Don’t you just hate the fact that hindsight is 20/20 and when you look back with clear vision you see that you waltzed right past some of the deals of the decade? Hasn’t happened to you?
YET! With very few exceptions people who look at conversion quotes on life insurance are shocked. They love the term insurance prices and can’t quite squeeze together the equation that makes permanent insurance several times more expensive per thousand. Well, here we go with Life Insurance 101. The longer the guaranteed level premium and death benefit, the higher the price.
Most permanent life insurance is guaranteed to age 120 these days. That means a company is contractually locked in to providing you a set amount of insurance at a guaranteed level premium for 40 years after the average mortality age. Talk about senior life insurance! If you keep making the payments they are going to have to pay the death benefit at some point, and logic would tell you that it will be closer to 80 than 120. And for all of those who cry foul when they see the price of conversion, let’s give two points to the insurance company. Number one. Even if it doesn’t feel like it, the permanent insurance is under priced. Only half of us will make it to 80 and only a handful will make it to 100. The insurance companies will be paying out the big bucks on conversions if the fountain of youth isn’t found soon.
To make matters worse for the company on conversions, they promised to convert to permanent insurance at the same rate class you were originally approved at. So, even if you have cancer and will be lucky to make it another couple of years, they have to convert at the preferred plus rates you were approved at so long ago.
Having defended them, let me now tell you I think the insurance companies are wrong and they have great products ripe for the picking, so here’s the deal. Life insurance companies know they have themselves in a bad position and they are changing rules and raising rates as fast as they can. They will, in the first half of this year, completely change the face of conversion and they will take away the awesome deals on permanent life insurance that are available now. It’s not if there will be a rate increase. It’s not even when. It’s happening now with the companies that haven’t already done it.
I’ve already beat these poor horses to death, but what the heck, let’s review. West Coast Life no longer allows conversion to a permanent policy. Banner and American General only allow conversion to more expensive policies after the 5th year. Phoenix Life only converts to a 5 year guaranteed product. New York Life charges extra for a full conversion option. Lincoln Financial has said they will be raising rates as much as 25% in the next few months. I’ve really only talked about conversions, but this will also be affecting newly purchased permanent life insurance products as well.
So, if you have term and you think you may want to convert some portion of it someday, see if it works into your budget today because it sure won’t next year. If you have been considering purchasing permanent insurance for final expense or estate planning, see if it works for you today and weigh that against the cost of a 25% increase and the fact that even if your health doesn’t change, your age does. I think 20/20 will show you that right now is clearly the time to act.
Bottom line. Putting it off to next year is definitely an option, just a bad one. Waiting until after tax season is also an option, but again just not a very good one. So, whether it is final expense senior life insurance or estate protection for high net worth families, get started now.