage. North American guaranteed UL builds little or no cash value, but if you pay on time the coverage is guaranteed to age 120. Guaranteed Universal Life is a better deal.

What if all you need is something like $5,000 or $8,000 in coverage? Let’s use female age 68 non smoker again as an example. For $5,000 it’s $24.10 a month with American General and $28.22 with Liberty Bankers Life. For $8,000 it’s $38.56 with American General and $42.57 a month with Liberty Bankers Life. American General is less expensive. It would depend on your individual health situation, because American General requires more underwriting. Regardless, look to whole life for coverage amounts less than $10,000.

Face amounts as low as $5,000, $1,000 for term conversions.

8/8/2011, quotes , non tobacco, rates subject to change, quote accuracy or completeness not guaranteed

image source: Wikimedia commons