BUYER ALERT: TERM LIFE INSURANCE PREMIUMS ARE GOING UP
by Mark Scheinbaum
American Reporter Correspondent
Boca Raton, Fla.
CORAL GABLES, Fla., Jan. 21, 2005 -- One of the last great financial planning bargains is about to go up in price, or in some cases it already has: level premium term insurance.
About three years ago the life insurance industry just about eliminated 30-year level term policies, leaving an assortment of five, ten, 15, and 20-year products. To disclose my role here, as part of my financial planning work I am licensed ("appointed") with about 10 life, disability, and annuity companies, all top, investment-grade firms. At a meeting last week in Coral Gables, Kevin O'Toole, national sales manager of the venerable (130-plus years old) Union Central Life of Cincinnati, told agents about the realities of the new world of term insurance. "It's a combination of re-insurance costs and re-insurance priorities, and bottom line, but most companies have raised rates January first on term coverage," O'Toole told one of his firm's leading units, the UCL Miami Agency. Re-insurance is how insurance companies sort of, well, to be frank, lay off their bets. No one underwriter wants a disaster or cluster of disasters to threaten the financial security of his or her institution, so giant "Re" insurers spread the risk around to many other companies. Although folks can by a "low-ball" term policy which raises premiums every year, in most cases - particularly young singles, young professionals, or you married couples, a policy where the premium stays the same for 10 or more years (level premium) is usually more cost effective. O'Toole said that UCL would hold the line on any increases until about the start of Quarter II, 2005 (April 1st), but urged consumers who have any interest in increasing, or starting a Plain Jane insurance plan, to do it now. For most healthy non-smokers under age 30, a $100,000 level term death benefit policy can be as low as $200 per year, or in some cases less. Savvy financial professionals often solve part of the "fringe benefit" problem for concerned (and honorable) employers by explaining: even if you can't pay all or part of health coverage for your workers, you probably can at least give them and perhaps their spouse some low-cost term protection as a year-end bonus, or incentive to stay with you. If an employee leaves, most policies can be continued by the employee themselves. Insurance companies often push more exotic and money-making products such as whole life, or universal life, variable universal life, etc., but in actuality, smart insurance marketing executives love term life. Term Life is the "toe in the water" for the insurance industry for many Americans. After a few years when family and financial conditions change, the term life customer might "convert" to a permanent or "whole" life product. Also, the psychological recognition that a strapping 28-year-old might not live forever, makes the client more receptive to another financial planning essential: disability income protection. Industry statistics show that a working American man or woman is four times (as in 400 percent) more likely to be injured or knocked out of work by serious illness during their prime earning years, rather than be killed, or dying from catastrophic illness. Most financial planning professionals who truly have the client's interest ahead of fees and commissions will not even entertain a stock, bond, retirement, annuity, or other investment program until the client has demonstrated basic term life and disability income protection. Finally, as the world has changed, so have my views. Two decades ago I was one of the disciples of insurance for insurance and investments for investments. Insurance meant term, nothing else. Yet after the market Crash of 1987, the dot-com bust of the late 1990s, and the political and economic realities of 9/11, it is more important that insurance protection be tied to a cash value or supplemental tax-free retirement plan. For business or "key man" reasons, charitable giving, educational or mortgage needs, and yes, supplementing Social Security, dynamic and flexible insurance products have filled a void. For many Americans watching each dollar, the old standby of Term Life is an important start.
Mark Scheinbaum served on the local ethics committee for the International Association for Financial Planning; is a licensed securities and insurance agent, certified NASD arbitrator, and chief investment strategist for Boston Stock Exchange member Kaplan & Co. (www.kaplansecurities.com).