I hit the Big 5-0 today, at about 4:30 p.m. From the perspective of life insurance, I’ve entered a new age band – 50 to 54 for many actuaries – so it’s a good time to take stock about where I stand with regard to life insurance.
My wife, who is 49, and I are a decade into our 30-year term life policy issued in February 2006 by the West Coast Life Insurance, now owned by Protective Life.
We got a great deal and we have my late father-in-law to thank for it. We pay $231 a month or about $2,772 a year for a $1 million policy on myself and a $1 million policy on my wife. Should either one of us die, our surviving spouse and our daughter will be set for life.
Come to think of it, we never really looked into it whether we were getting a good deal or not.
My father-in-law found the policy for us, and I never asked him what kind of commission he took from the sale.
He was a registered rep for a company called Ryan, Beck & Co., since purchased by Stifel Financial, so we left these kinds of questions in his hands. Since we were family, I assumed we found us the best deal in town.
For all I know, he never even took a commission. I never had the chance to ask him.
All I knew was that $231 a month for two life policies for a super preferred, nonsmoking couple, was way better than anything I could find on the web. At 39, and my wife at 38, we were covered for life and I never gave it another thought — until last year.
That’s when, after two years of working for InsuranceNewsNet, I decided to look at our life insurance contracts again.
Sure enough, on year 31 of coverage, in 2036, at the age of 70, my annual premium will rocket to $44,440 and even higher in the years after that.
In 2036, at age 69, my wife’s annual premium will shoot up to $29,560 and higher in the years after that.
Astronomical premium hikes aren’t unusual.
Once the “term” of coverage is over, the insurance company must hike premiums to cover the cost of that $1 million payout should I or my spouse die. That is statistically more likely as the window of our respective lives close further and we continue on our way, “one day closer to death,” in the words of Pink Floyd.
If we want to extend the term contract we continue paying the premium, but that is out of the question as it’s far too expensive, even if we win the lottery.
What to do?
We could shop around for a new term policy once the existing policy lapses, but the older you get, the more restricting the term.
Insurers will not sell a 30-year term policy to a 75-year-old and a new term policy usually means medical underwriting.
A visit to the AARP’s website – an organization for which I’m now eligible to become a member, by the way – is offering $100,000 in coverage for $73 a month, and that’s without the AARP discount.
Or we could plan to shop around 10 years from now for a 20 year-term policy beginning in 2026, at age 60 for me and age 59 for my wife.
A third option is to covert our existing West Coast Life Insurance term policy into a universal or whole life contract, which is more expensive, but will cover me until the day I die and will not require medical underwriting.
Protective’s ProClassic Universal Life policy is going to cost me $3,266 a year, if I convert this year, for $250,000 of coverage, a quarter of the benefit I’m now covered for.
Converting our term policy to a Protective nonparticipating whole life contract with a death benefit of $100,000, one-tenth of what I have now, would run me $2,440.20 in annual premiums, according to illustrations sent by the Alabama-based insurer.
In any case, the longer we wait to convert the higher the premium, there’s no getting around that and at the moment we simply don’t have the money to convert. Perhaps one day, if we come into some funds, as we are supposed to, we’ll revisit our life insurance options.
For the first time in my life, I understand what it means to “buy term and invest the rest.” Buy term coverage for $250,000 or $500,000 and send the rest of the premium into a mutual fund.
Just for fun — because that’s what we 50-year-olds do for fun on our birthdays — I entered my age as 60 and MetLife offered me a 20-year term life quote for $320.99 a month or just over $3,800 a year for $500,000 worth of coverage.
Many people complain that permanent life insurance is too expensive and back-of-the-envelope math would seem to bear that out.
In our case, Protective wants to double, triple or even quadruple premium payments for me and my wife if we want to convert. What would we get for conversion today? Half, a quarter or even one-tenth of the face value of the policy we have now?
If insurance companies want to sell us more life insurance, they are going to have to come up with some less expensive alternatives to permanent life insurance — perhaps more, shorter-term options linked to that initial 30-year policy.
Insurance companies need to remember that consumers are shelling out for health insurance, property insurance and auto insurance, and in the case of health insurance, costs are only going up.
And we’re not even talking about the other financial services companies — mutual funds and brokerage houses — fighting for consumers’ wallet share.
For now, we’re sticking with our 30-year term coverage because it offers us just what we need and at a very good price. Maybe in a decade we’ll revisit our 30-year-term policy, which by then will be two-thirds through its lifecycle.
Just for kicks, in 2026, I might run the term-to-permanent life conversion scenarios and look back at how cheap converting would have been in 2016 instead of waiting until 2026. Who knows, in a decade, the insurance companies may have come up with more conversion options.
But until then our good old term contract is all we’ve got unless we win the lottery, in which case all bets are off.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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