Friday, January 17, 2020

Looking Ahead: A Life Insurance Poser

Recently, had a client refer her adult daughter to me for some life insurance. She's relatively young, and single, and without much debt, so I asked why she was even considering a policy. She replied that she wanted to lock in her rates while she was young and healthy (which was what I wold have suggested to her, so kudos to this bright young lady). She originally asked about several hundred thousand dollars in coverage, and specified that she wanted a whole life plan (we'll circle back to this). So I collected what information I needed from her to run some quotes, and got to work.

I looked at both Whole Life and Guaranteed Universal Life, and sent her the quotes. She thanked me, but then wondered if perhaps she'd be better off buying a smaller amount now, and then increasing it later. I explained that one can't really do that (well, not on a guaranteed basis, anyway), but that we could write a smaller plan now, and then buy additional coverage down the road (assuming her continued good health).

But then I got to wondering: it seemed to me that we used to have a Future Increase or Guaranteed Purchase Option rider, but that was long ago, does that even exist anymore?

So I reached out to our friends at Issue Insurance, to whom we turn for products and/or carriers outside our normal, day-to-day needs. Tana said that no, she didn't know of any carriers that offered that with the Guaranteed UL product, but that our own primary carrier had one on their Whole Life plan.

I hadn't even looked - Yikes!

Sure enough,m there it was, the Insured Insurability Rider:

"This rider allows you to increase the specified amount of the policy on each option date, without evidence of insurability. This rider expires in year 11."

So, 10 "bites at the apple."

Here's how I explained it to my young client (and her mother):

"So looking at permanent plans (that is, where the rate never increases, and the coverage lasts to age 100+), there are basically two "flavors:" Whole Life (WL) and Guaranteed Universal Life (GUL). The biggest difference is that the WL plan will accumulate a cash value over time, while the GUL does not. This means that the WL is going to be more expensive, because you're paying for two things: death benefit *plus* cash value. Not a huge deal, but important to understand.

"Off the shelf," neither plan will let you increase the face amount (death benefit) as/when you get older, you'd have to buy additional policies to do that. BUT: The WL plan offers an inexpensive rider that lets you buy additional insurance each year until (until the 11th year- so 10 "additions") at $10k each. So if you exercised all those options, your plan would increase from (for example) $50k (originally) to $150k (original plus 10 times the $10k additions). Of course, the premium would increase each time you did that (because more insurance). But that's the only plan I could find that let you do that.

So, numbers:

GUL (just insurance), $50k is $30/month.

WL ("off the shelf"), $50k is $40.moth (so paying $10/month more to build some cash vaue over time).

WL with "Additions Rider," as described above, starts at $41/month (the rider costs about $1/month). Of course, each time you increase the policy $10k, the premium will increase some, as well

She's currently traveling, so I don't know which way she'll go (if at all), but thought that readers might find it helpful.

[Major Thanks to FoIB Tana H at Issue Insurance]
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