Term Insurance - Cost of Waiting Software??

[term2u]

This may be a stupid question, but is anyone familiar with software which can mathematically help a client determine as to whether it makes sense to replace their existing term coverage now, verses, waiting until the end of their term period, which is ending in "x" years?

Meaning, most clients will say that they'll replace their term coverage in "x" years when their policy expires/terms out, rather than changing course now and extending their term coverage for the long haul. Obviously, there's the typical.. "your health could change, and you could become uninsurable" point, but is there any program/software to show the hard figures?

ie: A 45yr old client who has 5yrs remaining on his initial $250k 20yr term policy. He knows that he will definitely want coverage beyond age 50, therefore, he should replace the coverage now, or layer on an additional policy, which will accomplish this goal.

Am I wrong in this assumption? Many people seem to have a hard time departing with their old policy at the lower rate, versus, seeing the forest through the trees now, and biting the bullet on a new policy, which will extend beyond their current coverage. Thanks in advance!

 

[Robert Barney]

This may be a stupid question, but is anyone familiar with software which can mathematically help a client determine as to whether it makes sense to replace their existing term coverage now, verses, waiting until the end of their term period, which is ending in "x" years?

Meaning, most clients will say that they'll replace their term coverage in "x" years when their policy expires/terms out, rather than changing course now and extending their term coverage for the long haul. Obviously, there's the typical.. "your health could change, and you could become uninsurable" point, but is there any program/software to show the hard figures?

ie: A 45yr old client who has 5yrs remaining on his initial $250k 20yr term policy. He knows that he will definitely want coverage beyond age 50, therefore, he should replace the coverage now, or layer on an additional policy, which will accomplish this goal.

Am I wrong in this assumption? Many people seem to have a hard time departing with their old policy at the lower rate, versus, seeing the forest through the trees now, and biting the bullet on a new policy, which will extend beyond their current coverage. Thanks in advance!

Keep the current 20 year term for 5 years, buy the new 20 year term immediately.

There is a risk he/she may not qualify in 5 years.

BUY what you know you will need NOW. There is no way to factor in becoming un-insurable.

 

[term2u]

Keep the current 20 year term for 5 years, buy the new 20 year term immediately.

There is a risk he/she may not qualify in 5 years.

BUY what you know you will need NOW. There is no way to factor in becoming un-insurable.

Yeah, that makes logical sense to me as well, but oftentimes, it doesn't click with prospects. I guess I'm referring to a situation, where they're looking to keep the same amount in death benefit, with the goal of trying to extend the policy out beyond their current coverage. This is also under the assumption that they're in the same health that they were "x" number of years ago.

A lot of people seem to think they're "wasting" money on the new policy, as they're getting such a good value/low premium on their existing coverage. Now that they're older, the new policy is obviously going to be more expensive than their existing policy, but I was looking for a mathematical calculation which would show the cost of waiting, as many people aren't familiar with how the actuarial tables increase dramatically over time.

Kind of a weird question, but I do run into this quite a bit with our current book.

ie: 45yr old male whose $500k 20yr term policy is expiring in 5yrs. He knows he's definitely going to need coverage beyond age 50, but he tells me during a policy review that he's going to let his current policy term out in 5yrs and then take care of it then.

I always try to get prospects to forecast and assess whether they're going to need coverage past age "x", and if so, then change course now and solve the problem.. Their natural inclination is that they have such a good value locked-in on their existing coverage, that they don't want to mess up a good thing, despite knowing the fact that they're going to want/need coverage past age "x". It doesn't make any sense to me.

 

[WinoBlues]

Yeah, that makes logical sense to me as well, but oftentimes, it doesn't click with prospects. I guess I'm referring to a situation, where they're looking to keep the same amount in death benefit, with the goal of trying to extend the policy out beyond their current coverage. This is also under the assumption that they're in the same health that they were "x" number of years ago.

A lot of people seem to think they're "wasting" money on the new policy, as they're getting such a good value/low premium on their existing coverage. Now that they're older, the new policy is obviously going to be more expensive than their existing policy, but I was looking for a mathematical calculation which would show the cost of waiting, as many people aren't familiar with how the actuarial tables increase dramatically over time.

Kind of a weird question, but I do run into this quite a bit with our current book.

ie: 45yr old male whose $500k 20yr term policy is expiring in 5yrs. He knows he's definitely going to need coverage beyond age 50, but he tells me during a policy review that he's going to let his current policy term out in 5yrs and then take care of it then.

I always try to get prospects to forecast and assess whether they're going to need coverage past age "x", and if so, then change course now and solve the problem.. Their natural inclination is that they have such a good value locked-in on their existing coverage, that they don't want to mess up a good thing, despite knowing the fact that they're going to want/need coverage past age "x". It doesn't make any sense to me.

Do a one page proposal. Or two one pagers.

Run it out maybe to age 85. (I prefer using age as opposed to years) Do it year/age at a time like a normal company illustration. Show them the real numbers side by side.

Option A - Current plan = $600.x5 yrs then $5,600, then $6,400,then $7,300, then $8,200. And so on

Option B - to age 70 = $4,000, $4,000, $4,000, $4000 and so on

Option A & B are based on what we know today.

Option C - May be available = $600.x5 yrs then $6,500, then $6,500, then $6,500, and so on

Option C(a - Table D = $600.x5 yrs then $13,000, then, $13,000, then $13,000, then $13,000 and so on.

Option C is a guess at what may be available. Could be much higher or not available at any price.



I have a client that pays about $3,600 yr, I did this 5 years ago and he did nothing. He still has a couple years left on his plan. However, he is now uninsurable and his conversion option terminates in November. The lower cost Genworth option I showed him last year is gone. His opinions now is convert a piece for about $12,000, die in the next 24 months, or die after that for free.

 

[Robert Barney]

There is a function in Compulife called IACA - Interest Adjusted Cost Analysis.

I have mocked up a case for you to consider, I think it will help you with what you want.

EXAMPLE:

Consumer is 45 years old, preferred non-smoker. At age 30 he bought a 20 year term plan which has 5 more years to go. He could buy a new 20 year term today, or run with his current policy for 5 more years, and then buy a 15 year term plan, to finish the 20 year. I have attached the comparison.

While the numbers favor keeping the old policy for 5 more years (and I would expect them to do that), the problem with ALL of this is the fact that there is NO guarantee he can get the new insurance in 5 years. NONE.

The reason the numbers favor keeping the old policy is because even if he went to the market at age 45, to get a 5 year term, versus the old 20 year premium (running for 5 more years) he would be looking at a premium of $495 per year, MUCH higher than the 20 year premium he is already buying.

That is why I would tell him to KEEP his existing 20 year plan, and run with it for 5 more years. It's an overlap, but his old 20 year policy, for the next 5 years, is a bargain.

But I would buy the NEW 20 year term plan he knows he will need beyond that, and consider the cost difference a very inexpensive way to guarantee his insurability.

 

[WinoBlues]

There is a function in Compulife called IACA - Interest Adjusted Cost Analysis.

I have mocked up a case for you to consider, I think it will help you with what you want.

EXAMPLE:

Consumer is 45 years old, preferred non-smoker. At age 30 he bought a 20 year term plan which has 5 more years to go. He could buy a new 20 year term today, or run with his current policy for 5 more years, and then buy a 15 year term plan, to finish the 20 year. I have attached the comparison.

While the numbers favor keeping the old policy for 5 more years (and I would expect them to do that), the problem with ALL of this is the fact that there is NO guarantee he can get the new insurance in 5 years. NONE.

The reason the numbers favor keeping the old policy is because even if he went to the market at age 45, to get a 5 year term, versus the old 20 year premium (running for 5 more years) he would be looking at a premium of $495 per year, MUCH higher than the 20 year premium he is already buying.

That is why I would tell him to KEEP his existing 20 year plan, and run with it for 5 more years. It's an overlap, but his old 20 year policy, for the next 5 years, is a bargain.

But I would buy the NEW 20 year term plan he knows he will need beyond that, and consider the cost difference a very inexpensive way to guarantee his insurability.

The number differences at older ages. Also, I only quote the guaranteed renewal premiums not the current renewals. Also many plans' guarantee is ART. More and more companies are increasing non guaranteed rates. My JNL policy as an example.

I agree that keeping the old policies sometimes makes sense, depending on overall need and premium sensitivity.

 

[term2u]

Do a one page proposal. Or two one pagers.

Run it out maybe to age 85. (I prefer using age as opposed to years) Do it year/age at a time like a normal company illustration. Show them the real numbers side by side.

Option A - Current plan = $600.x5 yrs then $5,600, then $6,400,then $7,300, then $8,200. And so on

Option B - to age 70 = $4,000, $4,000, $4,000, $4000 and so on

Option A & B are based on what we know today.

Option C - May be available = $600.x5 yrs then $6,500, then $6,500, then $6,500, and so on

Option C(a - Table D = $600.x5 yrs then $13,000, then, $13,000, then $13,000, then $13,000 and so on.

Option C is a guess at what may be available. Could be much higher or not available at any price.



I have a client that pays about $3,600 yr, I did this 5 years ago and he did nothing. He still has a couple years left on his plan. However, he is now uninsurable and his conversion option terminates in November. The lower cost Genworth option I showed him last year is gone. His opinions now is convert a piece for about $12,000, die in the next 24 months, or die after that for free.

Interesting - So it looks like you'd show the comparison using UL illustrations, and not term quotes?

I'm just wondering if there's a certain sweet spot mathematically to where it makes sense to replace a like-to-like term policy, like in Bob's example? Meaning, if a 45yr client has 5yrs remaining on his very low 20yr term policy and he wants to definitely replace it at the end of the level term period, it may be more optimal that he replace it when he has about 2-3yrs left on the policy, as he will be leaving money on the table if he replaces it with 5yrs left to go (per Bob's example)?

I know that his health could always change, but for a lot of people that I speak with they're fine with taking that risk. Not to say that it's right, but many of our current clients are seem to be fine with assuming that potential risk. I'm just looking for a trigger point to try to get clients to change course before their policies expire and to get some additional re-writes in the process. I also obviously want to do what's right/best for them in the long-run.

 

[Robert Barney]

I know that his health could always change, but for a lot of people that I speak with they're fine with taking that risk.

If taking the risk is something that does not bother the client, then there is no way you will be able to make a case to replace a 20 year term product with 5 years left to go, unless the 20 year term was over priced in the first place (and I wouldn't rule that out).

 

[WinoBlues]

If taking the risk is something that does not bother the client, then there is no way you will be able to make a case to replace a 20 year term product with 5 years left to go, unless the 20 year term was over priced in the first place (and I wouldn't rule that out).

That ^^^

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Interesting - So it looks like you'd show the comparison using UL illustrations, and not term quotes?

I'm just wondering if there's a certain sweet spot mathematically to where it makes sense to replace a like-to-like term policy, like in Bob's example? Meaning, if a 45yr client has 5yrs remaining on his very low 20yr term policy and he wants to definitely replace it at the end of the level term period, it may be more optimal that he replace it when he has about 2-3yrs left on the policy, as he will be leaving money on the table if he replaces it with 5yrs left to go (per Bob's example)?

I know that his health could always change, but for a lot of people that I speak with they're fine with taking that risk. Not to say that it's right, but many of our current clients are seem to be fine with assuming that potential risk. I'm just looking for a trigger point to try to get clients to change course before their policies expire and to get some additional re-writes in the process. I also obviously want to do what's right/best for them in the long-run.

No, I am not using UL. The numbers I used were just numbers I stuck in there. Could be GUL or term. After they see the advantage of doing something it could wind up a Whole Life or conversion. However, the rates really jump if it terms out in the 60s. I usually start about 5 years out then touch them every year as we get closer and closer to the cliff. {cue Jaws music}

I did this for orphan referrals a couple years ago. Touched them about last November. Wife has be worried since. Called me last month and they are in underwriting now. About 4xs the premium and less than half the face. And as Bob said, they are keeping the other plan till it terms out. Then I will try to convert a small amount for FE.

 

[term2u]

That ^^^

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No, I am not using UL. The numbers I used were just numbers I stuck in there. Could be GUL or term. After they see the advantage of doing something it could wind up a Whole Life or conversion. However, the rates really jump if it terms out in the 60s. I usually start about 5 years out then touch them every year as we get closer and closer to the cliff. {cue Jaws music}

I did this for orphan referrals a couple years ago. Touched them about last November. Wife has be worried since. Called me last month and they are in underwriting now. About 4xs the premium and less than half the face. And as Bob said, they are keeping the other plan till it terms out. Then I will try to convert a small amount for FE.

You guys are AWESOME and definitely some great advice! I guess I just need to be patient and keep in touch with them every year like you said.

It's really frustrating when a client says they're just going to wait until their policy terms out and then replace/take out another policy at that time. I have some people even say they're going to wait, when they have like 1-3yrs left on their existing term.

To me, it makes much more sense to bite the bullet now and pay the higher premium for 1-3yrs and then you're covered and locked-in. I think as with most life insurance, people just don't like to deal with it and put it off. I also think that many people feel that there's a certain comfort in having some coverage, although, oftentimes it's not nearly enough (ie: a 40yr old primary earner with only $250k of coverage).

Here's an example of an actual client, where it seems like it would make complete and total sense to replace their existing policy:

50yr old male, $300k Transamerica Trendsetter 20yr, expiring 4/2017 - PNT, Currently pays $321/yr, but wants another 20yr term policy and is most likely going to wait until term period expires.

Option #1 (Replace now at age 50) - $300k AG Select-A-Term 20yr at PNT - $706/yr | Cumulative Cost: $706/yr * 20yrs = $14,120 total premiums paid
Option #2 (Replace at end of Term at age 52) - $300k AG Select-A-Term 18yr at PNT - $772/yr | Cumulative Cost: $772/yr * 18yrs = $13,896 + ($321/yr * 2yrs) =$14,538 total premiums paid

**I ran AG for both examples, as they're the only carrier that I know who allows for term at single years, versus 5yr brackets.

As you can see, it looks like replacing his policy now would make more sense, as he's saving money in the long-run, while also guaranteeing his insurability now, while he's healthy.

Since I'm very analytical I always like to show the client hard data, and it looks like Bob's IACA calculation will be an easy way to show the client the "cost of waiting". I would even be inclined to run the IACA figures with a 0% interest rate, as I think it would be an easy way to show the client the benefit of replacing now, rather than having to do the full calculation like I did above. I just wish I could get clients to see the light.. The mathematical evidence is there, but many people delay, which is unfortunate...