Universal Life or Whole Life for an employee group
by Guest » Sat Feb 25, 2012 04:17 am
Which is a better option for members of an employee group - Universal Life or Whole Life?
Total Comments: 8
Posted: Sat Feb 25, 2012 09:27 am Post Subject:
What is the employer's motivation for providing the benefit?
Whole life is not commonly used for group life insurance. Annual Renewable Term (ART) is the most common. Universal life is becomming more frequent, but is sometimes misrepresented to employees as their retirement plan when an employer does not want the liability of maintaining a defined contribution plan.
In group universal life, the employer pays the monthly cost of insurance which will be only slightly higher than a typical term policy of the same face amount. The employees' premiums fund their individual cash accumulation account. If written with the Option 2 death benefit (as it should be), at an employee's death, the beneficiary will receive both the face amount of insurance and the cash accumulation amount.
If employees are not interested in "paying" for their life insurance, ART is the best solution. The employer would pay the premium and get a tax deduction for it as an employee business expense.
Posted: Fri Mar 09, 2012 06:34 pm Post Subject:
You should definitely choose ART if it's being offered to you by your employer, unless you have reason to believe that you would need to avail of group rates (for pre-existing conditions that can raise your premiums significantly). (This is because group rates are lower than individual rates). I say this because if your employer decides to stop offering group life, fires you or you decide to quit, your policy won't go with you. What follows instead is an arduous process of conversion at a hefty price that makes buying your own individual policy a more viable option. You'll find affordable [Link deleted by Moderator MaxHerr per TOU] quotes online to help supplement group life coverage.
Denise Mancini
Disclaimer: I work for AccuQuote and this is my personal opinion.
Posted: Fri Mar 09, 2012 06:49 pm Post Subject:
You missed the entire point of the OP's question. It was not about an individual's choice of coverage.
Besides, most individuals would not want ART, which becomes more expensive with age -- every year.
ART is perfect for most group life insurance situations because the average age of the group is reasonably constant, not much variation from year to year.
Posted: Fri Mar 09, 2012 08:44 pm Post Subject:
Max,
We often refer to policies in which the premium increases every year as ART. However, level term policies are also ART.
Annually renewable simply refers to the fact that the person can keep the insurance in force by paying the premium. Whether the premium starts to increase in year 2 or year 11 is irrelevant to whether the product is ART.
Posted: Fri Mar 09, 2012 09:35 pm Post Subject:
level term policies are also ART.
Once again, you are mistaken. Now here comes a teaching moment. "Level Term" only refers to the value of the death benefit. A 20-year level term policy has the same death benefit for 20-years. ART renews each year for the same death benefit. "Decreasing Term" has a death benefit that reduces each year, although the premium remains the same. It is NOT ART, it is a 15- or 20- or 30-year contract that goes from $XXX to $0 over time. The contract guarantees that.
If the premium in a Level Term policy changes each year, it is simply the effect of the mortality risk changing -- people getting older, their risk of dying increasing -- and the contract does not guarantee a level premium. That's why ART is very convenient for group life insurance, because the premium is based on the average age of the group (along with gender and occupational factors). If the age of the group remains the same, the premium does not increase. If the average age goes down or up, the premium goes in the same direction.
If the death benefit is guaranteed to remain level for any period of time longer than 12 months, it is not ART, it is defined by the number of years of level death benefit. The contract does not renew every year -- it is a "long term" contract, and it may or may not renew for the same death benefit amount at the end of the death benefit guarantee period. That would be a feature of the contract. Premiums, as you allude to, do not have to be guaranteed, but often are.
True, there are 20-year level term policies with guaranteed premiums (no increase) for only two, five, seven or ten out of twenty years, and then annual premium increases after that, but it still does not make the contract ART. The contract is defined by the period of death benefit guarantee. Some 20-year term policies renew at a reduced face amount in order to keep the premium increase relatively low or even the same -- but the death benefit reduction would is substantial. It's all a balancing act based on the mortality risk.
Once again, you are playing semantics with your answers and you fail to properly define products.
"Renewable Term" only means the policy will be renewed at the end of the stated period of guarantee without proof of insurability. If the period is one year, the policy is ANNUALLY renewable. If the period is longer, by definition, it is NOT "annually" renewable. Exactly like a lease on an apartment or a business location, the tenant has a guarantee of occupancy for a specific time period, usually with a fixed cost of occupancy. If a 15-year lease provided for a small rent increase every year, it would not be an annually renewing lease, it is still a 15-year lease, and at the end of 15 years, the right to occupy could terminate.
The typical 20-year Level Premium Level Term policy is renewable at the end of the 20-year term, but most polices become annually renewable at that time, with no guarantee of premium stability; the premium will increase every year the contract is renewed. Only a few companies will renew a 20-year policy for another 20-year level premium period (and then only for someone usually in their 40s).
Longer term policies are more expensive simply because the mortality factor and Cost of Insurance must be amortized over that longer period of time. A new ART policy compared to any new longer term policy (obviously both with the same death benefit) issued to persons of the same age and risk classification will be less expensive on the first day of the policy, and more expensive on the last day if renewed as long as the longer term policy lasts, simply because the mortality risk and cost of insurance must be refigured each year, and we all get one day closer to death every day. So the risk of paying a claim increases each year for the insurance company.
Eventually the ART and 20-year policies will have the very same premiums, but the first increase for a 20-year level premium level term policy will be very large in comparison to the annual increases from one year to the next in the ART policy. Looking back over 20 years of annual premium increases, one might say, "I can't believe how expensive this has become. 20 years ago I used to pay $7.50 per month, now I'm paying $45." That's the reality. A 20-year LPLT premium might by $15 per month by comparison, and will renew at $45.00 20 years later. The risk is the risk.
Posted: Wed Mar 21, 2012 01:15 pm Post Subject:
Universal Life insurance, or whole life, is a fantastic money making scam that many fall prey to. You pay for two products, life insurance and an 'investment' portion, but they won't break down what each portion really is for you, or what your return may actually be....sure they will show you a 'dream sheet' with numbers showing what you may get, but you won't. Then, if you die, they pay the benefit to your estate, and keep the investment portion that you contributed to. Nice, eh? Pay for two products, but only cash in on one......
Regards,
Delfina
Posted: Wed Mar 21, 2012 01:31 pm Post Subject:
Delfina,
Do you know what is worse than having no knowledge? The answer is having a little bit of knowledge. You are one of those people who simply have enough knowledge to be dangerous.
Posted: Wed Mar 21, 2012 02:26 pm Post Subject:
I have to agree with "famvaru" on this. The post by DelfinaManotas is reckless in its mischaracterization of the UL insurance product and how death claims are paid. It is the kind of miscommunication that an agent might use to "twist" a person out of a perfectly good policy because it leaves important things unsaid, and/or represents certain information improperly.
Posted: Sat Feb 25, 2012 09:27 am Post Subject:
What is the employer's motivation for providing the benefit?
Whole life is not commonly used for group life insurance. Annual Renewable Term (ART) is the most common. Universal life is becomming more frequent, but is sometimes misrepresented to employees as their retirement plan when an employer does not want the liability of maintaining a defined contribution plan.
In group universal life, the employer pays the monthly cost of insurance which will be only slightly higher than a typical term policy of the same face amount. The employees' premiums fund their individual cash accumulation account. If written with the Option 2 death benefit (as it should be), at an employee's death, the beneficiary will receive both the face amount of insurance and the cash accumulation amount.
If employees are not interested in "paying" for their life insurance, ART is the best solution. The employer would pay the premium and get a tax deduction for it as an employee business expense.
Posted: Fri Mar 09, 2012 06:34 pm Post Subject:
You should definitely choose ART if it's being offered to you by your employer, unless you have reason to believe that you would need to avail of group rates (for pre-existing conditions that can raise your premiums significantly). (This is because group rates are lower than individual rates). I say this because if your employer decides to stop offering group life, fires you or you decide to quit, your policy won't go with you. What follows instead is an arduous process of conversion at a hefty price that makes buying your own individual policy a more viable option. You'll find affordable [Link deleted by Moderator MaxHerr per TOU] quotes online to help supplement group life coverage.
Denise Mancini
Disclaimer: I work for AccuQuote and this is my personal opinion.
Posted: Fri Mar 09, 2012 06:49 pm Post Subject:
You missed the entire point of the OP's question. It was not about an individual's choice of coverage.
Besides, most individuals would not want ART, which becomes more expensive with age -- every year.
ART is perfect for most group life insurance situations because the average age of the group is reasonably constant, not much variation from year to year.
Posted: Fri Mar 09, 2012 08:44 pm Post Subject:
Max,
We often refer to policies in which the premium increases every year as ART. However, level term policies are also ART.
Annually renewable simply refers to the fact that the person can keep the insurance in force by paying the premium. Whether the premium starts to increase in year 2 or year 11 is irrelevant to whether the product is ART.
Posted: Fri Mar 09, 2012 09:35 pm Post Subject:
level term policies are also ART.
Once again, you are mistaken. Now here comes a teaching moment. "Level Term" only refers to the value of the death benefit. A 20-year level term policy has the same death benefit for 20-years. ART renews each year for the same death benefit. "Decreasing Term" has a death benefit that reduces each year, although the premium remains the same. It is NOT ART, it is a 15- or 20- or 30-year contract that goes from $XXX to $0 over time. The contract guarantees that.
If the premium in a Level Term policy changes each year, it is simply the effect of the mortality risk changing -- people getting older, their risk of dying increasing -- and the contract does not guarantee a level premium. That's why ART is very convenient for group life insurance, because the premium is based on the average age of the group (along with gender and occupational factors). If the age of the group remains the same, the premium does not increase. If the average age goes down or up, the premium goes in the same direction.
If the death benefit is guaranteed to remain level for any period of time longer than 12 months, it is not ART, it is defined by the number of years of level death benefit. The contract does not renew every year -- it is a "long term" contract, and it may or may not renew for the same death benefit amount at the end of the death benefit guarantee period. That would be a feature of the contract. Premiums, as you allude to, do not have to be guaranteed, but often are.
True, there are 20-year level term policies with guaranteed premiums (no increase) for only two, five, seven or ten out of twenty years, and then annual premium increases after that, but it still does not make the contract ART. The contract is defined by the period of death benefit guarantee. Some 20-year term policies renew at a reduced face amount in order to keep the premium increase relatively low or even the same -- but the death benefit reduction would is substantial. It's all a balancing act based on the mortality risk.
Once again, you are playing semantics with your answers and you fail to properly define products.
"Renewable Term" only means the policy will be renewed at the end of the stated period of guarantee without proof of insurability. If the period is one year, the policy is ANNUALLY renewable. If the period is longer, by definition, it is NOT "annually" renewable. Exactly like a lease on an apartment or a business location, the tenant has a guarantee of occupancy for a specific time period, usually with a fixed cost of occupancy. If a 15-year lease provided for a small rent increase every year, it would not be an annually renewing lease, it is still a 15-year lease, and at the end of 15 years, the right to occupy could terminate.
The typical 20-year Level Premium Level Term policy is renewable at the end of the 20-year term, but most polices become annually renewable at that time, with no guarantee of premium stability; the premium will increase every year the contract is renewed. Only a few companies will renew a 20-year policy for another 20-year level premium period (and then only for someone usually in their 40s).
Longer term policies are more expensive simply because the mortality factor and Cost of Insurance must be amortized over that longer period of time. A new ART policy compared to any new longer term policy (obviously both with the same death benefit) issued to persons of the same age and risk classification will be less expensive on the first day of the policy, and more expensive on the last day if renewed as long as the longer term policy lasts, simply because the mortality risk and cost of insurance must be refigured each year, and we all get one day closer to death every day. So the risk of paying a claim increases each year for the insurance company.
Eventually the ART and 20-year policies will have the very same premiums, but the first increase for a 20-year level premium level term policy will be very large in comparison to the annual increases from one year to the next in the ART policy. Looking back over 20 years of annual premium increases, one might say, "I can't believe how expensive this has become. 20 years ago I used to pay $7.50 per month, now I'm paying $45." That's the reality. A 20-year LPLT premium might by $15 per month by comparison, and will renew at $45.00 20 years later. The risk is the risk.
Posted: Wed Mar 21, 2012 01:15 pm Post Subject:
Universal Life insurance, or whole life, is a fantastic money making scam that many fall prey to. You pay for two products, life insurance and an 'investment' portion, but they won't break down what each portion really is for you, or what your return may actually be....sure they will show you a 'dream sheet' with numbers showing what you may get, but you won't. Then, if you die, they pay the benefit to your estate, and keep the investment portion that you contributed to. Nice, eh? Pay for two products, but only cash in on one......
Regards,
Delfina
Posted: Wed Mar 21, 2012 01:31 pm Post Subject:
Delfina,
Do you know what is worse than having no knowledge? The answer is having a little bit of knowledge. You are one of those people who simply have enough knowledge to be dangerous.
Posted: Wed Mar 21, 2012 02:26 pm Post Subject:
I have to agree with "famvaru" on this. The post by DelfinaManotas is reckless in its mischaracterization of the UL insurance product and how death claims are paid. It is the kind of miscommunication that an agent might use to "twist" a person out of a perfectly good policy because it leaves important things unsaid, and/or represents certain information improperly.
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