Thinking Term Conversion? Think Quick!!

Look! It’s a bird! It’s a plane! Naw, it’s just that Hinerman guy yelling about the life insurance conversion sky falling again. But in my defense consider these events and then consider listening this time.

1. Protective Life did away with their no lapse guarantee UL for conversion and went to a UL with a 10 year guarantee. They finally did add one of the most asinine whole life insurance products that only comes in a standard rate or worse to answer the call for a permanent product.

2. Banner Life changed their conversion option so you could only convert to their best NLG UL for the first 5 years of the policy. How generous can you get knowing that almost no one converts in the first 5 years of their policy. They just recently raised the price on that product 50%.

3. American General has also moved to limit conversion to their best permanent product to 5 years.

4. Lincoln National has both limited conversion to their best UL product to 5 years and raised the price on the product.

5. Prudential still allows conversion to any of their permanent products but their best product, their no lapse guarantee UL, has creeped up in price to the point where conversion is no  longer the attraction it should be. Prudential was one of the first companies to admit that their no lapse guarantee UL was under priced for the mortality experience they were seeing with converted term policies. Several companies have voiced that same sentiment but none have been willing to actually share the actuarial data to support the claim.

6. Genworth Life and Annuity still offers a very competitive conversion from their Colony term products to a no lapse UL, but the word on the street is that the competitive product may see a price jump before fall of about 50%. They haven’t indicated that they will shorten the conversion period for that product.

All’s fair in love and war and apparently life insurance. Prudential’s admission that their no lapse UL was under priced for term life insurance conversion kind of leads me to believe that most, if not all, of the no lapse UL’s that have dominated the market for the last 10 years were under priced not just for conversions, but for any purpose. Case in point was a Protective no lapse UL I sold in 2005 to an elderly woman who needed to replace a ridiculously priced Mass Mutual whole life policy. By moving cash from the whole life policy into the UL we were able to give her a lifetime guaranteed level premium of $32,000. They were paying Mass Mutual $89,000 for $5 million of whole life, but that policy was guaranteed to lapse at age 95. With the women in her family regularly living past 100 the move was necessary. The fact that it saved $57,000 a year was frosting.

So, at age 83 we moved her to the Protective life insurance policy with level premiums to age 100 and then a no lapse guarantee without further premiums to 120. Between the cash from the whole life insurance and her premium payments, the most Protective could take in by age 100 was $1.75 million. It doesn’t take a math major to get that Protective was a touch under priced on their $5 million dollar life insurance policy. They pulled the product from the market shortly after that sale.

Bottom line. So, the bad news is that deals like that are going, going, gone. The good news is that 1. If you have a Genworth Colony Term policy you can still convert to really great rates this summer and 2. Even after they all get through raising their rates the no lapse guarantee UL will still be the smartest permanent product on the market. If you have any questions, need quotes on conversion or don’t even know what your conversion option is, call or email me directly. My name is Ed Hinerman. Let’s talk.