Posts filed under 'term insurance'
I receive although I never subscribed to an industry magazine called National Underwriter. It occasionally has a relevant article on such things as estate taxes, marketing ethics and so on, but mostly the articles lean in directions that are against my professional grain.
An article this last week caught my attention because it pushed one of my buttons. The article, “For The Cash-Strapped Business, Cash Values Can Be A Life-Saver” by Warren S Hersch. The premise of the article is that whole life and universal life policies with cash value are good things because when things go bad you can borrow from that cash value. On the face a good thing. Or not!
While the virtue of whole life is being extolled by the author as something of a God send in times of tight credit markets, what this author fails to mention is that if the cash value in your whole life or universal life insurance policy is significant enough to save your business, you had to have paid way more than significant premiums for quite some time to accumulate that cash.
Now, I’m not saying that it isn’t an alternative at this time. If you already bought the farm, I mean the whole life policy, then that cash may in fact be a valuable tool for you to use*****. I believe that statement requires five asteriks because if you choose to tap that cash you run the risk of trashing the very thing you initially purchased, a life insurance policy. If you are not prepared to pay back that cash in a prudent, timely manner, your life insurance contract, especially in tough times like this, may gobble itself up and disappear.
The last paragraph of this article was provided by a charter financial consultant named Mark Weber. He states, “If a business doesn’t know what cash flow will be or what impact a downturn will have on their ability to meet business obligations, then I wold recommend purchasing convertible term insurance….you don’t want the premium to be one of the causes that drags the business down”. And everyone said Amen except for the whole life insurance sales people.
The whole idea of buying whole life, universal life or variable universal life policies because of their potential savings and loan value is just, well, stupid. The article makes it sound so easy. No loan application. No loan committee. Just call the company and ask for the money!! Well, if they had protected themselves with term insurance and socked the difference away, guess what? The money would have likely accrued more interest and therefore have been a larger sum. You could access it without an application or a committee and all you would have to do is call the institution where it was stashed in order to access it. And the frosting on the cake is that if you never pay it back you still have your life insurance.
Bottom line. The term versus whole life debate will rage on forever. For me it comes back to the old adage about “if it sounds too good to be true”. Run the numbers every which way before you ever commit to a cash value policy. Get a second opinion from someone who doesn’t seem to believe cash value it the best thing since sliced bread.
November 16th, 2008
With people climbing every mountain top looking for answers to how to save their retirement from the economic meltdown that has consumed us for the past few months, it amazes me that the financial guru’s of the world are leaving out one of the easiest and most important things you can do to put your retirement plan on at least some semblance of solid rock.
We keep hearing that this is not the time to sell. In fact, they say, that if you have any money, now is the time to be buying stocks and mutual funds. Well, whoever “they” are don’t seem to get it that this meltdown has sucked the marrow out of our money bags. We’re not looking for good deals. We’re looking for a way to keep our retirement from going down the crapper.
We’ve been told that if we have time before retirement that this economic downturn will eventually go the other way and we may regain all we’ve lost if we’ll just sit tight and not freak out. For those whose retirement is imminent that isn’t good news, but for those of us who have 10 or more years to weather this thing out, there’s really only one piece of the puzzle left to consider.
What happens if you die next year and your wife (or wives, your husbands) are left without your income to live on and are forced to tap that pathetic shell of an investment portfolio to live on. That, to me, is where the huge danger lies. I believe the long term will be ok, but if you bank on that and don’t have life insurance to cover the shortfall until things recover, well, does the game Russian roulette ring a bell.
If there was ever a time when 10 year term insurance ought to be flying off the shelves, it’s right now. For people who have lost hundreds of thousands or millions from their portfolios and they know that retirement isn’t going to be pretty until the lost is found again, this is a no brainer. 10 year term is cheap and if the experts are even halfway close to right, within 10 years you won’t need that insurance anymore.
Bottom line. All of the tactics in the world aren’t going to mean squat if you aren’t here helping your spouse survive until things turn around. Create your own bailout with life insurance.
November 14th, 2008
I’ve made no bones in the past about my issues with the life settlement or viatical market. In addition to the fact that many life insurance companies are opposed to the practice, I have not been convinced that it is an ethical practice.
The idea of someone in poor health selling their term life insurance policy for a discounted amount of cash, at least to me, has that “preying on the sick” feeling. More than one study has shown that in most instances the family of the insured would have been better off to keep the policy and convert it themselves in order to get the full death benefit. It’s no wonder that families aren’t encouraged to be part of the sale discussion in this process.
Anyway, suffice it to say that the reasons for not recommending life settlements as they have been done in the past far outweigh any reasons to recommend it.
I have just recently started reviewing information on a different take on life settlements that may (may not) be something I would present to a client. The jury, for me, is still way out on this, but I wanted to share some of it anyway.
With this new structure, a life settlement or payout on an existing term insurance policy would only be considered if the old policy was coming available for settlement due to the purchase of a new policy. My understanding is that a client would actually have to have a new policy in force in order to be approved for the settlement.
As opposed to viatical sales that typically involve people in very poor health, this life settlement process would actually require someone to be in good health to be approved for a new policy. The settlement would not be the big bucks percentage of the death benefit seen in viatical sales, but rather a percentage of the premiums paid into the old policy. That takes the flashing the big bucks aspect out of the equation.
This new process would also require that the client complete the conversion of the old policy before it is purchased by the settlement company. This is a gray area for me as it appears to be an attempt to waltz around the issue of insurable interest on the conversion. There has been talk by congress of changing the tax free status of life insurance that has gone through a life settlement, and with the conversion and transfer of ownership happening separately it appears that it might fly under the radar of what congress is concerned about.
Bottom line. Still opposed to life settlements. I think in the long run they have the ability to damage one of the few bright spots in our economy, the health of our life insurance companies.
November 12th, 2008
In these tough economic times ways to save money are always appreciated as long as there aren’t any hidden surprises. Probably one of the most overlooked potential savings is in life insurance that you have had for five to ten years.
If your health has remained the same since you last took out life insurance there is a good chance that substantial savings are available. Why? First, there is a better chance that you bought from a company that wasn’t competitive than one that was. You see those ads all the time that say save 60% to 80% on your life insurance. The truth is there are plenty of companies out there who jabbed you so severely last time around that your savings could beat those percentages.
Of the nearly 2000 companies in the country that sell life insurance there are probably only 30 to 40 that are truly competitive, so the chances that you bought a non competitive rate are pretty good.
Second, term insurance rates have come down steadily over the past ten years and a new era of permanent products popped up during that period in the form of universal life with a no lapse guarantee. With the new permanent option the cost of permanent products like has dropped dramatically and has better guarantees than the old traditional universal life or whole life.
Just one caveat on the rate decrease issue. If you bought a really competitive rate the last time around then there is an age tipping point where the rate at which rates are dropping is overcome by the rate at which us old guys are getting older. Somewhere between 50 and 55 the picture ceases to getting any prettier. But that’s only if you nailed down a truly competitive rate before, so it is worth having your policy and rates reviewed.
When reviewing your policy, consider staggering the term lengths with more than one policy, say for instance a $250,000 10 year term coupled with a $250,000 20 year term. The truth is that in most cases a person is hard pressed to fit all of their life insurance needs into one term length which means that at some point you are paying for insurance you don’t need if you have everything wrapped up in one package. Worth considering!
Bottom line. There is a ton of money to be saved out there in life insurance premiums and very often you can save money and garner better coverage and guarantees in the process.
November 3rd, 2008
But declines happen. I’ve put together a list of the top reasons that applicants are denied coverage. We’ll start out with the first two which were covered in a post yesterday.
1. Your agent did a sloppy job. Sometimes agents slip into a habit of not wanting to ask the hard questions about your health. They just want to make you feel good, get the application and hope for the best. DECLINE!
2. You kind of don’t tell your agent the whole truth about your health, or maybe you just flat out lie in the hopes that somehow the insurance company won’t really underwrite your application. They usually do though. DECLINE!
Then there are those reasons for decline that aren’t attributable to you or me.
3. Your doctor has poo pahed some health issue and told you that, for instance, you have the heart of a 30 year old in spite of your heart attack. Doctors are famous for telling people how great they’re doing with no factual medical basis to back that up. I had a client once who was told that he was in great shape after his heart attack in spite of the fact that his ejection fraction was 25%. In layman’s terms, his heart really wasn’t pumping but rather just kind of easing the blood on down the road. Bad doctor education. DECLINE!
4. Unexpected lab results are a major reason for unexpected declines. Over the years it is amazing the number of clients we have sent off to the doctor with a declined life insurance application and a copy of their labs. Generally it shows that something has changed dramatically since the doctor last did tests, like a PSA that has elevated or it shows that maybe you should have been seeing a doctor occasionally or your cholesterol wouldn’t be in the 400 range. DECLINE!
5. Non compliance with doctor recommendations is a big one. If your doctor tells you he thinks you should have a cardiac workup and you don’t do it, no matter the reason, it won’t fly with insurance underwriters. If your doctor prescribes medication and you, not your doctor, decide that it isn’t doing what you want so you quit, again you’re grounded. If you’re not liking what your doctor tells you to do and you want life insurance, you had better find a new doctor that agrees with you or comply with your current doctor. Non compliance. DECLINE!
Bottom line. Getting approved for life insurance is a lot easier than getting declined. Think it through before you apply
October 30th, 2008
photo credit: Mykl Roventine
Life insurance rates for those that smoke cigarettes, depending on the company and any additional risk factors, can run anywhere from two to four times higher than a comparable non smoker.
What particularly drives underwriters crazy are those brilliant specimens out there who still smoke after having had a heart attack or having been diagnosed with COPD. These folks would be lucky if they got offered higher rates but the truth is that they are more likely looking at a decline with a capital D for Dumb.
I know I attack this subject like it’s a no brainer easy thing just to quit smoking, but recent studies seem to indicate that it is actually getting harder and harder to quit. For those who could just get a grip and do it, they’ve most likely already done that. For those who are truly addicted, it’s a rough road.
So, what happens if you can successfully quit smoking? What can you do to get lower life insurance rates? The first step is 12 months nicotine free. That means no smoking, no nicotine gum and no nicotine patch. Once you have reached that threshold, if you’re in good health you should be able to get as good as preferred non smoker rates just by applying and doing a new exam (Yes, they will test for nicotine).
If your health isn’t all that great, all the more reason to apply for a new policy. Remember that underwriters don’t see the logic of having health problems and smoking. Conversely they like and reward the fact that someone has successfully removed nicotine from their life in an effort to improve their health.
Bottom line. There are plenty of reasons to quit smoking and while it’s not always an easy thing to accomplish, it’s always worth the effort.
October 28th, 2008
Following the recent bailout/takeover of AIG by the government, other life insurance companies including Prudential are holding their hands out wanting a little of our tax money to soften the impact of their unwise investment in risky real estate loans.
Investment of premium dollars is, of course, one way that insurance companies can take small premiums and hold out the promise of large death benefits. But the truth is that this is more true in cash value policies such as universal life and whole life. Term insurance seems more self sustaining simply because of the anomaly I’ve written about before where most term insurance policies never get to the point of a death benefit because they are either lapsed by the insured or the insured lets the policy go at the end of the guaranteed term.
I can’t seem to find the article now, but if my memory serves me Prudential was asking the Fed for a little less than $2 billion to help defray the poor performance in their investment portfolio that supports cash value policies. I had a hard time wrapping my mind around the $120 billion AIG fiasco, not quite knowing what to think, but this one seems to me to be a case of companies trying to get off easy and not bother their policy holders about their goof up.
Keep in mind that this problem with their investment strategy doesn’t impact guaranteed policies, but it can be slam dunk detrimental to variable universal life and UL’s that rely on assumptions and not on guarantees. It seems to me that the appropriate thing for the company to do is to exercise its’ option to raise the rates on all of those policies to offset their losses. I know that makes me sound mean, but non guaranteed policies are non guaranteed for a reason. It allows for potential upside gains and it also allows for risk to hurt those who choose to insure themselves in that way.
Bottom line. I don’t think I agree with the AIG bailout, but I darn sure don’t think insurance companies need to start lining up to beg for help that they should be able to put together internally.
October 27th, 2008
Group benefits such as life and health insurance have long been one of those things that drives people to get the jobs they have and hang on to the jobs even when they might want to do something else. In our current economic state you may want to reconsider your attachment at least to the life insurance benefit.
We read every day about the millions of jobs lost and along with those jobs, in most cases, the security of life insurance for families has been left behind. And it’s not that people don’t understand the need or know that they should probably go out and find new coverage, but often that isn’t the focus when your life has just been turned upside down by a job loss.
At that point people are focused on finding new jobs and often are hoping the new job will replace the lost benefits. Maybe the focus should be in a different direction though. Job benefit packages have become less and less reliable as the length of people’s careers has morphed into a series of mini-careers. It is making more and more sense to consider carrying personal coverage where you can so that it is portable.
Life insurance is one of those things whose cost is low enough privately to, in many cases, be as affordable as group coverage and many times even less expensive. When owned privately term insurance will almost always have better guarantees and better conversion options and, unlike group coverage, you can customize the plan to truly meet your needs rather than just being whatever came out of the can from your employer.
Bottom line. This is not the world of 30 or 40 years ago when people had one career with great benefits and retirements. Today we need to take on the management and purchasing of our own benefits and often the funding or our own retirement.
October 24th, 2008
I was talking to a friend yesterday who, like many of us, is trying to compute how many additional years he will have to work to make up for the money he has lost from his assets over this past month. He calculated that he would have to work an additional 1.5 years to make up his losses just over the last two weeks.
He jokingly went on to say that the good news he will only be 111 by then and should still have a few good years to enjoy his retired life.
I know the state of our economy is no laughing matter and that for all of us who have been working long and hard for everything we’ve socked away, this last month has had kind of a smothering effect on our collective psyche. I know after the AIG fiasco, there might be a few skeptics out there when it comes to insurance, but the truth is that life insurance is an inexpensive way to make sure that your retirement plane really doesn’t go down in flames.
I know the closer you are to needing that money, the rougher things look. They keep saying that if you have 10 years before retirement, don’t worry, be happy. So what happens if you’re not worrying (which I recommend) and are being happy (ditto on that) and you die and your spouse is left without your income and a retirement fund that has taken a direct hit with a small nuclear weapon?
The answer is life insurance. And if all of the experts are right and 10 years will make the difference, good news…..10 year term insurance is the least expensive product out there. If you don’t trust the experts, take out a 15 or 20 year term policy. For the huge protection you can buy, the outlay is minimal especially considering the alternative.
Bottom line. Do your own bailout and make sure your estate, your networth, your nest egg, is protected.
October 10th, 2008
If you talk to most life insurance applicants who fall into the obese or morbidly obese categories according the their BMI, they have usually been told that they aren’t insurable or that the prices are so high as to render uninsurable because they can’t afford it.
Let’s not dance around the subject. Life insurance underwriting is all about assessing mortality risk, your chance of dying compared to someone in average health. One of the things they consider are the risk factors that you have and the health issues you might, or in some cases are likely to acquire.
In the case of obesity, it is a known risk factor for high blood pressure, heart disease, stroke, cancer and diabetes. So honestly it is not just the weight that impacts the outcome of the life insurance application, but the compounded perceived risk. Given the risk factors, while you may not agree when you have to pay higher premiums, life insurance companies are actually pretty generous with their build charts.
As I was running quotes for a person 5′11 and 395 pounds today, I was impressed by the fact that, number one, he was insurable and number two, while he may not be able to afford all he wants, he can still afford to make sure that his family is taken care of. Back when I did a series of blogs on the TV show Fat March, it generated a lot of attention to see the contestants on that show go from uninsurable to insurable, to great rates as their weight came down. Probably the most important aspect of that show and that series of blogs was the great discussion it generated over not just life insurance rates, but how life style changes could have such a huge positive impact on health and longevity.
Bottom line. If your only issue impacting life insurance at this point is weight, bite the bullet and find an independent agent to shop for the best possible rate for you. The picture isn’t going to get any prettier if you drag your feet and other health issues pop up and compound the issue. While there is a point where weight alone can keep you from getting traditional life insurance, chances are you aren’t there even if you’ve had a decline letter or two.
October 7th, 2008
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