Question about Renewal Premiums

[Chun Yu]

I am new to term life insurance. I have a few questions regarding renewal premiums.

1. I have noticed that the "current" renewal premiums always coincide with the premiums for new customers of higher age in CompuLife. Is that true in reality?

For example, will a renewal premium of a 31-year-old customer who's held the policy for one year be the same as the one for a new 31-year old? (assuming identical health and other factors)

2. If the answer to the above question is no, then how is the "current" column informative for consumers? Also, in what sense does it mean that CompuLife quotes renewal premiums?

Thank you in advance!

 

[DHK]

Just for you @Robert Barney.

 

[Robert Barney]

I am new to term life insurance. I have a few questions regarding renewal premiums.

1. I have noticed that the "current" renewal premiums always coincide with the premiums for new customers of higher age in CompuLife. Is that true in reality?

For example, will a renewal premium of a 31-year-old customer who's held the policy for one year be the same as the one for a new 31-year old? (assuming identical health and other factors)

2. If the answer to the above question is no, then how is the "current" column informative for consumers? Also, in what sense does it mean that CompuLife quotes renewal premiums?

Thank you in advance!

I think I had an email from you about this. If not, here is what I said to the other person:

There are very few "current" renewal premiums quoted by Compulife.

Can you print a PDF of an example of what you are referring to, and send it to me so I can review it?​

The individual sent me a TIAA-CREF illustration for ART.

I replied and said:

OK, you have found one of the examples where the company illustrates both a "current" premiums they plan to charge, and a guaranteed premium they will not exceed.

The current premium is marked by asterisks indicating it is NOT guaranteed.

For companies that offer current premiums, and most don't, what they illustrate as current renewal premiums will vary by company.

Personally, I trust no corporation and would not put a lot of stock in "projected" values.​

Let me suggest that virtually no one sells ART policies anymore, simply because 10 year term blows the costs out of the water.

In the example provided, the ART product was for a $250,000 30 year old, male non-smoker (standard) health. The ART premium was 242.85.

The same individual could get a 10 year guaranteed premium for $187.50 or a 15 year premium for $227.95 or a 20 year premium for $266.25. Why they would buy an ART, where the current premiums are NOT guaranteed after the first year, and where the guaranteed ART premiums climb like a SpaceX Falcon 9.

Actually, if I was selling a product to a 30 year old, I would be pushing them hard to buy 30 year term. Lock in and guaranteed the health and the cost of insurance for 30 years. No increasing anything to worry about, and the premium would be only $412.50 per year.

The TIAA-CREF guaranteed YRT premium in the second year is $505 climbing to $4,050 by age 59.

 

[DHK]

I'm just curious... did both policies have similar conversion options to permanent plans? I can only guess that would be the reason for the discrepancy.

 

[Robert Barney]

Which "both policies" were you referring to.

Most level term plans offer conversion to the end of the level period. As to what a product can convert to when that time comes...

 

[DHK]

Which "both policies" were you referring to.

Just whatever you were referring to here. Not a big deal.

Let me suggest that virtually no one sells ART policies anymore, simply because 10 year term blows the costs out of the water.

In the example provided, the ART product was for a $250,000 30 year old, male non-smoker (standard) health. The ART premium was 242.85.

The same individual could get a 10 year guaranteed premium for $187.50 or a 15 year premium for $227.95 or a 20 year premium for $266.25. Why they would buy an ART, where the current premiums are NOT guaranteed after the first year, and where the guaranteed ART premiums climb like a SpaceX Falcon 9.

 

[Allen Trent]

Which "both policies" were you referring to.

Most level term plans offer conversion to the end of the level period. As to what a product can convert to when that time comes...

This is just not true any longer. Many carriers are transitioning to offering the conversion to the end of level term as an optional rider at issued. They call it "extended conversion" rider or something along those lines. Without the optional rider, the policy may only have a 1, 3 or 5 year conversion period. Obviously, it an agent is trying to beat a raw price, they may only be offering the limited conversion product.

Even before this new trend I have seen many clients where their conversion privilege had expired a few years before the end of the level term. By the time they saw the massive jump in their premium in the year following the level period, it was too late as their 10 year term was only convertible for 7 years or 5 years.

Our industry has chased the premium lower & lower without explaining to the consumer that it has not been merely from improved mortality, but also by gutting the ability for someone to keep their coverage. In years gone by, they might have been able to lower the face of their term policy, or convert until age 65 or 70 & lastly have modest premium increases after the level period. Today, because of our pressures as agents to get it cheaper & cheaper, we are many times forcing the hand of the carriers.

 

[DHK]

Of course, it also assumes that agents stick around and actually SERVICE their book of business and talk about the importance of converting the policy.

No agents talking about it... it's far less likely to happen.

 

[Robert Barney]

This is just not true any longer. Many carriers are transitioning to offering the conversion to the end of level term as an optional rider at issued.

Yes, I am well aware of that and certainly there are products like that, however, those products remain in the minority. There are lots of competitive alternatives that offer conversion for the entire level period.

The real issue is that there is no guarantee what will be available for conversion at the time the client decides to convert. If a consumer thinks they will need a permanent policy, the time to buy is now, while they have the health to get whatever they want. If they buy term, planning to convert, they get shoe horned into an inferior permanent policy should their health not let them buy whatever they want.