Health Credits for Better Life Insurance Rates: Table Shave Upgrade to Offset Health Problems

 Kinnaur

Certain life insurance carriers allow standard rates for those with below average health.  It’s called a table shave program.  Carriers also will upgrade rate classification with health and lifestyle credits.  For those who have experience health problems, these rate classification upgrades can save a good deal of money on premiums, especially if a rated case gets to standard.

Top carriers 

Table 3 to Standard  (permanent plans only)

Aviva
Lincoln
Principal

Notable for Carrier Credits 

AXA          Good Health Credit Program
Banner      InTOUCH Underwriting
MetLife
Mutual of Omaha      Fit Program    (United of Omaha)
Nationwide
Symetra
Transamerica

Credits may include:

Preferred or better build; regular preventative care; optimal blood pressure control treated or untreated; lifetime non smoker; history of non-tobacco use, no tobacco in the last 10 years; no family history or death from disease prior to age 70, both parents surviving to age 75, family history of longevity; cholesterol/HDL ratio less than or equal to 5.0, or less than or equal to 4.5; regular exercise; cancer screenings such as colon cancer, and other routine preventative age and gender screenings such as pap smear, mammography, prostate exams; negative cardiac testing; recent negative treadmill; lifestyle changes and improved health habits.

Please contact me for a free and confidential quote.

sean's profile picLicensed Agent:  Sean Drummey
phone:  (910) 328-0447
email:    spdrummey@gmail.com

Cash value life insurance vs. term and invest the difference: is that the only choice?

Last week Seeking Alpha posted an article where a 38 year old man, presumably an investment broker, passed on his life insurance agent’s advice for a permanent life insurance product with a $5,000 annual premium, and instead choose term coverage for $600 a year. He took cash value life insurance to task with the self-serving advice to buying term and investing the difference.

OK.  No real argument there. At age 38, or for that matter for any working age person, term offers more bang for the buck, and that’s the most affordable way to replace lost income and thus protect a spouse or dependents.  But did this gentleman get enough coverage?

Term: How much and how long
He’s to spend $600 a year in premium.  Let’s review the most competitive rates and see what $600 a year buys.  A male preferred non-tobacco with SBLI (Savings Bank Life Insurance of Massachusetts), $800,000 of 20 year term is $596 a year. 25 year term $525,000 face amount is $600.75 a year with SBLI.  The rule of thumb is had 7 to 10 time one’s annual salary in life insurance. If he has children, there’s a college fund to consider.  Whether this individual got sufficient coverage depends on how much he makes, but keep in mind the goal is to get an adequate amount, and if affordable extend coverage to retirement age or to a point the children would be expected to have finished their secondary or post secondary education: age 22 or age 26.

Term and Permanent:  Two Plans – Two Purposes
Term verses permanent life insurance is a fallacious argument, as if it’s either one or the other. You can set up two policies: one term to replace lost income during your working years and a permanent for estate planning and to build cash value.  For this 38 year old, instead of a $800k 20 year term, how about a $100,000 of permanent life insurance and $700,000 in term?  A $100,000 Indexed Universal Life “Lincoln LifeReserve Indexed UL Accumulator” with Lincoln National, increasing face amount, targeted to endow at age 100, is $1,511 annual for male, age 38, preferred. That quote assumes 5% interest on S & P 500 index, annual point-to-point. At 5% that projects $33,803 cash surrender value and a $133,803 death benefit after 20 years.  Add a $700,000 20 year term with SBLI for $529 annual, that comes to $2,040 annual total cost for the two plans, and the Indexed UL is a very flexible premium, up or down depending on index returns or personal finances. This way after 20 years this person, now in his late 50’s, doesn’t have to encounter much more expensive choices in establishing permanent coverage for estate planning and with the right plan a chronic care or LTC rider in case LTC is needed.

There is also return of premium (ROP) term.  $800,000 20 year ROP term is $3,072 annual with American General for a 38 year old male at preferred.  In 20 years that guarantees $61,440 cash back or $170,218 in paid up life insurance.  After 20 years that paid up life insurance might be an appealing choice.  You could do a mix of ROP term and regular level term to lower that cost.

Please contact me for a free and confidential quote.  Many more options available.

sean's profile picLicensed Agent:  Sean Drummey
phone:  (910) 328-0447
email:    spdrummey@gmail.com

MetLife Discontinues Lifetime Guaranteed Universal Life

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MetLife has announced, effective April 27, 2013, it will no longer offer the coverage continuation rider to its “Guaranteed Advantage Universal Life” product.  MetLife’s “MetLife Provider UL” product has an age 95 no-lapse guarantee.  Other MetLife products including whole life will still have lifetime guarantees.

Several major carriers are still offering age 120 or better no-lapse guarantees in 2013 despite the new cash reserve requirements.  For example, Lincoln National is a leader in competitive premiums for lifetime no-lapse GULs and has held that position over the years.  There are several Indexed UL products with lifetime no-lapse guarantees as well.

2013 has opened up some distance between the major carriers has to what lifetime permanent life insurance products they offer and their premiums.  There are age 90, 95, 100, 105 and age 110 no lapse guarantees, and have some merit in lowering cost, but instead of taking the risk of outliving the policy or entering a higher catch up premium bracket, it’s best to lock in a true level premium lifetime guarantee.

Long term care insurance options: Partnership or hybrid

Life insurance agents who reside in North Carolina are required to get 24 hours of continuing education credits every two years.  Nationally, my licenses for other states have cross reciprocation with my NC requirements. To help get my credits for this cycle, I’m taking a couple of courses that are required for the long term care (LTC) partnership program.  I have been licensed to sell LTC/Medicare Supplement since 2003, but now to sell a traditional LTC plans in NC requires educational credits for the Partnership Program which NC has adopted.

Partnership Programs have standardized LTC coverage features that protect the consumer.   Regardless, the fundamental flaw is that traditional LTC insurance plans are subject to rate increases.  Those increases must be approved by state insurance commissions, if sufficiently justifiable, but over the years they have occurred and likely will occur in the future.   Also if you don’t use traditional LTC insurnace coverage, it’s money out the window.

The hybrid solution: Life insurance with LTC
A solution to can be a life insurance policy with a decent LTC accelerated benefit rider.   With it you can lock in a guaranteed level premium for life, and the benefit is not wasted.  If you never need LTC, your beneficiaries get the LTC benefit. According to the course I’m taking, the amount paid for an accelerated LTC benefit is usually in the range of 50 to 90 percent of the policy’s death benefit.

The question becomes:  can you afford a policy with a death benefit big enough for potential LTC cost of care?

Annuities
Annuities are another good option.  It is an investment that can grow and then used if needed to fund LTC.

Hybrid Annuities
Two products:  Lincoln LTC fixed Annuity and United of Omaha Living Care Annuity come with LTC riders that augment the total amount of LTC coverage.

The question becomes: can you establish an annuity big enough for potential LTC costs?

Higher interest assumptions with Allianz and ING Indexed UL (IUL)

Looking closely over the last few days at the Allianz Indexed Uniersal Life (IUL) product “Allianz Life Pro+”  I was impressed by its cash value accumulation and for loans for tax free retirement income.  The index account loan rate of 5.30% is excellent.

But what interest rate should the illustration be shown?  Allianz “Blended Index II” can be illustrated at 8.78%. This percentage reflects a 25 year historical performance Dow Jones Industrial Average 35%, Barkleys Capital U.S. Aggregate Bond Index 35%, EURO STOXX 50® 20%, Russell 2000 ® 10%.  I’m sure agents go right ahead and use the highest allowed 8.78% on an illustration because it makes the non guaranteed assumptions look better.

But when comparing  Allianz 8.78% to Lincoln at 8.22% or for their S & P 500 point-to-point allowed illustrated rates, is that an fair comparison?    Lincoln recently announced that they too would follow a 30 year historical look back.  Given Allianz’s much higher assumption on their 25 year look back, their non guaranteed projections look better.  Carriers provide time frames on historical look backs partially based on what helps produce the highest number and to keep up with their competitor’s assumptions.  When comparing these three products, Allianz does have a different index, but is it superior?  Will any index with a 20% Euro stock element outperform the S & P 500?   The recent history of the European Union doesn’t make that a safe assumption.

ING‘s “Global IUL” can currently be illustrated at 10.00%.  It’s uses three indices: the S&P 500®, the EURO STOXX 50® and the Hang Seng.  The top performing index is weighted 75%, second best 25%, lowest 0% on a 5 year look back.  That 5 year look back has a powerful appeal: the two strongest are credited on past performance.  But really can one expect 10.00%?

Recommendation:  Request illustrations for each carrier at the same rate: 8%, 7%, 5% or lower for direct comparisons and to see how they may perform.

Indexed Universal Life (IUL) index rates: how to request quotes to compare carriers

Lincoln has changed the name of their Indexed Universal Life (IUL) product to “Lincoln LifeReserve Indexed UL Accumulator”.  They changed their default quoting rate on the S & P 500 annual point-to point to 8.22%.  This is based on a 30-year historical Lookback rate.  Before this Lincoln’s default rate was 7.75%.

Using a higher rate seems counter factual considering the S & P 500 was a flat 0% for 2011, despite so far enjoying a much better 2012.  Showing a higher rate reflects competitive pressures.  One carrier’s current default rate on the S & P is 8.30%.  A carriers competitiveness could suffer when another is showing higher rate on the exact same index and crediting period.   The rate quoted and the calculation method depends on the carrier.  Penn Mutual is currently illustrates 7.92% for the exact same S & P 500 annual point-to-point.   Tranamerica gives 7.93%.  Allianz  gives 7.22%.

The important consideration from a buyer’s point of view is to take all these rate assumptions with a grain of salt.   Sure the S & P could average 8% or above over the next several decades, but it could also average lower.   Request quotes with the exact same rate assumptions for a closer apples-for-apples direct comparison.   With Lincoln, North American and Penn Mutual, I use Penn Mutual’s 7.92%.   It would be nice to level them all to an even 8%, but most carriers including Penn Mutual won’t allow plugging in a rate higher than their default rate.

Depending on the index, the default index rates are in the 7% to 8% range.   It’s prudent to request a quote illustration with interest rates several points lower,  for example 5% or 6%,  to see how those hypothetical results would affect your goals.

Indexed Universal Life (IUL): less blue sky projections

Indexed Universal Life (IUL) illustrations commonly show 7% to 8+% returns based on historical averages over the last 20 to 30 years. Whether or not an Indexed UL can capture that kind of performance over the coming decades is debatable. 2008 bore an unsettling resemblance to 1929, except officials were able to spread foam on the runway.  The Euro’s instability lead to an additional dose of foam for European banks late last year.  All this uncertainty can make Indexed ULs more attractive because guarantees eliminate downside market risk while providing a life insurance benefit.  But what about the upside Certainly 2011’s index results surveyed were below average.  Tops was the Dow Jones Industrial Average at 5.53%.  The S & P 500, the most widely used index, came in at 0%, which is the floor for an Indexed UL regardless.  But then again, seeing blue sky, 2012 is off to a good start, and historically that’s a very good sign.

When reviewing an Indexed UL, it’s prudent to scenario the possibility of lower returns.  I ran a series of comparisons last fall on overfunding an Indexed UL to build cash value for retirement income.  Lincoln performed very well compared to the competition.   I used the S & P 500 Index, annual point-to-point, and Lincoln assumed on the illustration an 8.45% average return.

Over 8%?  How about 5%?
What would returns look like projecting at a more pedestrian 5%?   Assume a male, age 44, excellent health, putting in $25,000 a year in premiums for 20 years with the goal tax-free distributions for retirement income at age 65. Initial death benefit $520,000.

Carrier S&P 500
Index
Return
Cash Value
Year 20,
Age 64
Death
Benefit
Year 20,
Age 64
Retirement Income
Yrs. 21-40
Ages 65-84
Cash Value
Year 41,
Age 85
Death Benefit
year 41,
Age 85
 ‘
Lincoln 8.45%  $1,077,926  $1,597,926  $146,326  $830,516  $1,120,514
5.00%     $727,834  $1,247,834    $51,396 $219,059     $317,285

Take a different example with less premium.  $10,000 premium a year for 20 years: male, age 47, excellent health. Initial death benefit $185,000.

Carrier S&P 500
Index
Return
Cash Value
Year 20,
Age 67
Death
Benefit
Year 20,
Age 67
Retirement Income
Yrs. 21-40,
Ages 68-87
Cash Value
Year 41
Age 88
Death Benefit
year 41,
Age 88
.
Lincoln 8.45% $424,913 $609,913 $46,590 $186,833 $252,943
.
5.00% $287,005 $472,005 $19,732 $62,067 $77,698

When shopping for an Indexed Universal Life
All Indexed UL proposals come with full illustrations.  They’re required.  Brochures are okay as a start, but zero in on the illustration’s chart.  An agent can easily generate and email them on .pdf format.   Illustrations are based on current assumptions, for example 8.45% for Lincoln, but can be run with interest rate assumptions anywhere from 0% up to current.  Make sure to request and review lower interest rate assumptions as a counterpoint.

Carrier: Lincoln National Life Insurance Company; Product: ” Lincoln LifeReserve Indexed UL  (2011)”
Quotes run 1/11/2012 and are subject to change.

For your own personalized free quote please contact me.

Sean Drummey
Phone: (910) 328-04447
email: spdrummey@gmail.com

Surrender Charges on IUL

It’s always good to know the rules for getting money back, so I compared surrender charges for indexed universal life (IUL) carriers.  Surrender charges decrease on a declining schedule.  For the carriers I compared, it takes between 10 to 20 years for those charges to completely go away.  Not surprisingly, Lincoln and Penn Mutual were among those most favorable.

Penn Mutual is the best: no surrender charges after the 9th year, also no surrender charges in excess of target premium.

Target premium is a premium designed maintain a permanent policy for life.  Mind you target is a guidepost for keeping the policy in force, how the policy performs may require more or less premium.  With Indexed Universal Life one strategy is to over fund the policy above target to build additional cash value.  Of the carriers I surveyed, only Penn Mutual and Old Mutual did not require a surrender charge on that portion of the premium.

For example, as in prior comparisons: male age 44, over funding an Indexed UL with $25,000 in premium for 20 years in order to generate tax free retirment income in the form of policy loans.  With Penn Mutual this is a $590,000 increasing face amount policy, and the given target premium is $7,918 a year, but by over funding it with $25,000 in premium, just under the IRS limit for a Modified Endowment Contract (MEC), the policy builds the maximum permissible tax free cash value. That amount between $7,918 and $25,000 would not be subject to surrender charges at any time with Penn Mutual.

The least amount of surrender charges in the shortest period of time is a distinct advantage for an Indexed Universal Life in case there is a change in plans.

Sean Drummey
Contact for a free quote
Phone: (910) 328-0447
Email:  spdrummey@gmail.com