My wife’s 20 year term is maturing in a little over a month. One of the provisions of the policy is an option to convert it to perm without the need to reconfirm insurability. In other words, she gets an excellent health rating even though she currently has a chronic form of cancer. Note, I don’t need the insurance but I can afford the premiums - and she will not likely be insurable ever again.
The pricing seems to be outstanding - which is why I am here asking what I may be missing.
Here are the following annual pay quotes for female age 50 for 500k in coverage:
Life pay: $3,979.89
10-pay: $9,911.54
Single Premium: $80,654.83
I’ve shopped around and I cannot find quotes anywhere close to these rates - and of course she would never qualify due to the cancer. I am leaning toward the single premium.
If I discount any taxes, it would take that $80k 20 years at 10% to grow to 500k. Over 25 years at a reasonable tax rate.
Quick googling suggests the life expectancy of a fifty-year-old woman in the U.S. is about 30-34 years. Taking 32 as the number, that would yield a rate of return on your $80K of about 5.87%. Only about 87 basis points higher than a 30-year treasury. The prices are good - and perhaps they might be outstanding compared to comparable insurance products on the market - but those numbers are probably really close to breakeven for an average 50-year-old woman, relative to the treasury yield.
If your wife has a materially lower life expectancy than average due to her cancer, but the insurer is obligated to insure her as if she were an average enrollee due to a prior policy commitment, than that legal obligation would be economically advantageous to exercise.
Thanks. I thought of two follow ups I needed that I don’t have (and have now requested)
Cash value chart and riders (terminal illness, any others).
Yep, which is why the other policies are not worth consideration (under normal health conditions) since they charge, in some cases, twice as much for the same coverage.
Unfortunately, we have no way of determining an average life expectancy for someone with her cancer. It is getting better almost annually (10 year is now 85% and she is at year 15) with new drug treatments but even with such, the sample pool is still small.
That does put you at a disadvantage in trying to figure out whether this policy is a better investment than putting your funds somewhere else. Whether it earns more, or less, than an alternate investment depends entirely on your wife’s life expectancy, which you don’t know.
This isn’t an answer…but maybe I can suggest another way of thinking about the matter, which might help? Going back to my Econ 101 days, “insurance” can be modeled as a mechanism for moving money from a scenario where a contingency doesn’t happen into the scenario where it does. Consider fire insurance on your house. That product basically moves money from the “timeline” where your house doesn’t burn down (you pay premiums but no payout) into the “timeline” where your house does burn down (you get the payout).
We do this because we need more money in a contingency when we’ve suffered that massive loss then when we haven’t. Insurance is a mechanism to do that. Whether auto insurance or disability insurance or what have you - you want more money in the scenario where you have the wrecked car or the inability to work.
With whole life insurance, the contingency isn’t whether you’ll pass away (that is the lot of all mortals), but when. The payout is the same, but because of the time value of money your beneficiaries have more money relative to alternatives if you pass away sooner rather than later. That’s why life insurance for earners is critical for families, because they need more money in the case of an early death of the earners.
Looking at your situation through that lens, do you (as the beneficiary) need more money in the scenario where your wife passes earlier, or later? As a very general matter, elderly folks need to have more money if they’re going to live longer, not shorter. Your specific situation may be completely different. But at a 30,000 foot level, a couple in the scenario where both spouses live well into their 80’s will need more money than the couple where one spouse passes in their 60’s. If that’s your scenario, it would argue against the insurance policy - you’d have more money (relative to alternatives) if your wife passed early rather than later, but that’s the scenario where you would need less money than the other contingency.
Again, not an answer. But perhaps something that might help your analysis.
I don’t need it at all. It would be purely legacy planning at this point - money for the kids. The single premium represents less than 2% of my investable assets and just two months gross household income so for me it is just about the ROI for the next generation. I would be retired right now if my wife did not keep moving my goal post. She is rightly concerned about the cost of her care when she loses her employer-sponsored insurance which covers her cancer drug at 100%. ACA would have us pay 20% copay.
Either way, the kids will get it tax free since it is after-tax dollars so the secondary consideration is that having this allows my wife and I to further spend down our assets will still ensuring a small legacy for the kids. We of course have no way of knowing if we will pass with a six figure estate or a seven figure estate but our goal is to pass with as small of an estate as possible - bounce that last check so to speak.
I am still waiting on the cash value report so that remains a missing consideration.
Because the other side of that risk is that she lives longer and we end up paying more. The single pay fixes that risk. If for example, she lives to 90, the life pay would cost twice as much (not account for TVM).
For the comparison to be of any value, you MUST take into account the time value of money (TVM).
You can pay $80k today, or you can pay $10k a year for 10 years, while investing $70k down to $10k for 7 years and using the gains (plus some principal) to pay the $10k each year. Or you could invest $80k now and pay $4k a year until death.
I am aware; which is why I provided the qualifier. It also isn’t exactly twice as much - even though that is what I stated.
It was meant to be a non-specific general response.
I finally received the cash value tables and it turns out, the policy would be an IUL (index universal) which adds an entirely new dimension with many more questions. I now have participation rates and cap rates to consider with 4 or five different index options.
Cap rates and part rates are never great on these but there is now an opportunity to at least earn more than what might otherwise be a substandard fixed rate.
Now, I am getting closer to being able to run a TVM comparison.
Check the whole life policy. After a certain number of years, (100 years old used to be the standard), the policy is deemed paid in full and no further payments are required. When I graduated college back in the day, started out selling insurance and recall that being fairly standard among insurance carriers. You should be able to ask the insurance company for the policy illustration showing future growth of cash value. It would show when premiums end.