LIFE INSURANCE

[Zalc]

This is why IMHO the Human Life Value approach makes more sense. And I'm generally not a fan of long-term term plans for young people. A short term plan will "encourage" you to review and update sooner/more frequently.

What’s the concept behind “Human Life Value”?
The calculator says that for someone earning (for example) 100k a year for the next 30 years you’d need $4m of coverage - that’s way more then needed now. Would you still recommend sticking to such coverage - can you even get that much

I don’t see how that helps when starting out in life, as the human life value can fluctuate so much while your earning potential is still growing.


Can you elaborate how one mitigates the risk of becoming uninsurable while on a short term policy - How exactly does conversion work?

[skyguy918]

What would they do to drop you mid term? That should be reported to the NY insurance commissioner at the DFS

He was talking about flexibility if you mistakenly missed/were late on a premium payment. Realistically I don't think I'd ever be in that situation, knowing myself.

[ExGingi]

What’s the concept behind “Human Life Value”?

As simple as it gets - replacing the human lifetime earning potential with a capital amount that would equally replace it.

The calculator says that for someone earning (for example) 100k a year for the next 30 years you’d need $5m of coverage - that’s way more then needed now. Would you still recommend sticking to such coverage - can you even get that much

I don’t see how that helps when starting out in life, as the human life value can fluctuate so much while your earning potential is still growing.

I recommend keeping that number in mind as a REALISTIC assessment of that which is being protected - the human life value. Since Life Insurance is bought as a lump-sum amount, that might sound high to people, but that doesn't make it excessive. Here's a quick suggestion: get yourself an Individual Disability Insurance quote (with increase riders). While the DI quote will be quoted as a monthly benefit, the illustration might show the lifetime potential. My guess is that it will not be far off from the Human Life Value figure.

Life insurance underwriters will accept Humal Life Value as a basis for justifying an amount of insurance.

As you get older, the multiple used for HLV calculations drops. Nothing is foolproof, but IMHO HLV is the best guess.

Can you elaborate how one mitigates the risk of becoming uninsurable while on a short term policy - How exactly does conversion work?

While there are one-time events that can make a person uninsurable, as one grows older there are more chances of unfavorable underwriting factors developing. A short-term plan is the lowest cost option (allowing as close as possible to Human Life Value replacement), while serving as an impetus to constantly review and revisit.

[yos9694]

He was talking about flexibility if you mistakenly missed/were late on a premium payment. Realistically I don't think I'd ever be in that situation, knowing myself.

Ok. There are laws covering grace period and reinstatement period to protect consumers who miss a premium. And whole life has automatic premium loan if selected. I'm sure you're right though about some insurers doing just the absolute minimum vs others going beyond.

[yos9694]

After reading through this thread as a younger married person with no dependents, it seems that the complicated part is that the amount needed can change over your lifetime by a factor of 5 or more.

I won’t know how large my household will be for at least 10 years, but there is a risk of not being insurable once I do know how much I’ll need.

Does it make sense to do something like the below?
- Buy a cheap 30yr term for a regular amount, like $500k (to cover spouse a bit).
- Add an additional 20 year policy every time the household grows.
- Have a very small WL policy with the option to increase the benefit (PUA) to guard against becoming uninsurable. Worst case it’ll be a bad savings account.

How much does attained age cost assuming you stay rated preferred best?

Thanks

PUA is single premium insurance, literally the most expensive way to pay for coverage. And the amounts you can buy without needing additional underwriting are pretty limited (any substantial increase over the prior year amount will require evidence)

[ExGingi]

Ok. There are laws covering grace period and reinstatement period to protect consumers who miss a premium. I'm sure you're right though about some insurers doing just the absolute minimum vs others going beyond.

100%

And that can even go for highly rated insurers. I know of an insurer that will allow a reinstatement within 6 months of lapse with a short form (a single question asking if the person was hospitalized or disabled since the lapse occurred), whereas others might ask more underwriting questions (and possibly deny reinstatement even if conditions listed on the form existed much before the lapse, or even before inception of the policy, in cases where the policy was bought as a result of a guaranteed option that required no underwriting).

[Zalc]

PUA is single premium insurance, literally the most expensive way to pay for coverage. And the amounts you can buy without needing additional underwriting are pretty limited (any substantial increase over the prior year amount will require evidence)

I must not understand how it works.
What kind of expensive are we talking about - say adding $1m to a policy at 40 after growing a family and c”v developing a condition?

Evidence of what?
It’ll be easy to show that I’m underinsured at the moment and want to fix that, no?

[ExGingi]

PUA is single premium insurance, literally the most expensive way to pay for coverage. And the amounts you can buy without needing additional underwriting are pretty limited (any substantial increase over the prior year amount will require evidence)

I think your statement about "PUA" being the "most expensive way to pay for coverage" is highly debatable. While I will agree that it isn't usually a strategy to get all the coverage needed, depending on age it could actually be quite a bargain (or at least it used to be when they were using 4% as the guaranteed rate). Sales charges are usually in the 5% to 10% range, and that is a one time charge to buy a death benefit that is a multiple of premium.

As for the limits to the amount purchased without evidence, the rules vary by company, and when the WL policy is a blended policy some carriers allow much greater flexibility.

I have personally bought huge amounts of PUAs in policies covering myself, my wife, and my kids (works really well for kids, quite easy to get more than $100,000 of paid-up insurance by the time the get married without putting that much into it).

[yos9694]

I must not understand how it works.
What kind of expensive are we talking about - say adding $1m to a policy at 40 after growing a family and c”v developing a condition?

Evidence of what?
It’ll be easy to show that I’m underinsured at the moment and want to fix that, no?

The net single premium depends on the interest rate guaranteed in the contract, but let's say that rate is 3%. Then the cost is $332.89 per 1,000 of coverage, so your $1M PUA will cost $332,890.

You won't be able to buy $1m of PUA anyway because of contract limitations.

And if you were to buy any significant amount of PUA you would need to go through underwriting to prove eligibility for insurance.

[Joe4007]

I guess I'd have to understand the underlying dynamics between cash value and death benefit, but I always wondered how PUA performs compared to the policy premium.

[ExGingi]

The net single premium depends on the interest rate guaranteed in the contract, but let's say that rate is 3%. Then the cost is $332.89 per 1,000 of coverage, so your $1M PUA will cost $332,890.

Assuming a sales charge of 5%-10% the actual payment might be in the 350,000 to 370,000 range. BUT that is the outlay - not the cost. Since everything but the sales charge is current cash value (which will grow every year, and recover the sales charge in 2-5 years).

You won't be able to buy $1m of PUA anyway because of contract limitations.

And if you were to buy any significant amount of PUA you would need to go through underwriting to prove eligibility for insurance.

1. Who said buy it all in one year? 20 years ago I had a 10,000 WL policy blended with a 990,000 term rider, after a few years I wanted to dump in more significant amounts, went through underwriting and was approved to dump in 30,000 in the year underwritten and 10,000 in each of the 4 or 5 subsequent years. That policy currently has over 400k of paid-up death benefit (with cash value growing at around 4% per year).

2. I can think of at least two companies that will allow significant dump-ins of PUAs without underwriting if it's buying out the term portion of the blend.

[ckmk47]

After reading through this thread as a younger married person with no dependents, it seems that the complicated part is that the amount needed can change over your lifetime by a factor of 5 or more.

I won’t know how large my household will be for at least 10 years, but there is a risk of not being insurable once I do know how much I’ll need.

Does it make sense to do something like the below?
- Buy a cheap 30yr term for a regular amount, like $500k (to cover spouse a bit).
- Add an additional 20 year policy every time the household grows.
- Have a very small WL policy with the option to increase the benefit (PUA) to guard against becoming uninsurable. Worst case it’ll be a bad savings account.

How much does attained age cost assuming you stay rated preferred best?

Thanks

I like your plan.  A 30 year level term now as a basic plan.  Adding - not replacing - insurance periodically. At a higher income a whole life plan should probably be added instead of a term plan because it will act as a tax deferred (untaxed?) way to save for retirement.

[yos9694]

Assuming a sales charge of 5%-10% the actual payment might be in the 350,000 to 370,000 range. BUT that is the outlay - not the cost. Since everything but the sales charge is current cash value (which will grow every year, and recover the sales charge in 2-5 years).

1. Who said buy it all in one year? 20 years ago I had a 10,000 WL policy blended with a 990,000 term rider, after a few years I wanted to dump in more significant amounts, went through underwriting and was approved to dump in 30,000 in the year underwritten and 10,000 in each of the 4 or 5 subsequent years. That policy currently has over 400k of paid-up death benefit (with cash value growing at around 4% per year).

2. I can think of at least two companies that will allow significant dump-ins of PUAs without underwriting if it's buying out the term portion of the blend.

I think "cost" to most people means the outlay. If someone is looking to buy a $1m death benefit, PUA has the highest outlay. In colloquial terms, Term is lower cost than PUA, and I think a person would have to be out of touch to tell a non-insider otherwise. You and I can debate Net Cost Index, and maybe a fraction of your insurance clients who are sophisticated buyers would benefit from participating in such a discussion.

The WL+dividend term example is a great option. But it doesn't address the OP- who originally asked how he can increase his DB coverage after issue.

[ExGingi]

I think "cost" to most people means the outlay. If someone is looking to buy a $1m death benefit, PUA has the highest outlay. In colloquial terms, Term is lower cost than PUA, and I think a person would have to be out of touch to tell a non-insider otherwise. You and I can debate Net Cost Index, and maybe a fraction of your insurance clients who are sophisticated buyers would benefit from participating in such a discussion.

I easily address the cost vs outlay with people by asking to buy 4 quarters for a dollar bill or vice versa, and then asking what it cost.

So are you saying it's financially responsible to equate expenses with repositioning safe assets?

Conflating the two, and misunderstanding the meaning of costs/expenses don't sound like a healthy recipe for financial success.

[yos9694]

So are you saying it's financially responsible to equate expenses with repositioning safe assets?

Conflating the two, and misunderstanding the meaning of costs/expenses don't sound like a healthy recipe for financial success.

Are you saying that you've convinced the world not to buy term and invest the difference? I thought there were at least two sides to that debate

[ExGingi]

Are you saying that you've convinced the world not to buy term and invest the difference? I thought there were at least two sides to that debate

I haven't convinced the world of anything.

BTID is a fallacy, as funds that might be allocated to WL don't belong in volatile investments and vice versa. Everything has its time and place.

[yos9694]

I like your plan.  A 30 year level term now as a basic plan.  Adding - not replacing - insurance periodically. At a higher income a whole life plan should probably be added instead of a term plan because it will act as a tax deferred (untaxed?) way to save for retirement.

I'm not an advisor but this sounds like a laddering strategy. There is a company that came into existence on trying to market that idea to young people (https://www.ladderlife.com/laddering).

Potentially a very good way to ensure you have the right amount of coverage at all times without overpaying. It takes a bit more engagement and planning/paying attention though. Rates go up as you get older, so the first policy you get will probably be much cheaper than subsequent.

[ushdadude]

I like your plan.  A 30 year level term now as a basic plan.  Adding - not replacing - insurance periodically. At a higher income a whole life plan should probably be added instead of a term plan because it will act as a tax deferred (untaxed?) way to save for retirement.

Why not use an actual retirement account to save for retirement? Much much much cheaper

[Zalc]

Rates go up as you get older, so the first policy you get will probably be much cheaper than subsequent.

To illustrate this:

$3mm 30yr at age 28
$2mm 20yr at age 38
$1mm 10yr at age 48

All seemed to be about $1000 a year on term4sale.

Using their calculator, assuming 5% growth and 5% inflation, each of those policies are sized to replace $100k of income for the same many years as the respective term

[ExGingi]

To illustrate this:

$3mm 30yr at age 28
$2mm 20yr at age 38
$1mm 10yr at age 48

All seemed to be about $1000 a year on term4sale.

Using their calculator, assuming 5% growth and 5% inflation, each of those policies are sized to replace $100k of income for the same many years as the respective term

And $0 coverage starting at age 58?