I'm not overly familiar with life insurance, and at the age of 36 took out a 20 year term policy.

I'm almost 42 and my insurer is offering a "term conversion credit offer" where I move all or part of my coverage into a universal life policy. In exchange my first year premium of the new policy will be reduced by some amount based on what I have paid for the term policy over the last year.

I suspect the answer is that it depends, but is this in my financial interest or that of the insurer?

Well do you have any type of whole/universal life insurance now? The issue with the term policy is that, as the name implies, it's only around for 20 years. Most people take out a large term policy to cover their mortgage in case they die, and they will also have a smaller whole life policy to cover them for funeral/other expenses when they eventually die.

If you don't have any other type of policy it may be worth converting the term policy because it will be a lower rate than trying to buy a new whole life policy now that you're older.

The most important thing to consider is why you have a life insurance policy. If you have a spouse or children that will require financial support that is one thing. If you are partners in a business with someone it might make sense for each of you to have a life insurance policy on the other. In that case it prevents a spouse from suddenly being partners in your business. Many times life insurance is sold as an investment vehicle with a death benefit.

Former life agent here. My answer: no, run. Just a clever way to sell you WL/UL insurance, a product which almost no-one needs.

For most insurance companies, term life is just a loss leader for the product they really make their money on, i.e. cash value (whole or universal life). It's nice having a convertible policy, but rarely would one want to execise it.

Your 20-year term is almost certainly ART (Annual Renewable Term), meaning after the initial 20-year period, you can keep it going but at a higher rate, which eventually goes up more. However, the best financial strategy is not to even renew the term policy, as you are no longer supporting anyone who would be financially hardshipped by your loss.

If they are hawking the benefits of permanent life insurance (i.e. cash value) for retirement purposes, yes it can do that but there are much better ways to save for retirement than paying for life insurance that you will eventually not need.

Lots of stuff to consider.

First, I'm not big on cash value insurance. You're almost always better of buying lower cost term and investing the difference somewhere else.

How long do you think you'll need life insurance?

If you're in good health and qualify for a good rate, you might consider taking out a new term policy and go 30 year level term. You would have a guaranteed rate till age 72.

Life insurance is pretty cheap right now. Probably cheaper than when you took out your current policy.

And as to this:

I suspect the answer is that it depends, but is this in my financial interest or that of the insurer?

Commission on a universal life policy is higher than on term, soooooo what do you think?

Just some things to think about.

quote:

Originally posted by kkina:
Former life agent here. My answer: no, run. Just a clever way to sell you WL/UL insurance, a product which almost no-one needs.

For most insurance companies, term life is just a loss leader for the product they really make their money on, i.e. cash value (whole or universal life). It's nice having a convertible policy, but rarely would one want to execise it.

Your 20-year term is almost certainly ART (Annual Renewable Term), meaning after the initial 20-year period, you can keep it going but at a higher rate, which eventually goes up more. However, the best financial strategy is not to even renew the term policy, as you are no longer supporting anyone who would be financially hardshipped by your loss.

If they are hawking the benefits of permanent life insurance (i.e. cash value) for retirement purposes, yes it can do that but there are much better ways to save for retirement than paying for life insurance that you will eventually not need.

This.

quote:

Well do you have any type of whole/universal life insurance now?

I do. It's a smaller policy than the term and was purchased many years ago.

quote:

If you have a spouse or children that will require financial support that is one thing. If you are partners in a business with someone it might make sense for each of you to have a life insurance policy on the other. In that case it prevents a spouse from suddenly being partners in your business. Many times life insurance is sold as an investment vehicle with a death benefit.

I try to be as debt free as possible. Outside of my home, I don't owe much.

I do have two young children, and their mother stays at home to take care of them. If something happened to me she wouldn't be able to continue my business. I figured there would be enough money to pay off the house, have a bit for the kids education, and to hold her over for a few years until she could get back on her feet.

The agent was selling it as an investment vehicle, but this is the same agent that sold me the term policy 5 years ago.

the short answer on insurance is : buy term. you get a heck of a lot more coverage dollar for dollar.

make your investments separate - ie low cost mutual funds.

insurance companies hate it when you do this.

would you buy car insurance that was sold as a savings / investment product??

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Insurance
n. An ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table.

— The Devil’s Dictionary

quote:

Originally posted by a1abdj:


I do have two young children, and their mother stays at home to take care of them. If something happened to me she wouldn't be able to continue my business. I figured there would be enough money to pay off the house, have a bit for the kids education, and to hold her over for a few years until she could get back on her feet.

in a nutshell - what you wrote is exactly what insurance is for.

the exact amount of term is on you to determine based on mortgage amount, income level, outstanding loans, etc. It's not - IMO - supposed to be a lottery jackpot.

your wife should have some also - because even if she is 'just' a stay at home; Mom - if she died you would have to come out of pocket $$$ to cover the level of care she is providing your family.

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you might look at it this way (numbers are examples):

Get a term policy for $500K.

$200K to pay of existing mortgage
$50k to fund a 529 plan for Child A
$50k fund a 529 plan for Child B
$200k for wife to draw $50k / year for 4 years while she gets herself back on her feet.

Of course your wife will typically gain custody of any other investments / savings you hold assuming you have not chosen other beneficiaries.

Just as an example. You can determine if those amounts are sufficient.

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This depends on a lot of things if it is worth or not. too many to go into on a public forum. If you plan on wanting insurance forver then its possibly worth it. If you plan on just having insurnace to get you through the income gap while the kids and house payments are a liability then prolly not worth it.

Lot of IFs in there.

I spent some time selling life insurance and understanding it. Whether you need the insurance is a separate discussion; I just want to talk about your specific question and just assume you do need the insurance now and when you're 56.

The answer is: it depends. Here's the backstory behind what the insurer is offering you.

At your age, you're still a good bet for the insurer. When your current contract ends, they want to keep you. But chances are, you'll get sticker shock when you're 56 at how much the term policy will cost and they don't want to lose you. The way to do this is to convert you to a Universal Life Insurance plan.

Universal Life Insurance has two parts: the term life policy which you're already familiar with PLUS a savings component. If you convert, the premiums you'll pay will go up higher than what you're paying now but lower than what the premiums will be for a term life insurance at age 56. The expenses for the life insurance component stays the same so the difference between the higher premium and the insurance cost will go into the savings component and will accumulate/build up over time.

At some point, the expenses for the life insurance will be higher than the premium you're paying in. That's when the shortfall will be covered by the savings portion. Hopefully, or the projection will show that the interest and the principal of the savings portion will continue to grow.

So the question for you is, assuming you'll want/need to continue having insurance at age 56, is whether you can set aside money on your own and beat the returns of the savings portion of the universal life insurance. If you're sure you'll need to continue your interest and you can be disciplined to save the money and let it accumulate and can get a better return on your money than the insurance company, then you can forego converting. If you can't be disciplined to set aside and earmark the money for your future insurance needs and you are going to need/want the insurance, then the better option is to convert into the universal life option.

Another intangible consideration is if you go term and something detrimental to your health happens, then at age 56 you would either be uninsurable or have to pay even higher premiums. If your family history includes diabetes, high blood pressure, etc., you might add this into the mix for your decision.

The expense for all life insurance plans always increase in age. If you had compared the premium costs for 5 years, 10 years, and 20 year term insurance, the premiums go higher because each set aside money in the beginning of the term to build up in order to make up the difference in the higher insurance expense and the level premium you are paying towards the end of the term period.

ETA: I suppose to give you a sense of what you're looking at: I kept a yearly term life insurance policy I had that at age 35, I was paying under $30 a month for myself and my wife. I want to say the policy was for $275,000 and my wife for $100,000. By the time I was 58, the premiums had increased to $475 a month. At that point, I had more than enough 401k savings to cover the $275,000 should either one die. So I decided to stop the insurance policy then because I didn't need it.

quote:

Originally posted by kkina:
Former life agent here. My answer: no, run. Just a clever way to sell you WL/UL insurance, a product which almost no-one needs.

For most insurance companies, term life is just a loss leader for the product they really make their money on, i.e. cash value (whole or universal life). It's nice having a convertible policy, but rarely would one want to execise it.

Your 20-year term is almost certainly ART (Annual Renewable Term), meaning after the initial 20-year period, you can keep it going but at a higher rate, which eventually goes up more. However, the best financial strategy is not to even renew the term policy, as you are no longer supporting anyone who would be financially hardshipped by your loss.

If they are hawking the benefits of permanent life insurance (i.e. cash value) for retirement purposes, yes it can do that but there are much better ways to save for retirement than paying for life insurance that you will eventually not need.

This is the honest truth, from someone who knows the business, but importantly no longer makes their money that way.

What people should do is, get a term policy, which should have much lower premiums than a whole life policy, and invest the difference. The idea is to build up the investment account so at the end of the term you are "self insured."

For example, I have a term policy that will end around the time my children start college. I did not carry any life insurance when I was single with no kids, and invested the money I would have put into insurance. Had I died my parents/siblings would have inherited that money, and other assets, and there would have been no financial hardship to anyone.

When I started my own family I picked up a term policy that will ease the financial burden on my family if I were to die. However, it's not a "death lottery." My spouse would still need to work after I die, but the insurance is enough they can maintain their lifestyle. I have invested quite a bit of money, outside my tax advantaged retirement savings, rather than life insurance So by the time my kids are about to start college we will no longer need the life insurance policy, as that money will be substantial, but still not subject to estate tax, and will transfer to my wife tax free (No capital gains in earnings prior to my death, only earnings after my death).

Therefore, by that time, with regard to life insurance, I will be self insured. If I don't die prior to retirement those funds will allow us to enjoy retirement that much more.

As I always recommend on these financial threads, if any of this seems confusing to you, get your hands on the latest editions of "Personal Finances for Dummies," and "Investing for Dummies." Those books will give a solid foundation of knowledge on finances and Investing, and will help avoid scams. FYI, in general, whole life and universal life policies are a scam, that just has an air of legitimacy to it simply because it's sold by well known/established companies.

This message has been edited. Last edited by: DMF,

Will you still need the same amount of life insurance, or any at all, at the end of the 20-year term?

Look to the end game...how much life insurance do you want to have pay out at the end of your life. It's a good plan to have that amount in "permanent" insurance (UL, whole life etc.). The premiums are fixed - albeit higher - but the insurance is permanent.

Use term insurance to fill in blanks.