Posts filed under 'term insurance'
I think I’ve made my position pretty clear when it comes to where the best values on life insurance can be found and the fact that your local auto and homeowners agency is not that place. I feel the need to expound today.
You see advertisements all the time with the lead “save up to 70% on your life insurance”. That would be great if you knew that you could really find those kind of savings. Seems like one those just a little too good to be true things, doesn’t it? Well, if you have your life insurance through Farm Bureau, based on the last several cases we have written to replace their product, it appears that you are paying over 100% more than you need to.
Their hook is of course that they will offer you a discount on the auto or homeowners. As a consumer I often question why, if they can offer a discount, shouldn’t they just sell the auto and homeowners at better prices to start with. And then they offer you a discount because you have turned around and purchased another grossly overpriced product from them. This can only be construed as a win/win situation if you want Farm Bureau to be both winners.
I know I always look at these kind of numbers skeptically, so be skeptical. These are the results of some very recent Farm Bureau replacements. A Florida executive with health issues had $1,000,000 of 20 year term insurance with Farm Bureau for $12,000+ per year. His rate with West Coast Life is $6085.00. His wife had the same amount with Farm Bureau for just over $3000 per year and is now paying $1005.00 through Western Reserve. Some young friends of mine with two young children had $100,000 of 10 year each through Farm Bureau which was running $54 per month. They now have $250,000 of 20 year term each with Banner for a total of $31 per month.
Bottom line. What is Farm Bureau thinking? I may be wrong, but I think that they think they will make a huge profit if they can find people to buy their overpriced life insurance. Don’t fall for that discount nonsense. If they can afford to discount their auto and homeowners, rest assured that it is for sale somewhere else, straight up, at that discounted price. Seek out an independent agent today.
August 19th, 2008
I am a graduate of Dave Ramsey’s Financial Peace University and a firm believer in his financial guidance and yes, his thoughts on life insurance. I believe that both his passionate belief that people should have life insurance and that for almost everyone it should be term insurance are right on track. But, after careful study I don’t understand his endorsement of Zander Life Insurance as the only agency in the country that a person ought to go to.
This past week I was talking to client about his insurance quotes and he mentioned that he was going to compare our quotes with Zander. That’ s fair. If I can’t earn the business, I don’t deserve it. So we pulled up Zander on the computer and ran quotes for him. While based on his personal health information there will be some adjustment, for comparison sake he wanted to run the quotes at preferred plus. His birthday is 1/23/49 and he wanted a quote for $500,000 of 10 year term.
Zander has an easy to use quote engine and we soon had a spreadsheet of quotes, zander-instant-quotes_files.We discussed these quotes and I explained why it was important to have access to a wide variety of companies due to the underwriting foibles of each company.
We than ran quotes on the Hinerman Group website and found a bit of a disturbing difference, hinerman-group-get-a-quote.
Please note Dave’s comments at the top of Zander’s quotes. And please note that while our websites agree on the best company at that rate class, Savings Bank Life, Zander has skipped over 5 companies in between Savings Bank and their second best quote, Transamerica. Did they skip them because they are not “top notch” as Dave suggests? I don’t think so. The missing 5 are all comparably rated to SBLI and Transamerica.
Is it because those 5 offer inferior underwriting? Again, I’m not seeing that. In fact, if you are 5′10 and weigh 202 pounds, you will not get that rate from Savings Bank Life, but you will from Prudential Financial (Pruco). Dave talks about pre-existing conditions. Weight is the most common rate changer in the life insurance business.
Bottom line. Agencies delete certain companies from their quote engines generally to drive their customers in the direction they want. I don’t understand Zander’s logic but I know from having a quote engine that you don’t accidentally leave companies out. There appears to me to be some reason that Zander wants to have a larger gap between the first and second best quotes than actually exists. What’s up with that kind action Dave?
August 18th, 2008
The question of return of premium term insurance has been viewed from a lot of angles in this forum, but today I think we need to switch our focus from the end of the term to the midpoint. There is, I believe, an assumption out there that a return of premium policy will return the premiums paid in no matter when you cancel it.
This assumption falls right into the same trap as most life insurance, the industry secret for why life insurance rates are so low. The reason rates are so low and the reason you need to truly think through the purchase of ROP term is that most life insurance policies don’t stay in force. Think about it. If all life insurance policies stayed in force, whether term to the end of the term (or converted), universal life or whole life, rates would have to go up to cover the increased company exposure to mortality.
The truth is that for a large percentage of life insurance purchasers, the whole idea kind of loses its’ luster when you’ve been paying for 5 or 10 years and nothing is happening. Especially for those who are still in great health, there is a tendency to start questioning the expense. My personal opinion is that those who fall into that mindset are selfish and need to simply get a grip (again), on why the life insurance is there and that the right thing to do is to stay insured.
Back to the ROP though. I was speaking a person today who was considering decreasing the amount of coverage they need in order to afford the extra expense of a return of premium. Their thought was to convert the policy in 15 years, halfway into the 30 year ROP and use the returned premium to help fund the conversion.
Life insurance companies build their products, prices and business models knowing that most people will cancel their life insurance before the end. I pointed out that in the early stages of the ROP term policy most companies don’t offer any return. It usually starts building slowly after the 6th year and usually doesn’t reach even 50% until the 25th year of a 30 year term. I think this illustration, return-of-premium-illustrated, will drive home what I’m talking about.
Bottom line. The only way to get 100% of your premiums returned is to keep the policy to the end. Considering the tax free status of the return, if you know you will keep it until you die or to the end of the term, the return can be ok especially given today’s economy. If you’re not sure, steer clear.
August 14th, 2008
Gotta love that show Mythbusters. If I ever leave the life insurance business I could see signing on as a helper. So, let’s bust a myth about life insurance. The myth: You have to get your term insurance from a company that is highly rated. If you don’t they might go out of business and you will lose your life insurance!
First of all let’s address the rating issue. Most of the companies that you will ever be exposed to will be A rated or better by AM Best. This means they will be in the top three tiers of a 15 tier rating system. The truth is that when you get down into B and lower rated companies, the Swamp Life Of Vermont genre, you would actually be hard pressed to find one. They don’t have the competitive rates and they generally don’t have much in the way of advertising money.
So, assuming you are dealing with companies that are rated A-Excellent or better, they are financially sound and usually have a valuable block of business. Because of this, while the company may choose to get out of the business, there are hordes of other companies that will be more than happy to purchase that block of business. And the great news for you as a consumer is that by law, the purchasing company has to honor the contractual guarantees of the original writing company.
In other words it’s not unlike when your mortgage gets sold. The check may go to someone else, but the payment amount, loan length and interest rate remain the same. With the insurance, the death benefit, term length and guaranteed level premium remain the same.
Many of you have had the chance to participate in this process over the past 10 years. With each move on the chess board the group of clients has grown. Many of you may have had insurance with Federal Kemper. They were purchased by Zurich Life and became Zurich Kemper. Zurich soon decided there was some redundancy to that so they folded Zurich Kemper into Zurich Life. Chase Bank liked the looks of that block of business and purchased the whole thing. Then Protective Life came along and bought Chase Life from Chase Bank. And, if you had a long enough term to survive all of that, you now have a Protective policy with all the same benefits and guarantees you started with.
Bottom line. Steer clear of anything being sold in alleys and you should be OK. I’m not suggesting you ignore the ratings, but given that you have insurance with a reputable company, don’t lose any sleep over whether the insurance will be around when your family needs it.
August 7th, 2008
Life insurance agents don’t usually get paid unless they make a sale. This can sometimes cast us in a shady light if the application doesn’t go as planned and we start offering alternatives. People perceive us as doing what it takes to salvage some income out the whole deal.
I am not going to speak for all life insurance agents and claim that all of them take the moral high road and the client’s interests are always first and foremost, but as for me and my business that is absolutely the case. I want to share a story that happened last year and was brought full circle on Monday.
I was working with a couple in their 40’s, engaged to be married, and they wanted to take the step of getting life insurance. Everything went fine with her application. A picture of perfect health and no surprises. His application was another story.
We knew going in that he was overweight and had quoted the case based on build since there were no other health issues that he knew about. Once he completed the exam we found out, well, that it was a good thing he took an exam. His cholesterol was approaching the 300 mark and, based on his hbA1c, his glucose was elevated enough that he would be considered by most doctors to be diabetic. So, overweight, high cholesterol and diabetic led to an underwriting decision that raised the rate substantially.
He had originally applied for 20 year term insurance. My recommendation was to initially put a 10 year term in force to keep the price down. Once he made the changes to get his cholesterol and glucose and hopefully weight under control, we could apply again and get a better rate class and a longer term. Even the 10 year term price was more than he had expected to pay and he really just wanted to put it all off until he got things under control. He didn’t have other life insurance in force, so I made my best case for the logic of having insurance in force when you are doing battle with health issues, and especially potentially serious health issues. He finally conceded that it probably really was a good idea. We put the 10 year term in force for just over $800 per year.
His fiancee called me Monday, almost a year after we put his coverage in force, to let me know that he had died suddenly the day before. There is an autopsy pending, but I suspect what will be found is that all of those risk factors, obesity, high cholesterol and diabetes, led to a heart attack.
Bottom line. The good news is that we are now talking about processing a claim versus what he should have done. It really wasn’t about me and my next paycheck. It honestly is a real concern for those who would joust with health issues without insurance. This story is tragic, but there is something of a good ending. Over the years I have seen far too many that were tragic and ended with no insurance in place.
August 6th, 2008
Ah, the age old argument. Term versus permanent (whole life or universal life)! Not that I think for even a minute that this list will win over anyone who sells whole life, but I just felt compelled to throw out a list of perfect uses for term insurance.
1. A 30 year term when you are in your 20’s or 30’s and haven’t got a clue what your permanent life insurance needs are, or for that matter what permanent insurance needs are, period.
2. Term insurance as mortgage protection. Unless you are the first person with a permanent mortgage, the idea permanent mortgage protection is pretty bizarre.
3. Term insurance for business purposes. I often advocate 10 year term for a lot of business purposes simply because most businesses change too rapidly for a longer term to remain meaningful and accurate. Permanent insurance, for the same reason, would be silly.
4. Term insurance for income replacement. While we are, as a country, working more and more years, income producing years have not become a permanent issue. This is a risk that can be managed with term insurance quite effectively.
5. Children. With the rare instance of a permanently disabled child, children are simply not permanent insurance problems unless you are doing something really wrong. I believe in carrying term insurance that will provide for them up until the time they have a bachelor’s degree. They should have a handle on independence by then.
6. Personal loan guarantees. I’m not talking about the $100 you borrowed from your brother, but large personal loans are really not that unusual and are generally informal and very often don’t have collateral attached. Do the right thing and get term insurance with the lender as beneficiary, even if they don’t ask for it.
7. For parents that are somewhat dependent on you. You will likely out live them, so permanent insurance isn’t necessary. Term insurance makes sure that they are taken care of if something unforeseen happens to you.
8. To subsidize a retirement package. Especially if you are healthy, it often makes great sense to take a larger monthly retirement option with no spousal benefit and then carry a term insurance policy to the point where assets and other retirement accounts are adequate to cover the much smaller number of years left.
9. Because Dave Ramsey says so.
10. Because term insurance is affordable. It may mean that you can have something rather than nothing and that is a good thing. It may mean you can carry enough as opposed to only what you can afford with whole life and that is a good thing.
Bottom line. Term insurance is the right product for 95% or more of life insurance needs. Think it through. Is that need really permanent?
August 5th, 2008
It’s no secret that I’m a fan of Dave Ramsey. My wife and I have been through his Financial Peace University and his no nonsense approach to finances has reshaped, or perhaps given shape, to our approach to money management.
Dave is about as clear and plain spoken as a person can find on the subject of why term life insurance is the right choice in almost every case. His position mirrors my own, that most life insurance needs are not permanent and that cash value life insurance policies are a rip off.
These are challenging economic times we are living in right now which makes wasting money on the wrong life insurance product even more egregious than it is during good economic times. Please hear me clearly. Cash value policies are a bad idea during any economic time but anyone who is wasting money on one right now is clearly not thinking clearly.
Whole life insurance or any universal life policy, including variable universal life whose selling point is cash accumulation is just a bad idea. “But if I replace my cash value policy with term I will lose the cash that has built up”!!! Read my lips. That cash is all fluff anyway. If you have a $1,000,000 policy with $300,000 of cash value and you die, your widow will get $1,000,000. “But I can borrow the cash value”!! OK, borrow it and don’t pay it back, which is what happens most of the time, and your widow will receive $700,000.
The cash value isn’t magic money. It comes out of your pocket to start with and it is never going to go back into your pocket. Never!!!
Bottom line. Life insurance agents make the big bucks selling cash value policies. Life insurance companies make the big bucks when life insurance agents sell cash value policies. You pay the big bucks that make all of that possible when you buy a cash value policy. Kind of a special relationship, isn’t it?
July 31st, 2008
The argument of term versus permanent insurance has raged on since before I first got into the business in 1978. Back then the defining lines between the two were more stark, with the only term product available being a yearly renewable term, a product with a low initial cost that went up every year until it was no longer cost effective.
Today the yearly renewable term policy is largely ignored with the advent of longer term guarantees ranging from 10 to 30 years. The reality is that with the introduction of the universal life with a no lapse guarantee, a cashless UL, term insurance to age 100 is now available, just under another name. At the risk of pointing out that Americans are not at the cutting edge of everything, term to age 100 has been available for some time outside of the US.
So the question of whether term insurance is just a cheap way out for those that want life insurance but don’t want to pay whole life prices, rises to the surface. There’s no doubt the term insurance is less expensive, but the crucial question for both the insured and the agent has to be whether term insurance meets the need.
I’ve maintained, since longer terms became available, that term insurance isn’t just a viable alternative to whole life, but in almost all cases it is the more appropriate product. First let’s dispel with the whole life argument that a policy building cash value is a good thing. I had one whole life agent point out to me that without the cash from his whole life policies, Walt Disney would have never been able to get Disneyland off the ground. Well that was then and term life insurance wasn’t available.
I suspect that Walt Disney today would think long and hard about the lower payments he could make on term insurance and the fact that those lower payments would free up immediate cash versus waiting for his policies to build cash value.
Almost all life insurance needs are temporary whether the whole life companies want to admit that or not. Dependent children, in almost all cases, are only dependent until they reach adulthood. Banks don’t make loans for life, but rather for certain periods. Retirement and the need to replace income don’t last until age 100, but rather come to an end generally in our 60’s and 70’s. Even with retirement age increasing due to economic forces, term insurance guaranteed into your 80’s is available.
Bottom line. Term insurance is not just a cheap way out. It’s the smart choice in almost all cases. On the flip side, I would argue that whole life insurance is the wrong choice in virtually all personal insurance portfolios.
July 29th, 2008
I recently applied for and received an AARP Group term life policy underwritten by New York Life. In previous posts I believe I’ve clearly made the point that these AARP offerings are a rip off of the sleaziest form, claiming to be advocates of the elderly while fleecing them.
I actually applied for their term insurance policy and their whole life policy, $50,000 each. They never responded to the application for whole life insurance, but I see in the term policy where it states that the maximum I can have through AARP’s life insurance program is $50,000. So much for getting adequate coverage and diversifying in the process.
I received the new term insurance policy a few days ago and after reviewing it, had some questions. Attached is my policy.
my-aarp-group-term-policy
Note on page 4 where it says Premium, it explains that my premium will be going up each time I reach one of their 5 year thresholds. It also goes on to say that they can, of course, change my rates at any time as long as they change the rates of all policies in my class. A couple of questions came to mind. If my premium goes up every 5 years, how much does it go up? And, if my premium can be changed on a class basis, what defines a class?
Looking through the rest of the policy, the only reference I found to my premium level was on the copy of the application at the back of the policy. It is attached here.
aarp-life-insurance-application
In the upper left it breaks down the premiums depending on the size of policy and at the bottom of that box it says “Please refer to the rate chart for complete details”. There is no rate chart in the policy. There is nowhere in the policy that it spells out or illustrates what happens every 5 years.
I called the Colorado Division of Insurance and asked them if, even though this is a group policy, it should contain that type of information. Their answer was yes. The person I spoke to was very clear that if a policy doesn’t provide a table of maximum premiums, an illustration that shows how much they could potentially charge, it was not in compliance.
Taking them at their word I called New York Life to see if that information had been inadvertently left out of my policy. They assured me that the information was not there because it didn’t need to be there. When I pushed further about wanting something in my policy, per Colorado law, that shows what the rates increases could potentially be, Lucille from New York Life told me that she was willing to give them to me verbally over the phone, but that she couldn’t send them to me. She then explained that the rate increases were shown on the application, but that portion of the application is not included in the policy.
I then spoke to her supervisor Donald Ennis and reviewed all my concerns. He said that the illustration of rate changes is only contained in the master policy and that is held by AARP and that I should call AARP if I wanted a copy of that information. This morning I spent an hour in the quagmire that is the AARP phone system and was finally told that AARP doesn’t have a master policy and that they would refer my question back to New York Life.
Advocates for the elderly? I’m a 55 year old life insurance agent and I wouldn’t advise anyone to accept the AARP policy. The policy, the company and the organization backing it are all wholly inadequate at providing the information you should expect in order to put your trust in them. If I can’t put my faith in what they’ve provided and I can’t get the answers to questions I ask, how could the average person (non life insurance agent) hope to enter into one of these contracts with confidence. The answer appears to be that AARP and New York Life hope you will do it with blissful ignorance. “Trust us! We’ve been around for 160 years.”
Bottom line. Intentionally vague would be the only grade I could give to my AARP life insurance policy. It won’t go into force because it is overpriced, not guaranteed and missing key valuable information.
July 23rd, 2008
We all have our way of doing things and I am convinced that there may be more than just a handful of people out there who disagree with me when it comes to how to handle life insurance in their lives, but bear with my bear analogy and see if there isn’t just a hint of truth in it for you.
I think we can all agree that it would take a fool or an idiot to go bear hunting with no bullets in your gun. If you wait until the moment of truth and a bear is charging, even if you have nerves of steel, you’re too late. You simply can’t load your gun, aim and fire multiple times before a slobbering 35 mile per hour man eating fur ball wins the race.
A lot of people hunt for life insurance in just that manner. They think about it, study it, shop it and then start over with the thinking part again. It’s true that they can pull the trigger on buying life insurance at any time, but the application process is the equivalent of the attempt to load a gun. It would all be simple if we could just get someone to ensure that we wouldn’t have any health changes or die while we dinked around pretending to be prudent shoppers. If we could just be guaranteed that the bear wouldn’t charge or would stop and wait for us to get the gun loaded, everything would work out just fine.
But it doesn’t always work out just fine and that is why I have always encouraged the life insurance grazers to put something in force and then graze away. Take your time. Kick the tires. Google it to death. By putting something in force I am saying to put your shopping emotions aside for the sake of your family. Do a quick search for some inexpensive term insurance and put some in force.
Bottom line. Shopping for the perfect life insurance policy with, say, $500,000 of term insurance already in force is the same as loading your gun before the bear hunt. If your health changes or if you die while grazing the universe for the ultimate great deal, at least you know that your family is protected. Remember, just because you buy a term policy doesn’t mean you are stuck with it. If you find a better deal, there is no penalty for replacing it.
July 15th, 2008
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