Can you feel it building? It started as a trickle around the first of the year with the announcement that a few companies were considering either discontinuing or raising the rates on the universal life no lapse guarantee products. It didn’t take any huge leap of assumption to see that this was going to impact longer term insurance products as well.
Well, it isn’t a trickle anymore. With several companies like Prudential having changed their UL-NLG policies and term insurance rates, now ING Reliastar and Lincoln National have announced deadlines for increases in their term insurance rates. What we’re seeing is an about face in the most competitive of companies. The only upside to this news is that so far the rates increases haven’t been too dramatic and they certainly aren’t a return to the pricing we saw 10-15 years ago.
Having said that, it would be a drag to miss the opportunity to lock in today’s pre-change rates if you are considering any substantial amount of insurance. And it would definitely be a drag to miss the opportunity to get rid of one of those cash cow universal life, variable universal life or whole life policies with the best permanent product and rates in the history of life insurance, the universal life with an external no lapse guarantee.
Bottom line. People will buy when they need to buy, but an agent who isn’t warning clients and prospective clients about the changes coming is missing an excellent chance to be a real financial adviser.
April 20th, 2009
I’ve shared my opinion plenty of times, the fact that I believe that 95% or more of life insurance needs for the average people out there are term insurance needs. There is no reason to be buying whole life, universal life or variable universal life.
Dave Ramsey doesn’t mince words when it comes to this topic and I admire him for that. Too many dance around the periphery and never nail down exactly what they believe in. To put it bluntly, whole life or universal life eat up an inordinate amount of money on a cost per thousand basis. It costs more for each thousand dollars of life insurance you want to leave your family.
That being said, the more you spend per thousand, unless money is just not an issue, the less life insurance you will be able to buy. At age 40 $500,000 of 20 year term insurance at the best rate class would cost about $430.00 a year. The same amount of whole life insurance would cost about $5000 per year. If you really have $5000 a year to put into this project, consider buying term and investing the difference in mutual funds. Even this recession doesn’t change the fact that there are plenty of mutual funds out there that have historically produced 12% or more return, but let’s use 10%.
We would be generous to say that the whole life policy would have generated $80,000 in cash value in 20 years. With mortality cost and policy expenses it would be doing well to produce that. If you invested the difference between the whole life policy and the term policy, $4570 per year at 10% for 20 years produces $288,000. 5 more years and it will have produced enough to replace that life insurance policy with cash. Self insuring. What a concept!!
There is one area where I believe Dave has missed the mark in saying no to all permanent insurance. There really is no substitute for permanent protection for estate tax purposes. I do agree with Dave that it shouldn’t be done with a cash value policy. Far and away the best permanent product is a universal life with an external no lapse guarantee. Permanent term insurance if you will.
Bottom line. Cash value policies benefit two of the three parties involved, the company, the agent and you. It’s not you.
April 20th, 2009
