Introduction

Most people do not have a clear understanding of the various options available in term life
insurance, and consequently make decisions based solely on price. This document was written
to help you determine what additional issues may also have a bearing on the best value for you.

The Problem

As consumers, we generally concern ourselves with price because we are most comfortable
when comparing something obvious such as numbers. Prices are easy to compare and
understand; especially when it concerns products we generally have little experience in
purchasing.

Previous Option

Compounding this problem as it concerns term life insurance in particular, is that many popular
internet sites allow the consumer to obtain a quote simply by completing several questions
about build, health and lifestyle. Once quotes are obtained, it’s up to the buyer to choose their
best deal. We know this can be a disservice to the client, and in the pages to follow we give a
specific example of why, and what to consider.

The LifeNet Solution
We believe life insurance is too important to your beneficiary’s welfare and your own peace of
mind to choose coverage based on limited information and undefined objectives.
Certainly there is nothing wrong with checking premium costs to get some idea of the market;
however, we believe clients are not well served by a mechanical procedure which does not
address issues central to the reason for purchase in the first place, i.e. your beneficiaries’
security.

An Example

Let’s take a case of a 60 year old male, a non-smoker in good health and in need of a
$1,000,000 policy to examine how both approaches work, and show why our method is
superior and provides more value to you, the applicant.

The competition provides you a number of quotes detailing carrier name, carrier rating, health
category, and premium. Should you wish to apply, simply pick your carrier and the application
appears. No fuss, no bother, and no idea if this offer is the best value. In fact, it is rare to find
premiums of the lowest cost carriers to vary widely.

The lowest cost provider with an A+ or better rating, which we’ll call Company A has an annual
premium of $4755. Two other carriers (Companies B and C) have annual premiums of $4955
and $4980 respectively.

All three have convertibility options, but each company’s conversion rules vary and can result in
very different opportunities for the insured. In each case, conversion will be at the same health
rating that the insured received at the time of the original purchase. In essence, this
guarantees the health rating at conversion without evidence of current insurability. This is
extremely important since health tends to worsen as we grow older, you could even be
uninsurable. In addition, most carriers will allow a partial conversion. That is, a $1,000,000
term may be converted into a permanent policy of any size up to the original face amount of
$1,000,000. Most permanent policies have a minimum face of $100,000.

Now back to our example. Company A is relatively small compared to others. Its market is low
cost term insurance, and they allow conversion to a whole life policy. You may convert to this
policy at anytime your term policy is in force up to your 70th birthday.
Company B’s policy is also convertible up to age 70; however conversion to several policies is
available. Among them is a flexible premium universal life policy with a guaranteed premium.
This type of policy is designed to have the lowest possible premiums. It is guaranteed to stay in
force for your lifetime as long as premiums are paid on a timely basis. Both the premium and
the face amount of the policy never change. These policies are designed without any cash
accumulation, and have considerably lower premiums than whole life.

Finally, Company C has identical conversion policy choices as Company B, however the
conversion option stays in effect for an additional five years to age 75. This additional 5 years
can mean a great deal because the older we become, the more likely our health rating will
change in a negative way. If you find you need lifetime coverage, the extra 5 years of
convertibility can make a big difference in protecting your beneficiaries.

Any financial plan is just that, a plan. It is based on what we consider reasonable in light of
what we know now. However, anyone in their 50’s or older knows how plans can change for
many reasons, some under our control, but many not.
To summarize, both company A and B have identical conversion time periods, while company B
has better choices than company A. Company C has the same conversion choices as Company
B and extends the window of opportunity an additional five years to age 75.
Now comes the interesting part. As the owner of the policy, you may have the potential to sell
this policy if your need for coverage has decreased or disappeared. This transaction is called a
“Life Settlement”. Life Settlements have become a multi-billion dollar market in the last few
years and it’s easy to see why as we now look at all three carriers. Legitimate Life Settlements
should not be confused with “Stranger Originated Life Insurance (STOLI)” which is illegal in
many states.

Company A Company B Company C
Annual Premium $4,755 $4,955 $4,980
Total Premiums (15 yrs) $71,325 $74,325 $74,700
Sale of Policy 0 0 $200,000 (est*)

*This estimate is based on a composite of real cases, but will be dependent upon actual conditions at the time of
potential sale, and in no way is it to be considered a guarantee of future results. Remember, you should never
attempt to sell a policy if you still need coverage or your health has declined. This type of transaction is designed
for individuals whose objective has changed due to financial circumstances different from when the policy was
purchased.

For a term policy to be considered a good candidate for sale, it must be convertible into a
universal policy with little or no cash value and guaranteed level premiums.
Implementation

1. Contact an independent agent with access to the majority of highly rated insurance
companies. Once you find someone you feel comfortable with, check their status with
your state insurance department. This is quite easy to do. Just go to your state
insurance department website.

2. Remember, agents cannot guarantee you a premium cost! They can only use their best
efforts based on the health, lifestyle and the family health history you provide. Omitting
information does a disservice to both you and the agent. Life insurers deal with fraud or
incomplete information regularly. When you withhold information, you hurt your
chances for the agent to advocate on your behalf. Additionally, it may harm your ability
to obtain coverage with another carrier.

3. Discuss your objective with the agent. Agents can suggest approaches to coverage you
may not have considered.

4. Make sure you ask about conversion options.

5. Be prepared to have a paramedic exam, typically done at your home, your office or at
the exam company. Most carriers require blood and urine collection and an EKG to be
performed by an independent paramedic company. In some instances, it is possible to
purchase coverage without these tests, however be prepared to pay higher premiums
for smaller amounts of insurance.

6. Ask questions. Good agents are in the service business and want to do a good job for
you. So let them!


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About the Author:
Leonard Robbins has written additional articles that can help you choose the best policy for your current and future needs. You may contact him at More Insurance articles