Archive for May 21st, 2008
Just one last thought for the day. Mortgage life insurance has been one of the biggest rip offs since it’s inception. No matter how it’s packaged it ends up costing far more than you need to spend.
I just found a great example. This particular agency wants you to buy whole life insurance (see the second to the last bullet). How dumb is that. Buy a permanent product for a temporary need.
Some mortgage insurance uses a decreasing term insurance so as the years pass the death benefit decreases. The problem is that the premium is higher than a level death benefit term of comparable length and it doesn’t go down with the death benefit.
Bottom line. Having life insurance to cover a mortgage isn’t a bad idea. Just do it with the right product. Stay away from anything advertised as mortgage insurance.
May 21st, 2008
My true desire is that in another 20 years the country will be purged of all of the fraudulently sold non guaranteed whole life and universal life policies.
There should have been some professional good cop/bad cop format in place to keep the disaster that has occurred from happening. The numbers I’m seeing suggest that prior to 2000, 60%-70% of all universal life policies were sold using the current or non guaranteed values as the driving sales tool. As opposed to the guaranteed side of the policy, the current side paints the best possible face on the product and it is usually sold by agents who say something like “This is a great company. They’ve performed great in the past and there is no reason to believe that they won’t in the future”.
In trying to make some sense of this in the past I have offered the two attached illustrations. These represent how universal life is normally sold (bad UL) and how, in my professional opinion it should be sold (good UL).
bad-ul
good-ul
The reason I feel so strongly about the difference between these two options is really two fold. First I think that most people believe universal life and whole life is supposed to stay in force forever without increases in premium, and it can (good UL). Secondly, it is a rare UL or whole life policy that performs as well as the current assumptions. In fact it’s been a long time since I’ve seen one.
Bottom line. If you need permanent insurance, don’t take your agent’s word alone for what the policy will do in the future. Make him or her show you the guaranteed side and follow that side all the way to the end. If it doesn’t have a death benefit at age 115 or 120 or wherever the illustrations stops, ask why not. If they try to give you some song and dance about the non guaranteed side holding the policy together, tell them you’re not interested unless you can hold the title to their house as collateral in case things don’t work out.
May 21st, 2008
I was recently contacted by a stay at home mom who was, putting it politely, a little annoyed because she was told by an insurance agent that she could only be approved for 1/2 as much life insurance as her husband was carrying.
I explained to her that, in fact, that was the stance with the majority of companies and any exception to that would have to be well thought out and presented if she expected approval. I did let her know that it was not mission impossible, but just not one of those things you can throw against the wall and assume it will stick.
A couple of points that are important to consider. This rule has been around since before mothers really had a choice of having a significant career out side the home. So it is definitely old school thinking. But just for a minute let’s revisit the old school.
I remember questioning an underwriter about this very issue in 1978. Whether or not he could back up his statement I’ll never know, but what he said was that the industry had mortality statistics that showed a higher mortality rate for stay at home moms if they had life insurance equal to or greater than their husband. He also went on to explain that the reason they limited the amount of life insurance on children was, at that time, they had statistics that showed a higher mortality rate in children with life insurance in force on their lives that was significantly higher than what was needed for final expenses.
Again, I have no idea if that was true, or if that’s just what old underwriters told young agents to get us to drop the subject. But, fast forward to today when, in most instances, being a stay at home mom is a choice and the other choice is being a second breadwinner.
So, one half of the husband’s income was based on nothing more than, I suspect, a little paranoia with some skewed statistics. Today I would propose that the amount of insurance available to a stay at home mother should be based either on the amount of income she could be making, or the replacement cost of her stay at home services.
If we were talking salary replacement for the age group that most stay at home moms would fall into, they would be eligible for enough insurance to replace about 20 times their annual income, or if you use my supposition above, 20 times their annual replacement cost. Using the $116,000 from the article that means that an acceptable amount of insurance would be over $2,000,000.
I’m not hearing a lot of women clamoring for that much insurance, but hello!!!, this is 2008 and for a woman to carry as much as a husband is really just prudent family planning. Another plus to this whole idea is that most life insurance now has an accelerated benefit rider that allows a terminally ill insured person to take up to one half of the benefit while still alive. How good would that be if the money was available for the husband to take off and take care of his dying spouse and take the burden of the children off of her. With this type of rider the balance of the death benefit is paid out at the time of death. Time for companies to rethink that rule.
Bottom line. Life insurance is all about lifting the financial burden of a loss of the back of the surviving family members. I suspect that any underwriter who still believes that the old rule applies has never talked to a widowed father with children.
May 21st, 2008
We continue to get inquiries and continue to have success in finding affordable life insurance for people with a history of sleep apnea. This is another one of those areas where the majority of companies still have a knee jerk reaction built into their underwriting guidelines that produces either a highly rated or decline outcome.
This outcome could be appropriate in some cases of severe apnea combined with other risk factors such as morbid obesity and poorly controlled blood pressure. The problem is that the majority of companies don’t allow for the fact that there are different levels of severity and different levels of control. To put it simply, from a mortality impact standpoint there is a huge difference between poorly controlled severe sleep apnea with other risk factors, and, for lack of a better term, your garden variety well controlled mild sleep apnea with no other risk factors.
Generally speaking, from an underwriting standpoint, if the apnea is mild to moderate, well controlled by use of a cpap, and the user is compliant with use and followup, rates as good as preferred can be found. Preferred rates would obviously be contingent on the person meeting preferred guidelines in all other areas. Well controlled sleep apnea and a build of 6′0, 330#’s doesn’t get you there.
Bottom line. An independent agent should know what questions to ask and what companies to shop your business to in order to get the most bang for your life insurance buck.
May 21st, 2008
