Policy Reviews on Term Life Insurance. Really?

Time to planIt just kills me!  Every time we do a policy review on a level term that is….say…. 15 years old (and we do a lot of them) the rates for new permanent insurance and even term are so much higher that they are unaffordable, even shocking to some folks, that they simply let the coverage go.  Let me give you an example:

  • Bob and Betty were starting a new family and decided that they needed some life insurance just in case life happened. Because they felt it was more affordable they decided to go with a level premium term for 500,000. This was back in 2000 when Bob was 37 years old.

I am going to digress for a moment because I want to make you aware of something that I think is very important that happened in our industry in the year 2000.  There was a new guideline that came into effect on January 1, 2000 called Guideline XXX.  Guideline XXX was a change in the reserving requirements for guaranteed life insurance products.  Because of this there was a threat that level premium term rates would increase, dramatically after January of 2000 so there was a big influx of term insurance sales in the last quarter of 1999.  There is a lot of term insurance nearing the end of its level premium period and needs to be reviewed.

Let’s get back to Bob and Betty:

  • When Bob purchased his 20 year level premium term at age 37 he was a Preferred Best rate classification and the cost was $33.69 monthly. Very affordable for them at that time. Now Bob is 15 years older, age 53. He has taken good care of himself and is still a preferred rate classification but now looking at some alternative in coverage, a guaranteed benefit universal life would cost him $472.00 monthly or a new 20 year term would cost $125.75. As you can imagine, that is a bit hard to swallow.

Had Bob been encourage to purchase a permanent insurance policy at age 37 it would have cost around $192.00 monthly he would have that rate and the Preferred Best rate classification locked in for life. Plus depending on the type of permanent coverage he may have had a nice cash value that he could use for his kids education.

Term insurance is great for a short term or temporary need there is no question about that. But I really think that we need to encourage young adults to stretch their dollars and buy permanent insurance while they are young as it would be less expensive.  We also need to review their term insurance more frequently and offer alternative before 15 or 20 years have passed and the cost difference is enough to make them gasp!