Millennials most 'at risk' generation when it comes to life insurance

[Robert Barney]

Robert,

Of course you are correct.

I know, and should have said "the insurance industry".

Thanks for pointing it out to me.

About YOUR comment that says "whole life policies never pay a death benefit either".

I looked searched for the percentage of WL policies that paid the death benefit and can't find a source. Do you have one? "Most" is relative but I have a hunch the percentage isn't very high.

tinman

I said "most" whole life policies never pay a death benefit. Obviously more whole life policies pay death benefits than term. I have two permanent policies that will pay death benefits, because that's why I bought them.

Back to the numbers. Several years ago a life insurance company executive told me they experience about a 5% per annum lapse ratio. I told him that based upon the rule of 72, that means half the policies are lapsed in 14 years. He agreed. And then another half of the remaining policies would be gone in 28 years. Right again. So after about 30 years, only about 25% of the policies are still in force, and they continue to drop.

Most policies lapse for planned reasons. I'll catch that in response to the posting that followed yours.

 

[Robert Barney]

True but many that don't pay a death benefit pay a cash benefit so there is balance against the premium difference.

Actually many policies lapse because people are going for the cash. In fact many whole life policies are sold on the basis that a person is planning to cash them in retirement.

The cash value is NOT a refund of premiums paid, it is a refund of part of the premiums paid plus interest. The "cost" of insurance, which is no different than buying term life insurance, is still taken out of the premiums paid. I am quite convinced, after years of analysis, that the "term life" insurance you buy within a whole life policy, is not very competitive when compared with the term life you can get and buy in competitively priced term life insurance policies.

 

[rousemark]

Actually many policies lapse because people are going for the cash. In fact many whole life policies are sold on the basis that a person is planning to cash them in retirement.

The cash value is NOT a refund of premiums paid, it is a refund of part of the premiums paid plus interest. The "cost" of insurance, which is no different than buying term life insurance, is still taken out of the premiums paid. I am quite convinced, after years of analysis, that the "term life" insurance you buy within a whole life policy, is not very competitive when compared with the term life you can get and buy in competitively priced term life insurance policies.

I did not say it was a refund of premiums paid.. I said that would offset some of the difference paid in premiums..

Assume $400 per year for a $200K 20 year level term.. Same thing in WL is $2400 per year...Both terminate at 20 years.. Term CV $0, WL CV $43K.... Client paid $8K for the term.. He paid $5K for the WQL.. ($48K premium paid minus $43K cash.) With interest adjusted, the WL is still slightly more expensive.. The question is would the insured actually invest the difference or would they put it in cars, gaming consoles, TVs, etc. The real advantage is if they still need $200K coverage, they can continue you at the same $2400 premium with CV increasing faster than premium paid at that point..

 

[rousemark]

Just out of curiosity I put the same figures in a mid range IUL .. At the end of 20 years the Gtd, CV is only $29K but the current basis is $72K... Of, course the minimum cannot happen unless they pay minimum interest and charge max mortality from day 1.. There is a possibility that the projected current may not happen so it is safe to assume a person would most likely have somewhere in between in a worst case scenario. This is with option B increasing DB wso that the CV is always paid in addition to the face amount.

 

[WinoBlues]

I did not say it was a refund of premiums paid.. I said that would offset some of the difference paid in premiums..

Assume $400 per year for a $200K 20 year level term.. Same thing in WL is $2400 per year...Both terminate at 20 years.. Term CV $0, WL CV $43K.... Client paid $8K for the term.. He paid $5K for the WQL.. ($48K premium paid minus $43K cash.) With interest adjusted, the WL is still slightly more expensive.. The question is would the insured actually invest the difference or would they put it in cars, gaming consoles, TVs, etc. The real advantage is if they still need $200K coverage, they can continue you at the same $2400 premium with CV increasing faster than premium paid at that point..

Or extended term
Or reduced paid up
Or maybe reduce premium by reducing face
Or sell the policy
Or change dividends to reduce premium
Or.......

 

[WinoBlues]

The majority of my lapse surrenders are 1) can not afford the premium 2) no longer see the value in keeping the policy. Both are usually due to life changes.

 

[rousemark]

Or extended term
Or reduced paid up
Or maybe reduce premium by reducing face
Or sell the policy
Or change dividends to reduce premium
Or.......

I was using a mid range non par WL.

 

[rousemark]

The majority of my lapse surrenders are 1) can not afford the premium 2) no longer see the value in keeping the policy. Both are usually due to A life change.

D-I-V-O-R-C-E ???

 

[Robert Barney]

I did not say it was a refund of premiums paid.. I said that would offset some of the difference paid in premiums..

We're on the same page, don't be defensive.

Same thing in WL is $2400 per year...Both terminate at 20 years.. Term CV $0, WL CV $43K....

OK, now we are not on the same page. $400 buys a $1,000,000 20 year term policy. That's $1,000,000 in coverage. What face amount are you getting with $2,400 per year for a whole life product?

With interest adjusted, the WL is still slightly more expensive.. The question is would the insured actually invest the difference or would they put it in cars, gaming consoles, TVs, etc. The real advantage is if they still need $200K coverage, they can continue you at the same $2400 premium with CV increasing faster than premium paid at that point..

Are you actually comparing a $200,000 whole life policy with $1,000,000 of term, as if that's a reasonable option/choice? I assume that if the 35 year old needs $1,000,000 of coverage, your whole life solution is going to leave his family in a lurch if he dies.

As to "what would be do with the difference?", who cares. It's his money. I would certainly encourage him to get involved in some form of investment/saving, but the first concern is being adequately covered if he dies.

 

[rousemark]

We're on the same page, don't be defensive.



OK, now we are not on the same page. $400 buys a $1,000,000 20 year term policy. That's $1,000,000 in coverage. What face amount are you getting with $2,400 per year for a whole life product?



Are you actually comparing a $200,000 whole life policy with $1,000,000 of term, as if that's a reasonable option/choice? I assume that if the 35 year old needs $1,000,000 of coverage, your whole life solution is going to leave his family in a lurch if he dies.

As to "what would be do with the difference?", who cares. It's his money. I would certainly encourage him to get involved in some form of investment/saving, but the first concern is being adequately covered if he dies.

I was quoting a mid range term and a mid range WL. Both are Columbian life.. Granted you can get better premiums with the term busters but you can also get better priced WL plans.. Also, I am using NTU standard rates not some super preferred rate.. Trying to keep everything apples to apples