Ed Hinerman On Life Insurance

Return Of Premium! Better Than Term Plus Annuity?

Return of premium term insurance provides coverage for a guaranteed period at a level premium and when you outlive the term, it gives you your premiums back. The annual cost is higher than straight term, but with term insurance you pay for coverage and if you outlive the term, well, you’ve spent the money for protection you needed. That’s not a bad thing. Both straight term and return of premium term have advantages.

I’ve mentioned more than once the AL Williams “buy term and invest the difference” theory as it compares to whole life. I decided to run that same comparison using return of premium rather than whole life.

So, we’ll assume we have a 35 year old male in preferred plus health. We will assume this guy lives somewhere other than New York or Utah. Both states are decidely anti-return of premium. So, we’ll put the lucky guy in Colorado. He wants $1,000,000 of 30 year term. He has decided that AXA Equitable offers the best options for him.

For this scenario we will offer two options. The first option will be a 30 year return of premium term. The second will use the same premium amount and use it to purchase a 30 year level term policy and put the difference into a fixed annuity at 5.2%. Just in case anyone jumps all over that annuity, yes, I am aware that there are no annuities that can be guaranteed for that long, and yes, I am aware that surrender charges could be incurred and taxes will be paid.

The 30 year return of premium policy will be $1685.00 annually. If kept to the end of the term that will produce a tax free refund of premium in the amount of $50,550.

A straight 30 year level premium term would be $995, leaving $690 annually to invest in that annuity. At the end of 30 years, adjusting for taxes, but not adjusting for premature withdrawal penalties, the annuity would produce $40,700.

Bottom line. If you have the money to put into a return of premium product, the tax free status of the end refund makes it a choice worth looking at.

Add comment July 31st, 2007

Coronary Artery Disease On The Run!!

Heart disease is no longer the number one cause of death for Americans under the age of 85. Dramatic decreases in the death rate per 100,000 have been cut almost in half for both men and women in a study that spanned 1980 to 2000. This bumped cancer up to the number one position for the first time. From a life insurance standpoint, this could be good news as the decrease seems to be more linked to preventive medicine and treatment than any significant nationwide lifestyle change.

In a New York Times article today, there is optimism about the decrease in deaths dusted with a bit of pessimism as the downward trend could be stopped or even reversed as obesity and diabetes numbers skyrocket. Both obesity and diabetes are primary contributing factors in heart disease.

The study noted that the one lifestyle change that has had a dramatic impact is a decline in smoking . While there has been a large decline in the percentage of the population that smokes, about 45 million adults still smoke and with about 20% of teens still smoking, there should be plenty to replace the adults.

Just an underwriting reminder for those who choose to walk both ends of this discussion and continue to smoke even after being diagnosed with heart disease. Underwriters will be nothing short of brutal when they make their decision. Life insurance companies already make it clear where they stand on smoking with the rates they offer a healthy smoker. When you couple that with a disease who claims smoking as one of its’ primary risk factors, well, it just isn’t going to come out making you happy.

Bottom line. Know the risk factors for heart disease and make it your mission to do what you can to avoid them. It will prolong your life and lower your life insurance premiums.

1 comment July 31st, 2007