Posts filed under 'universal life'
Since the financial meltdown of 08 began I have been gently screaming my head off for those millions of folks whose life insurance is tied up in whole life and traditional universal life to have it reviewed. Get a reality check!!!
There are only a handful of factors that impact whether a non guaranteed life insurance premium stays the same or increases. Technically I suppose it could decrease but since I haven’t seen that happen, ever, I suspect right now is not the time to begin watching for that occurrence.
Just for review sake, those factors that can change the rate are interest rates, company experience in investments and ratings, and mortality experience. The interest rates we are talking about is the interest that companies are earning on the cash value it takes to keep one of the aforementioned policies afloat. Since no one is making money on their investments currently, it’s safe to assume that their assumed interest rate may not be making ends meet. That’s one hit.
On the company experience point, well let’s just say there aren’t a lot of enjoyable company experiences going on right now. Many company ratings have been downgraded because of their exposure in the real estate market. If ratings go down, companies are required to carry higher reserves. On policies with non guaranteed platforms the additional funding will come from you, the policy holder. Coming soon to a mailbox near you is a rate increase that your agent said would never happen 10 years ago.
The only good news out of the three is that mortality experience continues to improve, but by no means is it going to offset the downsides.
There is one other piece of good news, but you need to act quickly. Term insurance and universal life with a no lapse external guarantee are still great values and because they are completely guaranteed (no assumptions), once locked in it is good for as long as you need it. But just a word of caution. If you hang out to see if my predictions come true and then try to bale and go the other way you may be too late. By then the cash value that once held your current policy together will be gone and, because of the reasons stated above, you will either find that the products mentioned above have disappeared or gone up in price, making switching much less attractive.
Bottom line. If you have permanent insurance or want it in your portfolio, this is no time to see how things ride out. It’s not like a stock that may eventually come back. Once it goes it may as well have been pushed off a cliff. Don’t let it happen to you. Get an independent agent to review your life insurance today.
January 8th, 2009
When AXA Equitable <a href=”http://hinermangroup.com/blog/2008/12/22/did-we-cry-wolf-prematurely/“>made it official</a> last week that they were going to discontinue their no lapse guarantee universal life products, I suggested that what we were gazing at was the tip of the iceberg.
There is some indication now that Phoenix Life will be announcing changes to its’ external guarantee UL products in the near future. I guess there isn’t any risk of my seeming redundant since I clearly am exactly that, so here I go again, redundiferous to the bitter end.
ANYONE WHO HAS PERMANENT PRODUCTS SUCH AS WHOLE LIFE OR TRADITIONAL UNIVERSAL LIFE, OR IS CONSIDERING THE ADDITION OF PERMANENT LIFE INSURANCE TO THEIR PORTFOLIO, NEEDS TO GET OFF THEIR REAR, or get used to the idea that you let one of the best deals in life insurance walk right past you and disappear.
I’m not absolutely sure that every company will discontinue these reserve heavy products, but I am sure that if they don’t dump it, they will raise the price. They are going to figure out some way to get the monkey off of their back to provide the large reserves these policies require and the only other back around is those who purchase life insurance.
This will be, not too far down the road, the life insurance equivelant of wishing you had bought Lincoln National stock at $5. Saving big money is just liking making big money.
Bottom line. Again, if you currently have permanent insurance and haven’t compared against the best of the universal life no lapse guarantee products, you are foolish not to before the opportunity is gone. If you have been considering adding permanent life insurance to the term insurance you have, consider it now before it has a much higher cost.
December 31st, 2008
I try very hard to get out relevant life insurance information in a timely manner and would hope never to jump the gun and potentially mislead. In this case it appears that while I was a few days ahead of the event, the wolf was in fact on his way.
In a post last Wednesday I reported a rumor that AXA Equitable was re-evaluating its’ universal life products with an eye toward getting rid of their external no lapse guarantee. On Friday they released a bulletin to agents, axa-distributor, saying that they are discontinuing their no lapse rider (NLR).
This is not to say that all companies will follow suit, but for those who have permanent products or are anticipating the need for permanent products in their life insurance portfolio, I would highly recommend an err on the side of assuming that, at best, these products will be higher priced in the near future. Given the position of universal life with a no lapse guarantee as the best priced fully guaranteed permanent product available as of today, a move toward replacing whole life or traditional universal life with this extremely valuable product is worth a look.
Bottom line. Given the volatility of the current business financial market there is no mystery surrounding this move. No lapse riders mean the company has to carry high reserves. This isn’t a time when companies, given a choice, are going to tie up liquidity any more than they have too. Again, if you have permanent life insurance or think you will be needing, contact an independent agent today and make sure you lock in what may be the deal of the century.
December 22nd, 2008
Term insurance policies have a golden egg buried in them call the conversion option. This option allows you to convert all or part of your term insurance policy into a permanent policy without evidence of insurability.
This is huge in several ways. Let’s use me as an example. I have a $500,000 term insurance policy I took out 10 years ago when I was, from an underwriting standpoint, more in my prime than I am now. I was approved at preferred plus rates, the best rate class available. I’m still in very good health, but with a 10 years and a few more health wrinkles I am at best a standard plus risk.
I am considering adding $250,000 of permanent insurance to my portfolio. If I go out and buy that at my age and current underwriting classification, the best annual premium I could expect would be about $3600 annually. But, if I pull out that golden egg from my old policy I can convert $250,000 at my original preferred plus rate class and the annual premium would be $3000 annually. While $600 a year isn’t huge, when you consider paying it for 20 or 30 or more years, well….. If I had cancer and wasn’t insurable at all, I could still convert that policy at their best rate class.
And that’s if I do it today. I won’t be older for insurance purposes tomorrow, but the word is on the streets that the products I just quoted may be going the way of overpaid CEO’s. In this example I used a universal life no lapse guarantee product, simply the best, most affordable fully guaranteed product on the market.
What sets it apart from other permanent products such as whole life and traditional universal life is that it doesn’t have any cash value and uses, like term insurance, an external company guarantee. Policies with cash value, which not so magically comes from the person paying the premium, means that the price is substantially higher than policies with an external guarantee.
So, if you have any thoughts of conversion, or perhaps purchasing a new permanent policy or replacing an overpriced cash value policy, go directly to your independent agent and tell them you want it and you want it now.
Bottom line. There are three points that should be considered by those for whom permanent life insurance is part of their overall insurance plan or who are considering conversion. First, if you already have a universal life policy with an externally guaranteed no lapse provision, it will not change. Second, because product and rate changes usually do not happen instantly, there will be a period of opportunity for those who need permanent life insurance to still purchase it. Those prices that can be locked in now will likely be looked back upon as a brilliant purchase, savings tens of thousands or more of premium dollars over the life of the policy. And third, assume insurance companies will not announce to the world that they will be discontinuing an under priced product because they would probably would prefer to have it quietly disappear.
December 18th, 2008
For as long as I’ve been sharing the “life insurance world according to Ed”, I have beat the drum as hard as I can that there is only one good permanent product out there and it doesn’t have cash value. It’s called universal life with a no lapse guarantee.
Structurally the same as term insurance, rather than using internal cash like traditional universal life or whole life, the UL no lapse uses an external guarantee to keep a level premium. Having an external guarantee simply means that all of the weight of the guarantee is on the reserves that, by law, the insurance company has to maintain.
Today I heard from two reputable national general agencies that AXA Equitable may actually discontinue their no lapse products due to the reserve issues. I think you can read that “the high cost of keeping large reserves”. These same sources say that other companies may follow suit and either do away with the external guarantee UL or raise the rates on it. So, what does this mean to you, the life insurance consumer?
FIRE SALE! If you have been considering permanent coverage for any reason at all, it is time to get off the fence and buy this product while it is still available at truly bargain prices. If you have a whole life or a universal life “cash cow” policy, it is time to consider replacing it with this truly great deal. If you have been considering a final expense policy, buy it now while it is priced like a term to age 100.
Even though these policies will be changing in the near future, either going up in price or going away, those who have locked in the low cost external guarantees available now will be assured of having a bargain for as long as you need the insurance. Life insurance companies can’t go back and retroactively change guarantees.
Bottom line. Universal life with a no lapse guarantee is a golden product. Whether you are simply wanting final expense money for your family or if you are funding a second to die policy to pay estate taxes, whatever the permanent reason, it just doesn’t get any better than this. And if this product goes away, it likely won’t ever be this good again.
December 17th, 2008
There are probably plenty out there that believe I wake up to the mantra every morning, and the truth is that I sometimes believe “if only I can blog loud enough”……..
We are in some horrific financial times and I’m thinking that very few out there have missed the economic meltdown going on. Even the most optimistic of experts believe it’s going to take some years for a full recovery.
So, let’s look seriously at a way to lower your monthly expenses and cover your downsized nest egg. I know this is going to tip some boats, but consider for a moment the idea of cashing out of your whole life or universal life policies and replacing them with lower cost term insurance. With the freed up cash go out and snarf up some of the best stock deals anyone has seen in a very long time.
I can hear the permanent insurance gurus screaming already, but let’s be real. Most universal life policies in force today are in trouble. They were in trouble before the economy was in trouble and now they are heading for the dunking tank and not looking back. As for whole life, you shouldn’t have bought it anyway. It’s overpriced and is not a “savings plan” or “retirement plan”. It is an overpriced life insurance policy. If you have $500,000 of whole life with $250,000 of cash value and you die, you get exactly the same amount of money as if you had a $500,000 term insurance policy.
Bottom line. So, consider it. Money in your monthly pocket. Money to invest at a time when investing looks like a good idea. And you’re finally rid of that bad idea for life insurance that you bought and have been to embarrassed to admit that it was truly a bad idea.
December 17th, 2008
With all the ongoing financial drama, television networks are falling all over themselves to interview experts on this and that and what the heck we should do to protect our retirement. Just by the sheer luck of the draw I ran into three Suze Orman interviews within the past week.
Personally I think the advice she gives on the economy and investments is either stolen from someone else or worse yet, made up on the spur of the moment from her own, very original, lack of expertise. But, let’s just accept for the minute that she is clueless on financial matters and move on to something where she is on a level playing field with all of the other advice givers today. None of them understand why people buy life insurance.
They all have an opinion on term insurance versus whole life, universal life versus variable universal life, etc, but I honestly don’t think they understand that the reason people buy life insurance is because……some of them don’t live as long as we think they will. As they provide advice on this tactic or that tactic of how to salvage as much of your 401k as possible and flip out advice about “as long as you have 15 or 20 years”, they are all avoiding the subject of life insurance and how it can keep this economic car wreck from turning into one family’s personal train wreck.
This is precisely the time when they should be inserting into every interview the need, the urgent need, for people to have adequate term life insurance in force not only to replace lost income if someone dies prematurely, but also to replace the investments that may never have a chance to come back with the breadwinner out of the picture. They should talk about the need for stay at home parents to have adequate insurance because if things get worse, going forward the surviving parent may not have the luxury of just working one job and may need the life insurance proceeds to pay for child care and school.
Bottom line. The world is full of good advice and it’s also full of people that BS for a living and personally I think Suze deserves a plaque in that particular hall of fame. If you don’t know what life insurance is for, don’t give advice on how to buy it.
November 22nd, 2008
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
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
No, I don’t mean universal life insurance as in the permanent product universal life. There is all this talk about making health care more affordable, even universal health care plans, and all I am thinking is why not life insurance?
I think we have all heard on the news or on some political ad that health care costs are the leading cause of bankruptcy. The truth is that there are as many adults without life insurance as there are without health insurance. It seems that someone has done a lot of homework on the economic impact of families not having health insurance. I wonder if anyone has bothered to determine the impact of the lack of life insurance?
I suppose it could be argued that, comparatively speaking, life insurance is a fairly small ticket item compared to health insurance. The average young adult family with a few kids would (I’m just guessing) spend at least $400 to $500 a month on health insurance. On the other hand a completely adequate life insurance plan for that family might only cost $50 per month.
Well, I may have answered my own question. While health insurance is certainly a quandary, people probably just need to skip a meal out each month and make sure that the unforeseen doesn’t ruin the family future financially. I guess with that logic, rather than a government program to ensure that we all have health insurance, maybe we should all put off financing a new car and get the health insurance we need.
Bottom line. Personal responsibility has long been a harping point of mine. No matter who the next president ends up being I think we Americans need to buck up and start acting like grownups. If we have responsibility then our first priority should be to take care of it. If we don’t have responsibility and can’t afford to take care of a new responsibility then we should put off our desire to have more than we can prudently handle. Starting to sound like my Dad now and I’m pretty sure that’s a good thing.
November 1st, 2008
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