How Do You Define Permanent Life Insurance?

What is your definition of permanent! First thing that comes to mind for me is something that never goes away. OK. I know the earth could blow up and then all bets are off when it comes to anything attached to the earth, but let’s assume that it doesn’t blow up in the next 1000 years.

The first definition on dictionary.reference.com best matches what I believe most people would call permanent. “Existing perpetually; Everlasting…” Doesn’t sound to me like something that ought to run out on you. Got a permanent tank of gas, never run out. Got a permanent food supply, never go hungry.

So, let me quit beating around the bush. If I buy a permanent life insurance policy I expect, as long as I pay the premiums, for the policy to be there and pay out promptly when I die even if I’m 110 years old. If I buy a term life insurance policy that clearly states in the conversion option that it is convertible to a permanent policy I expect that I have purchased that option when I put the term policy in force. American General’s term insurance policies clearly state that they are convertible, during the conversion period (standard language) to a permanent policy. Yet, last year, they quit offering conversions to lifetime guarantee products after the 5th policy year. Starting in the 6th year the universal life policy that you can convert to is only guaranteed for 10 years.

I have had this conversation with numerous American General, Banner and West Coast Life clients in the past year. They have a 20 year term policy that’s been in force for 6 years and they want to convert it to a permanent policy. As an example the 20 year term policy with 14 years left on the guarantee has a premium of $800 a year. They can convert that to a universal life policy for $3200 a year but then they only have a 10 year guarantee. How can they do that? How can they offer a 10 year guarantee and still meet their contractual promise to provide conversion to a permanent policy?

I’ve been ranting for years for people to get their universal and whole life policies reviewed because so many of them, probably the majority of them, are not guaranteed for life. The company hypothetically assumes they could last forever (permanently) if everything goes great for the company, mortality assumptions, interest rates and as we’ve found out recently, the economy. So, every universal life product has a guaranteed side on the illustration and an assumed side. The assumption is that everything will be as good or better than the day the policy was issued. So if you want to bet the farm when you’re young on your universal life policy I still don’t recommend it but when you’re over 50 life insurance is not something you want to hypothetically assume will be around when you need it.

When you look at one of these AIG conversion illustrations you almost instantly get overwhelmed by all of the zeros on the guaranteed side. There is no warm, fuzzy, secure feeling when you don’t see a death benefit after the 11th year. But American General calls it permanent because if everything goes perfectly and government bailouts are always available the policy could stay in force to age 131. Are you familiar with the term “fat chance”?

West Coast Life is just slightly worse. Where American General and Banner give you 5 years to convert to a fully guaranteed product, well, West Coast Life just puts it to you even if your policy has only been in force a year. I ran an illustration showing a 60 year old converting a $1,000,000 policy with West Coast Life with a single premium and the West Coast conversion best they will guarantee is 13 years. That is just wrong on so many levels it should be illegal.

Bottom line. Someone besides me has to call these companies on this type of action. West Coast has already terminated me because I ate their face off about it. There is nothing ethical, moral or American about the way these companies are treating their valued customers.