3 May 2013 0 Comments

Comparing Permanent Life Insurance

how to compareAs I covered in the last couple of entries, comparing term premiums isn’t too hard.  When it comes to permanent life insurance, since there are so many more moving parts it’s more complicated.  There are basically two types of permanent insurance:  Whole Life and Universal Life.  But, then there are subdivisions of each of these policies.  Whole life could be classified into four subsets:  non-participating, participating, indexed and variable.  Universal Life has three subsets: traditional, indexed and variable.

Each of these policy types will have a death benefit and a living, cash value benefit.  And, these death and cash value benefits might be guaranteed, or based on current assumptions.  So, you can see, a comparison of permanent life insurance presents a challenge.  One must try to avoid the apples-to-oranges type of comparison and my challenge is to give you enough information so you’ll know what to look for, but not so much as to produce yawns…which may already have started.

Let’s start with looking at guaranteed death benefits; policies whose premium will guarantee a continuation of a stipulated death benefit.  This should be easy.  Traditional Universal Life policies should produce the lowest, level premium to guarantee the death benefit to age 121.  So, it that’s what you’re interested in, as opposed to a policy that develops cash values, that’s where I’d start looking, to keep the search as simple as possible.

Even, then, it can be confusing.  Take the case of the 60 year old male, a preferred non-tobacco user, who wants $500,000 of death benefit guaranteed for the rest of his life.  So, he starts with an agent who quotes an annual premium of $8,544 from a financially strong company.  That sounds fine until a second agent comes in with another strong company with an annual premium of $7,104.  How can there be such a difference?  It’s a classic apples-to-oranges comparison.  The higher premium is guaranteed if the insured lives to age 121.  The lower premium is guaranteed to “life expectancy.”  That’s the age at which an equal number of 60 year olds will have died-vs-the number that are still living.

Yet, another company offers an array of premiums based on the age to which the guarantee extends:

Age 90 guarantee                     $7,330

Age 95 guarantee                     $7,870

Age 100 guarantee                   $8,325

Age 121 guarantee                   $8,765

Tell me when you’re going to die and I’ll tell you which the best policy is.  By the way, the company with the age 121 guarantee of $8,544 develops much better cash values than the company with the $8,765 premium…go figure!  Get an independent agent who understands this stuff.

Before leaving traditional Universal Life death benefit guarantees, I’ll cover the flexibility of premium payments.  That’s next.

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