Lapse Supported Pricing

[Deepsea]

That is what no one really talks about.

Contracts are frontloaded with expenses and become a better and better deal as time passes on. They are designed to make a certain percentage lapse.

Too many death benefits paid out = not so good for a companies bottom line---obviously.

To win with life insurance....keep it Inforce till you die. Of course if everyone did that then I would just get the guaranteed colum with no dividends.

 

[Gooner]

To win with life insurance....keep it Inforce till you die. Of course if everyone did that then I would just get the guaranteed colum with no dividends.

So when my 20 year term $3 million policy goes to ART, I should just keep paying the ART rate, even though I bought it for a temporary need? Genius!

 

[rayluk]

Convert or replace the term with perm. You don't buy life ins to make money. There is always cost.

 

[Deepsea]

All I am saying is that when the life insurance has to pay a death benefit the company loses.
And when a policy lapses which by definition in this example is when no death benefit is paid----the consumer loses as far as that meaning they left money on the table.

Google "lapse supported pricing".....very interesting recent study at Princeton University.

I would counter that you do buy life insurance to make money.

Lets say a husband and a wife each buy policies on themselves. One dies before the other-----one of them gets a death benefi. Or when one or both die lets say children get the death benefit. I know I didn't buy my policies to lose money.

Even though an income shock might make it difficult to fully fund mine.

The overwhelming number if term policies never pay a death benefit.

But also a surprising number of whole life policies don't pay a death benefit because they lapse prior to death.

Very interesting study.

 

[Gooner]

Convert or replace the term with perm. You don't buy life ins to make money. There is always cost.

There will be no need in 15 years, much less in 20. The cost per unit was so cheap I just added an extra $1 million. It is purely there for my wife or I to make a little cushion if something happens....maybe making over generalized statements is a bad thing...just a thought

 

[Newby]

All I am saying is that when the life insurance has to pay a death benefit the company loses. And when a policy lapses which by definition in this example is when no death benefit is paid----the consumer loses as far as that meaning they left money on the table. Google "lapse supported pricing".....very interesting recent study at Princeton University. I would counter that you do buy life insurance to make money. Lets say a husband and a wife each buy policies on themselves. One dies before the other-----one of them gets a death benefi. Or when one or both die lets say children get the death benefit. I know I didn't buy my policies to lose money. Even though an income shock might make it difficult to fully fund mine. The overwhelming number if term policies never pay a death benefit. But also a surprising number of whole life policies don't pay a death benefit because they lapse prior to death. Very interesting study.

I've been buying car insurance for 38-years. I've lost money every year on it.

Insurance is to protect against something you don't want to happen. Not everyone has a percent need for life insurance. Once your need is gone, many people cash out or just cancel. That doesn't mean it was wasted money. They were protected the whole time.

 

[Deepsea]

Insurance is to protect your loved ones yes.

It's also a economic legacy that everyone would leave if it was Inforce at the time of death. Many policies lapse.

Definition of lapse is no death benefit ---for my discussion.

 

[Newby]

Insurance is to protect your loved ones yes. It's also a economic legacy that everyone would leave if it was Inforce at the time of death. Many policies lapse. Definition of lapse is no death benefit ---for my discussion.

I guess I'm missing your whole point.

Term insurance is definitely not designed to be in force at death in most cases.

UL is not always intended as a lifetime policy.

Whole-Life is promoted as having living benefits such as cash surrender options, reduced paid up options, terminal illness riders, etc. And because of these are often intended to end or change before death.

If you just mean that if every single person that bought life insurance kept it active until death, it would be priced higher...that's correct. That's not really a hidden secret though.

I may be missing your main point.

 

[Cash]

So if I want to collect on my life insurance I should keep it till I die?

Thanks Deepsea and Princeton for that info.

 

[Deepsea]

I know that sounds silly, but yes keep it until you die if you can. Since a life contract costs more than it should in the early years, and less than it should in the later years----Those that keep the coverage "win" the bet.

It's all a game of numbers. The companies have a team of actuaries working for them, which is good as you want the company to perform well.

But each "individual's" goal is the greatest return for the least cost.