Ed Hinerman On Life Insurance

Build Your Own Flexibility!

One of the considerations when you are putting together a life insurance program or portfolio should be flexibility, a way to deal with the “what ifs” in life.

I’ve seen this a little more than usual as people have dealt with different aspects of the recession. They put a policy in force prior to the economic meltdown that, if there hadn’t been a meltdown, would have been just fine. With everything getting tighter, suddenly the once budgetable premium on that $2,000,000 policy isn’t working anymore.

The first thing to look at is the mode you are paying. Most companies offer options of paying annually, semi annually, quarterly or monthly, monthly almost always being done by automatic bank draft. Can changing you modal premium from annually to monthly solve the issue? I know if I was facing tough times and got a bill for say, a $5000 annual premium I would probably been inclined to cry. But if I could change to monthly and pay a little over $400 a month for a while (or from now on), that might be a way to save the day and keep the insurance in force just the way I want it.

Now I know this is crazy, but a lot of companies won’t let you alter a policy once it is in force. In other words, if you decide that you can really be OK with $1,000,000, will the company allow you to cut the amount of coverage in half. I just did this for a client with Prudential and they were very gracious about it. I tried the same thing for a client not too long ago with AIG American General and they wanted the client to apply to have the face amount of his policy lowered, exam and all. When we ran into that I suggested that if an exam was required, let’s shop it and see if AIG was really the best bet at that point anyway. Turns out they weren’t and because they weren’t flexible they lost the business.

A way to proactively pave the way for this possibility is to take out more than one policy. I encourage a lot of clients to do this if they don’t believe they will need the full amount for the full term length, or at least they’re not sure. Instead of a $2,000,000 20 year term, why not two $1,000,000 20 year terms, or a $1,000,000 and two $500,000 term insurance policies. The very small downside to this approach is that each policy has an annual policy fee of $50-$75, so if you have multiple policies you could be paying slightly more. Transamerica has just put a program in place where if you do what I just described they will only charge one policy fee and give you the advantage of any price break that the total face amount might bring. Even without that advantage, multiple policies is still worth considering.

Bottom line. If it can be helped, don’t back yourself into a corner where a budget busting event can leave you making a choice to go completely without life insurance.

Add comment May 15th, 2009

What’s Age Got To Do With It?

I often hear to comment from clients that “they should do this before they turn 50 or 55 or 60″ because they have heard the urban myth that at certain ages life insurance rates take an obnoxious jump, a way to offset all the benefits we get from our beloved AARP.

I would be the last to say don’t worry about age because rates absolutely go up with age, but it is a gradual curve through the years, not an extreme punishment for any particular birthday. And keep in mind that this is just for a new policy. If you have a guaranteed, locked in rate, you’ve beat the aging process.

One possible birthplace of this myth is folks that have 5 year renewable term or in some cases 10 year renewable term. I wrote a post about AARP’s term insurance products not long ago, and if you take the numbers from that I can see why it might lead you to believe that certain ages are definitely not your friend. For instance, with AARP, if I take out $50,000 of 5 year renewable term at age 59 I actually pay the same rate as I would have at age 55, $74.58 per month. Of course you wouldn’t know that because why would you run rates for 55 if you’re 59? Since their product changes at ages versus anniversaries when I turn 60 my rate goes up to $108.65 per month and you go, “Wow, 60 must be the age where life insurance takes a giant leap.”

But, not true. Just a quick sample will kind of give you the scene. We’ll assume I buy $100,000 of 20 year term starting at age 50 and that I am a standard rate risk. Of course those rates are locked for 20 years, but let’s see what it would cost given the same parameters at 56, 57, 58 and so on.

At 50 the rate is $36.34
51 is $40.08
52 is $43.67
53 is $48.20
54 is $53.53
55 is $58.36 (compare to AARP $50k rate guaranteed for 5 years, blah!!!!! on AARP)
56 is $62.26
57 is $66.13
58 is $71.55
59 is $79.89
60 is $91.85
61 is $104.04
62 is $116.03
63 is $128.19
64 is $136.94 and
65 is $145.69

There was a little larger bump at age 60, but keep in mind that we were using a 20 year guaranteed level term insurance product. Unlike a 5 or a 10 year guaranteed term, with those rates there is no opportunity to raise your rates for 20 years and at age 60 that 20 years is guaranteeing your rate past average mortality. You would not have seen that bump on a 10 or 15 year term. Even given that, the bump isn’t significant.

Bottom line. Age absolutely affects life insurance rates, but there is no magic age. Buy life insurance when you need it, not when you think you need to because it might cost more next year. Truth is with the reversal in the trend of downward term insurance rates, better buy now if you want the best rate.

Add comment May 15th, 2009