I thought it would be good to revisit some of the original posts on this forum. It’s been over 5 years and somewhere near a million words now and I wanted to see if I’m like a politician and flip flop on issues, or as I found in a few cases, the issues flip flopped on me. Two things I did find for sure are that 1. I am more passionate than ever about informing the public about how to get life insurance right and 2. I’ve become more vocal about those life insurance agents and agencies who knowingly mislead or put themselves before their clients.
In early 2007 I wrote, “Term life insurance is the most practical, appropriate and affordable life insurance for 90% or more of the average person’s life insurance needs. The obvious feature that people buy term life insurance for is the death benefit. They want to know that their family is protected for a specific period of time. That period could be when your children are growing up, when you owe a substantial amount on a mortgage, or when you have a period until retirement when your missing income could be a financial setback for your spouse.”
There are some notable changes in looking back at this post. 90% is way too low. Truth was I was probably trying to sound dramatic by using 90% but when we are talking about the average person’s life insurance needs, allow me to out estate tax life insurance. People who need to carry estate tax life insurance today have an individual net worth of over $5 million or a combined net worth of over $10 million. A little above average. I think 98% is a more accurate, not a huge deal, but worth driving home because there are permanent insurance enamored life insurance all over the place who are under insuring their clients for the sake of universal life and whole life sales. I believe I would not say that the most valuable feature of term insurance isn’t just death benefit, but affordable death benefit.
The second most valuable feature of term life insurance is the conversion option. Simply stated the conversion option allows you to convert all or part of your term policy to permanent coverage, usually universal life, WITHOUT evidence of insurability. Well……that was obviously written before West Coast Life took the lead in mucking up the second best thing in term life insurance.
As an example. Let’s say you take out a $250,000, 10 year term policy when you are 55 and you’re in great health and get the best rate available. 10 years later you decide that, while you don’t need $250,000 any longer, you need $100,000 to carry on beyond the 10 year term. Some people make this decision when they are perfectly healthy but have finally determined how much permanent insurance they want. Others make this decision when their health has changed and they know they can’t afford to let go of all of their life insurance at the end of a term. In some cases, in the absence of conversion, they won’t be able to get a replacement policy, not even a smaller one.
Back then, and this is an accurate statement for 2007, I said, “The conversion option that is built into your term policy allows you to convert all or part of your policy to a permanent universal life policy without evidence of insurability. That doesn’t just mean without an exam. Without evidence of insurability means they will issue that $100,000 at the best rate available just like they did 10 years ago. The conversion option just made you insurable again.”
The problem now is that many companies, because they undercharged for their term insurance and because they also undercharged for their life time guarantee UL, are scared to death that people will convert and they’ll be eating their own poorly thought out meal in the future. For that reason many have changed their conversion option to one with a 10 year guarantee and their new business is being written as a term/ul product that didn’t exist in 2007. The notable feature of term/ul? No conversion at all.
Bottom line. Read your policy. Know your conversion option. If you haven’t purchased yet make the conversion option a matter of consideration for accepting the policy. If you’ve already got a policy in force with a conversion option that has changed, consider replacing that policy. Done right, it’s the second most valuable feature of your policy. If you have any questions or would like someone to review your current conversion option, call or email me directly. Let’s talk
My 20 years of experience give me the knowledge and leverage to find reasonably-priced life insurance for people who have been declined or are paying more than they need to.
The conversion option on term policies has weakened across the board in the industry as of late. And, as you say, permanent policies have always been so oversold. Not only do clients not get as much coverage as they need, BUT THEY END UP WITH MORE PERMANENT COVERAGE THAN THEY CAN PERMANENTLY AFFORD. In the case of whole life, most contracts don’t allow a reduction of face amount. In the case of guaranteed ULs, you stand to lose your guarantee; which is the UL’s ONLY permanent value. I would love to have access to lapse rate data for the entire industry. Lately I have become a fan of the tiny whole life policy ($25,000) along with a big enough and long enough term policy, and have wondered if the term could be bought a lot cheaper as a rider to the WL policy. Most of the big companies online don’t offer term riders that go out past 10 years. Ameritas is an exception with term riders that go out as far as 30 years. With the tiny WL you’ll always be able to afford the premium, you can beef it up with paid up additions, and you can never lose EVERYTHING. Think about it.