I was asked to investigate a life insurance policy recently by a CPA friend of mine. The client, who I assume is the insured, was concerned that the policy premium is scheduled to increase 2 years from now.
It did not take long to determine the problem. It also did not take long to determine there are no solutions either.
The client bought a 20-year term policy when he was 62 years old - he is now 80. At the time of purchase, he was in good health, now at 80 he is not. The initial premium is $31,149 and stays level until age 82. At that point, the premium will increase to $810,189! The client will soon be in a position of going from fully insured to underinsured.
How and why did this happen?
As you know, term life insurance is the most popular type of policy on the market. This is due to the fact that it is the cheapest and most accessible way to get coverage. Additionally, many individuals think they only want coverage for a period of time, such as until their children have grown and moved out of the house or until they’re ready to retire.
I hear this story way too often. An advisor recommends to their client that they need life insurance. The client responds - what is that going to cost me? This conversation ultimately leads to solving this long-term problem with a short-term solution. In the above example, it was determined that the client needed $3,600,000 of coverage for his family. The cheapest solution was term insurance; a 20-year term policy.
However, the cheapest option isn't always the best option...
An Alternative to Term Life Insurance
A better solution, in my opinion, is to ensure that your clients who are interested in life insurance obtain a PERMANENT policy. Guaranteed Universal Life Insurance (GUL) is a great alternative for your clients as it allows them to get affordable, (and most importantly) PERMANENT coverage that they couldn't get otherwise with a 10-, 20-, or 30-year term policy.
I know what you're thinking... Yes, a GUL policy will have higher premiums than a simple term policy. But there are many insurance carriers that provide a solution:
Guaranteed Universal Life Insurance with Return of Premium Riders
Some of the carriers we work with offer a return of premium rider on their GUL products. If your clients’ circumstances change or they no longer need life insurance, a return of premium rider may be their way to restore financial stability. For example, on the 15th, 20th, and 25th policy anniversaries, the rider may allow your clients to fully surrender their policy and receive a partial or full return of their premiums paid. Do you want to see a sample proposal comparing a Term Policy to a GUL w/ Return of Premium Rider?
