Evaluating Premium Guarantees
A Post-Triple-X Editorial

By Bob Barney, President of COMPULIFE and TERM4SALE
 

Introduction

Editorial NOTE to the following article (note added January 29, 2004):

The following article was written in January 2000, immediately following the adoption of the Triple-X regulation. In the months that followed January 2002, and as predicted, a number of companies introduced non-guaranteed policies for their 15, 20 and 30 year term products. However, the market did not remain stagnant and competition continued to drive product innovation and prices. Since that time, the gap in price between the guaranteed and non-guaranteed products has closed substantially.

As a result of that, non-guaranteed 5, 10 and 15 year term products have virtually disappeared. The prices for those non-guaranteed products that remain are not competitive with the guaranteed product alternatives that exist. For this reason, Compulife has removed the 5, 10 and 15 year non-guaranteed term categories from our term comparisons at www.term4sale.com. We believe that consumers should NOT purchase 5, 10, and 15 year term plans that are NOT fully guaranteed for their respective level term periods.

Further, and because very few of the companies offering 25 year term offer non-guaranteed versions of those policies, the 25 year non-guaranteed policies have also been removed from our comparisons at term4sale.com.

This means that the only non-guaranteed products which still can be quoted at www.term4sale.com are the 20 and 30 year versions of these products. 30 year products, particularly at issue ages above 40, continue to have a substantial price advantage over their guaranteed counterparts. 20 year non-guaranteeed products, at the same age 40, offer very little price advantage compared to their fully guaranteed counterparts.

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Apart from removing these non-guaranteed product comparisons from our www.term4sale.com site, you need to carefully compare the advice provided in the following article, with the actual premium values available to you today.

For instance, in the example provided below, which compared a 20 year guaranteed term policy to a 20 year term policy with a 10 year guarantee, the 2000 product prices were $890 versus $710 respectively. As of January 29, 2004, a fully guaranteed policy was available at $635 whereas the least expensive non-guaranteed product was $625. Needless to say, a consumer would be well advised to pay the additional $10 and obtain the full guarantee.

Also note, further in the article there are two charts showing sample price differences between guaranteed and non-guaranteed products. The following charts have been updated to 2004 prices and you will see that the gap between guaranteed and non-guaranteed costs has narrowed sharply. With very few exceptions, it is now our opinion that consumers would be well advised to stick to purchasing fully guaranteed products as opposed to the non-guaranteed versions.

Chart E (January 2004) 20 year guaranteed versus 20 year non-guaranteed premiums

               Fully Guaranteed                20 Year Premium
               20 year premium                Guaranteed 10 years

25              $260  (was $365)               $260  (guaranteed / was $300)
35              $260  (was $380)               $260  (guaranteed / was $315)
45              $635  (was $890)               $625  (was $710)
55            $1,580  (was $2,285)           $1,465  (was $1,645)
65            $4,970  (was $6,830)           $4,285  (was $4,725)



Chart F (January 2004) 30 year guaranteed versus 30 year non-guaranteed premiums

               Fully Guaranteed                30 Year Premium
               30 year premium                Guaranteed 10 years

25              $425  (was $540)                $335  (was $400)
35              $555  (was $680)                $425  (was $470)
45            $1,205  (was $1,650)              $935  (was $940)
50            $1,990  (was $2,940)            $1,495  (was $1,655)



(Beginning of Original Article) The Two Extremes

I do not have a license to sell life insurance and neither of my companies, Compulife Software, Inc. or TERM4SALE, Inc., are involved in the sale of life insurance. So what makes me an authority on term life insurance?

I began my life insurance career in 1979 as an independent life insurance agent/broker in Canada. Compulife was first founded in Canada in 1982. I formed the U.S. Compulife in 1987. Until 1997 I continued to hold a Canadian life license which I gave up when I permanently relocated to the United States. I have never been licensed to sell life insurance in the U.S. and I have no intention of becoming licensed.

While I do not sell life insurance my position as president of Compulife keeps me very close to the term insurance market. Each product that goes into the Compulife/TERM4SALE term insurance comparison database (and there are hundreds) have been reviewed and configured for the software by me.

Further, as the owner of a relatively small business, with about 10 employees, I also enjoy a great deal of interaction with the agents and brokers who are the subscribers to our service. Compulife subscribers are quick to share their thoughts with me, particularly when they do not agree with a product entry/action or if they find errors in the system. As a collective group Compulife's 3,000 subscribers are a valuable resource. Those subscribers are a key reason why the software is the very best of its type.

The point of sharing this with you is that I am not a novice about the issues that I will be discussing in this editorial. My hope is that the editorial will help you sort out a relatively complex situation that was created by regulators when they passed a law called Triple-X.

I admit that this editorial is not light reading. However, the complexity of it has been created and thrust upon you by state insurance regulators. I am just trying to help you understand the choices and options created by the situation. To minimize your cost for term life insurance you will need to give thoughtful consideration to the points that I raise here. In addition I strongly recommend that you discuss this information with a properly licensed life insurance agent/broker who uses the Compulife comparison program. The agent is in a position to discuss your personal insurance needs and can help guide you to the right insurance strategy as well as product.

Background

On January 1, 2000 a number of states adopted a new insurance regulation called Triple-X (The Valuing Life Insurance Model Regulation). The regulation affects virtually every consumer in the United States.

The impact on you has nothing to do with whether your state adopted the regulation or not. Most companies that are competitive sellers of term insurance offer their policies in multiple states. In order to comply with the rules of any one state that passed Triple-X, a life company must build Triple-X requirements into every product which it sells. Once again, that's regardless of what state that product is sold in.

Therefore, Triple-X affects everyone in every state.

Prior to Triple-X the term market was simpler for consumers. Most competitive 20 year level term plans offered a 20 year premium guarantee. This meant that the company not only intended to charge you the same premium for 20 years, they contractually guaranteed it. If you needed 20 year level term it was easy to find a fully guaranteed policy among the least expensive available.

Supporters of Triple-X argued that life companies offering competitively priced level term plans were not adequately reserving for those plans. Simply put, they argued that companies were not setting aside enough money to pay death claims. While I disagreed with that position, and while I fought hard to warn regulators about the negative impact on the consumer, supporters of Triple-X prevailed.

If you want to know more about that you can Click Here for the warning which I had previously posted at this website before the passage of Triple-X. Unfortunately that's history. The issue at hand is not what the market looked like before, the issue is what to do now.

With the passage of Triple-X you can still buy 20 year level term at the same prices that existed before Triple-X. However, you may or may not obtain that premium and have it guaranteed for the 20 years. If you want the guarantee you can expect to pay more. How much more will it cost? Should you pay that higher price?

The purpose of this editorial is to give you some examples and a basis for making comparisons between guaranteed and non-guaranteed products. There is no hard and fast rule for every person. Hopefully this editorial will better equip you to analyze your options.

What is Level Term Insurance?

Term is "protection only" life insurance where you pay just the cost of protection for a period of time. The actual cost of life insurance increases as you get older. The older an individual is, the greater the number of people (as a percentage of that age group) who die at that age.

For example, because a life insurance company has to pay more claims for people who are age 55, by contrast to people who are age 45, 55 year old people cost the company more to insure. Therefore, the premium for a 55 year old is higher than for a 45 year old.

Level term provides a level death benefit, for a level premium, for a pre- set period of time. Typical level term periods are 1, 5, 10, 15, 20, 25 or 30 years although there are companies and products that have other level periods such as 7, 9, etc.

A one year level term policy (typically called ART) has premiums that rise each year. By comparison, a 10 year level term plan will charge you a higher premium in the beginning but keep that premium the same for 10 years. Compared to an ART policy you would expect premiums in the latter part of the 10 year level policy to be cheaper.

The following chart is an example of a competitively priced ART plan, by comparison to a competitively priced 10 year term plan. Both products are from the same company, selected based upon comparisons of competitive plans that I made on December 10, 1999. The premiums are for a 45 year old male non-smoker, in very preferred health. The amount of insurance is $500,000

Chart A 10 Year versus ART

               Premium       Premium       Difference      Accumulated 
Year Age       10 Year         ART          1 minus 2     Difference with
                                                            5% interest

  1  45        460.00        345.00          115.00            120.75 
  2  46        460.00        375.00           85.00            216.04 
  3  47        460.00        410.00           50.00            279.34 
  4  48        460.00        445.00           15.00            309.06 
  5  49        460.00        485.00          (25.00)           298.26 
  6  50        460.00        525.00          (65.00)           244.92 
  7  51        460.00        575.00         (115.00)           136.42 
  8  52        460.00        625.00         (165.00)           (30.01)

  9  53        460.00        685.00         (225.00)          (267.76)
 10  54        460.00        745.00         (285.00)          (580.40)



As you would expect, the 10 year plan premium is higher in the first year. However, by the end of the 10 year level period the 10 year plan's premium is quite a bit less.

In this example, based upon your ability to earn 5%, the total cost of the ART policy, by comparison to the 10 year policy, is almost the same at the end of the 8th year. By the end of the 10th year, the 10 year level term policy has saved you about $580 in total cost.

Therefore, if you know today that you need insurance for the next 10 years, you are much better off buying the 10 year level plan. If you only need insurance for 5 years, the ART plan would be better although you might consider comparing it to a 5 year plan.

10 Year Level Term Prices Largely Unaffected At Younger Ages

The good news for a 45 year old consumer wanting 10 year term is that the Triple-X regulation has had very little impact on your cost for a fully guaranteed 10 year product. Early analysis of post-Triple-X offerings demonstrate that our 45 year old will be able to obtain a 10 year product for the same cost as shown above.

Triple-X hits longer level periods harder.

Suppose the above mentioned 45 year old decides that he needs insurance for more than 10 years. He want insurance for 20 years, until the point he stops working (earning an income) and retires.

Having run a comparison of one company's post-Triple-X offering, the choice between a fully guaranteed plan and one that isn't is $890 versus $710. In other words, our 45 year old will have to pay 25% more, $180 per year for 20 years, to get the product with a full 20 year guarantee. It is worth noting that before Triple-X was implemented the premium of $710 was available as a fully guaranteed 20 year premium.

Is the extra $180 per year worth it? Consider the following comparison of cost over 10 years. Please note, the non-guaranteed 20 year policy does come with an initial premium guarantee of 10 years. This does not mean the company will increase the premium in year 11, it just means that they can if they want or need to. The point is this, for the first 10 years of both policies the premiums are fully guaranteed.

Chart B 20 Guaranteed versus 20 Year (guaranteed 10 years)

              Premium       Premium         Difference     Total difference    
Year Age      20 year       20 Year                        accumulated with
              guaranteed    guaranteed                       5% interest.
              20 years      10 years

  1  45        890.00        710.00          180.00            189.00 
  2  46        890.00        710.00          180.00            387.45 
  3  47        890.00        710.00          180.00            595.82 
  4  48        890.00        710.00          180.00            814.61 
  5  49        890.00        710.00          180.00          1,044.34 
  6  50        890.00        710.00          180.00          1,285.56 
  7  51        890.00        710.00          180.00          1,538.84 
  8  52        890.00        710.00          180.00          1,804.78 
  9  53        890.00        710.00          180.00          2,084.02 
 10  54        890.00        710.00          180.00          2,377.22

 11  55        890.00        710.00          180.00          2,685.08 
 12  56        890.00        710.00          180.00          3,008.34 
 13  57        890.00        710.00          180.00          3,347.75 
 14  58        890.00        710.00          180.00          3,704.14 
 15  59        890.00        710.00          180.00          4,078.35 
 16  60        890.00        710.00          180.00          4,471.27 
 17  61        890.00        710.00          180.00          4,883.83 
 18  62        890.00        710.00          180.00          5,317.02 
 19  63        890.00        710.00          180.00          5,771.87 
 20  64        890.00        710.00          180.00          6,249.47



Assuming that the company does not change the $710 premium in the 11th year (it should be noted that the company has no intention of doing so) the 20 year guarantee will have cost a total of $6,249,47 (assuming that the annual difference is invested at 5% for 20 years).

While $180 per year does not seem like much, it's clearly a substantial amount when added up over 20 years.

But suppose the life company did raise the premium on the non-guaranteed policy. How much would it have to increase that premium before you would be in no worse shape than having bought the guaranteed policy?

The following comparison shows the break even total cost based upon a one time, 11th year increase in premium. In this example we will raise the premium from $710 to $1,183, a premium hike of over 65%.

Chart C Theoretical Price Increase on 20 Year non-guaranteed term

              Premium       Premium         Difference     Total difference    
Year Age      20 year       20 Year                        accumulated with
              guaranteed    guaranteed                       5% interest.
              20 years      10 years

  1  45        890.00        710.00          180.00            189.00 
  2  46        890.00        710.00          180.00            387.45 
  3  47        890.00        710.00          180.00            595.82 
  4  48        890.00        710.00          180.00            814.61 
  5  49        890.00        710.00          180.00          1,044.34 
  6  50        890.00        710.00          180.00          1,285.56 
  7  51        890.00        710.00          180.00          1,538.84 
  8  52        890.00        710.00          180.00          1,804.78 
  9  53        890.00        710.00          180.00          2,084.02 
 10  54        890.00        710.00          180.00          2,377.22 

                           Theoretical, 
                           premium increase **

 11  55        890.00      1,183.00         (293.00)         2,188.43 
 12  56        890.00      1,183.00         (293.00)         1,990.20 
 13  57        890.00      1,183.00         (293.00)         1,782.06 
 14  58        890.00      1,183.00         (293.00)         1,563.52 
 15  59        890.00      1,183.00         (293.00)         1,334.04 
 16  60        890.00      1,183.00         (293.00)         1,093.10 
 17  61        890.00      1,183.00         (293.00)           840.10 
 18  62        890.00      1,183.00         (293.00)           574.46 
 19  63        890.00      1,183.00         (293.00)           295.53 
 20  64        890.00      1,183.00         (293.00)             2.65 



** note, the company has no intention of increasing the $710 premium

If the above price increase were to happen, the point is that you would be in no worse shape than if you had bought the product with the full guarantee. The new higher premium, from year 11 to 20, would have to be greater than $1,183 for you to have paid more than the $890 fully guaranteed premium.

The real question is, what is the chance of a price increase like this happening? Once again, the life company has no intention of raising that price later. Can you trust the company? Read on.

But first, just how far can the premium be increased in year 11? The maximum guaranteed premiums are awful, just horrible. Here's the same comparison, showing the worst case scenario based upon the guaranteed maximum premiums.

Chart D 20 Year Guaranteed Premium Versus Guaranteed Maximum Premiums of the 20 Year Term (guaranteed 10 years)

              Premium       Premium         Difference     Total difference    
Year Age      20 year       20 Year                        accumulated with
              guaranteed    guaranteed                       5% interest.
              20 years      10 years

  1  45        890.00        710.00          180.00            189.00 
  2  46        890.00        710.00          180.00            387.45 
  3  47        890.00        710.00          180.00            595.82 
  4  48        890.00        710.00          180.00            814.61 
  5  49        890.00        710.00          180.00          1,044.34 
  6  50        890.00        710.00          180.00          1,285.56 
  7  51        890.00        710.00          180.00          1,538.84 
  8  52        890.00        710.00          180.00          1,804.78 
  9  53        890.00        710.00          180.00          2,084.02 
 10  54        890.00        710.00          180.00          2,377.22 

                        Premium increase to 
                        guaranteed maximum  
 
 11  55        890.00      7,870.00       (6,980.00)        (4,832.92)
 12  56        890.00      8,680.00       (7,790.00)       (13,254.06)
 13  57        890.00      9,540.00       (8,650.00)       (22,999.27)
 14  58        890.00     10,470.00       (9,580.00)       (34,208.23)
 15  59        890.00     11,520.00      (10,630.00)       (47,080.14)
 16  60        890.00     12,690.00      (11,800.00)       (61,824.15)
 17  61        890.00     13,990.00      (13,100.00)       (78,670.36)
 18  62        890.00     15,470.00      (14,580.00)       (97,912.87)
 19  63        890.00     17,160.00      (16,270.00)      (119,892.02)
 20  64        890.00     19,070.00      (18,180.00)      (144,975.62)



Based upon this comparison alone, it would appear that the higher priced premium of $890 is the only way to go; a real bargain. However, the company does not plan to use the guaranteed maximum premiums from year 11 to year 20. The company intends to continue to charge $710. Back to the real question: "Can you trust the company?" Trusting the company, and the company doing what they said they would do, can save you serious dollars. Having noted that, I hate any consumer put in the position of having to trust a life company. Incidentally, that's the exact point that I made to government regulators when I was campaigning against Triple-X. I told government regulators that consumers should not be put in the position of having to "trust" a life company" and that Triple-X would put consumers in that very position. I challenged regulators about their most basic assumptions. I said that if they thought products were being sold for too little, and that it was a threat to the ability of the company to pay claims later, then they should not allow companies to continue to charge those low premiums by simply reducing the guarantee that they give to consumers.

I told regulators that if they really believed that these premiums were too low, that they should ban companies from selling cheaper, non-guaranteed level term plans. After all, if the regulators were right, a company would have to lie to say that they will charge the lower premium for 20 years. On several occasions I wrote to 50 different state regulators and told them exactly that. Not one state would ban non-guaranteed policies.

Therefore, from the regulators' point of view, when the life company tells you that they think the $710 premium is good enough for 20 years, there isn't one state regulator who would dispute that. If a state regulator thought that the company was lying to you, wouldn't they step in and stop it? Wouldn't it be false advertising? Once again, state regulators think that it's OK for you to trust a life company. Therefore, who am I to tell you that you shouldn't?

Consider that before Triple-X the company was happy to charge you $710 per year and fully guarantee it. If the company was confident enough before to fully guarantee that premium, and the only reason that they don't guarantee it now is because of the new regulation, how far wrong can the price be? Is it really worth paying more for a guarantee that neither the company or the regulator really think you need?

Some regulators will read this and say, "Hey, wait a minute, we aren't telling consumers they should buy non-guaranteed level term." To the regulators I simply respond, "If you don't think consumers should buy non-guaranteed term, then ban these products. Failure to ban these products proves that you think its OK for consumers to buy them and because they are less expensive, consumers will buy them. Any why shouldn't they?"

The Perils facing a Company that lies

There are big problems facing any life company that raises premiums for a level term policy that the company said would be level.

The first is obvious. How many people will buy policies from a company after that? Who would trust a company that raised it's price when it said it wouldn't? You can rest assured that Compulife will be quick to alert its subscribers of any such incident. I would also take steps to point it out to the public at the TERM4SALE website.

But that does nothing in hindsight for policyholders caught in a price increase.

Getting back to our example, what if a company raised premiums beyond the theoretical increased price of $1,183? Remember, if the company only raised prices to that level, the 45 year old would be break even with the guaranteed policy. But what if the company raised the premium more than that?

Here's the company's first problem. A large number of people buying the old policies will still be in perfectly good health. Those people will be able to pass a medical exam and buy a new policy. Given that there is only 10 years left to go, until the 20 year policy premium would have gone up anyway, our 55 year can go to the term insurance market and buy a new 10 year level policy. If a 55 year old shopped today they would discover a 10 year policy is available for $1,055 which is $133 less than the theoretical price increase we said was a break even cost.

Therefore, if the company was to raise the premium too high, existing 20 year term customers will leave their old policies behind. The only people the company will be left with are those policyholders who cannot pass a medical and buy a new policy. What do you think the cost of insuring those folks will be? High, very high! A lot higher than if they were mixed in with healthy people.

So the real problem is for those who become unhealthy. What's their situation?

One of the options many companies offer is the right to convert to a standard premium whole life policy without taking a medical. Conversion options vary from company to company and so you need to examine that with your agent. While conversion might not be what the insured had in mind when they first bought the term policy, it may be the only way to avoid the incredibly high increasing premiums.

But think about the company's deteriorating position. All the company will have accomplished by increasing 20 year term premiums was to send all their good health risk customers up the street, and encourage all their bad health customers to buy whole life at the same prices being charged to healthy people.

Given the negative situation facing the company, the question is, "What company would be dumb enough to do this?" Combine this with the fact that no one would ever trust that life company again and this company would be in serious trouble.

That's to say nothing about the lawsuits. Given that a company cannot change these premiums for just one person, and has to change them for all the policyholders who bought those policies, you now have the possibility of a "class action lawsuit".

In fact the life insurance industry has faced that situation before.

For years a number of companies sold a form of whole life called "vanishing premium". Vanishing premium policies paid dividends which in theory would be big enough to pay the premiums of the policies in 5 to 20 years. Of course this assumed that companies paid the dividends that they were planning, but the dividends were were not guaranteed (sound familiar?). When interest rates dipped, and when companies were forced to cut back on dividends, consumers erupted. Class action lawsuits netted compensation for consumers caught with losses. But how could that be? Dividends were not guaranteed and companies reduced dividends for very good reasons.

My point is this: if a company acts recklessly in raising its term premiums, it faces a potential litigation problem. Even if it wasn't reckless, as in the case of vanishing premium life, it could still face lawsuits.

Of course the next logical question is what happens if the company goes out of business? If the company fails you may be left with no one to sue. Needless to say, it's important to compare the financial strengths of companies. You will need to discuss this with your life agent who is in a better position to provide you with information regarding the comparative financial strengths of the companies that you are examining.

So What Do You Do?

The first thing you need to do is compare the actual numbers for your own situation. That's the benefit of the TERM4SALE website. You can easily compare prices for either fully guaranteed term plans, or you can include the non-guaranteed and guaranteed term plans together.

Depending on how old you are, and depending on how long you need insurance, the greater the difference in price that exists between a fully guaranteed level term policy and one that isn't fully guaranteed.

For example, if our previous example had been done for different ages, here are some sample differences between a fully guaranteed level plan and one which is not. The amount of insurance in each case is $500,000. The prices are for 20 year term plans, for non-smokers, in very very good health.

Chart E (January 2000)
For an Update to this chart, see editorial note at the top of this article
20 year guaranteed versus 20 year non-guaranteed premiums

               Fully Guaranteed                20 Year Premium
               20 year premium                Guaranteed 10 years

25                   $365                           $300
35                   $380                           $315
45                   $890                           $710
55                 $2,285                         $1,645
65                 $6,830                         $4,725


Chart F (January 2000)
For an Update to this chart, see editorial note at the top of this article
30 year guaranteed versus 30 year non-guaranteed premiums
               Fully Guaranteed                30 Year Premium
               30 year premium                Guaranteed 10 years

25                   $540                           $400
35                   $680                           $470
45                 $1,650                           $940
50                 $2,940                         $1,655



The Two Extremes

If I was 35, and needed $500,000 of term for 20 years, to protect my family should they lose my paycheck because I died, would I pay $380 instead of $315 in order to guarantee that my premium would not change? That strikes me as a reasonable choice.

However, if I was 45, and needed insurance for 30 more years, and I was faced with a premium of $1,650 versus $940, there is no way I would lay out an additional $710 per year for the guarantee. It's not worth it.

But that's me. The issue is not what I would do, the issue is what you do. This is not a "one size fits all" proposition.

Get the Right Length of Term

The one thing I am convinced of is that you are best to purchase a level term plan which has a level period that corresponds to the time that you know you will need the insurance.

If you need insurance for 20 years, DO NOT BUY A 10 Year Term.

There will be those agents who will argue that you would be better to buy a 10 year plan and at the end of 10 years "re-enter". Re-enter is a fancy term meaning you will need to take a medical again. If you are unable to qualify for a new policy, then you are definitely in big trouble.

Click Here to read an article that I wrote in February 1995 titled "The Problem of Re-entry". The article was intended reading for agents, but is good reading for consumers who want to fully understand the re-entry problem. A version of the article was published in the August 1995 edition of "Best's Review" under the title "Re-entry Illustrations Will Haunt Industry". "Best's Review" is a magazine published by the A.M. Best Company.

To more practically understand the risk associated with re-entry, consider this comparison of a cheaper 10 year plan, versus a more expensive 20 year plan.

Chart G 20 year versus 10 year term (assuming re-entry or purchase of a new 10 year policy after the first 10 years)

            Premium       Premium         Difference     Premiums saved
Year Age    20 year plan  10 year plan    in premium     with Interest

  1  45        710.00        445.00          265.00            278.25 
  2  46        710.00        445.00          265.00            570.41 
  3  47        710.00        445.00          265.00            877.18 
  4  48        710.00        445.00          265.00          1,199.29 
  5  49        710.00        445.00          265.00          1,537.51 
  6  50        710.00        445.00          265.00          1,892.63 
  7  51        710.00        445.00          265.00          2,265.51 
  8  52        710.00        445.00          265.00          2,657.04 
  9  53        710.00        445.00          265.00          3,068.14 
 10  54        710.00        445.00          265.00          3,499.80 



WARNING: None of the premiums beyond year 10 ARE GUARANTEED.

WARNING: The $1,055 premium would only be available if your health has not changed and you can pass the medical. That's in addition to the fact that the company reserves the right to change that premium.

 11  55        710.00      1,055.00         (345.00)         3,312.54 
 12  56        710.00      1,055.00         (345.00)         3,115.92 
 13  57        710.00      1,055.00         (345.00)         2,909.46 
 14  58        710.00      1,055.00         (345.00)         2,692.68 
 15  59        710.00      1,055.00         (345.00)         2,465.07 
 16  60        710.00      1,055.00         (345.00)         2,226.07 
 17  61        710.00      1,055.00         (345.00)         1,975.13 
 18  62        710.00      1,055.00         (345.00)         1,711.63 
 19  63        710.00      1,055.00         (345.00)         1,434.96 
 20  64        710.00      1,055.00         (345.00)         1,144.46



One thing I am sure of is that it is not worth $1,144.46 to take a chance that your health will remain fine. If your health changes, then you place yourself at serious risk of not being able to buy the insurance benefits that your dependents will need if you die. If you know you need insurance for 20 years, do not buy a 10 year policy.

Here's how bad it could be if you don't qualify for the re-entry at the end of 10 years. To make the comparison even more clear, we'll compare the 10 year plan with the more expensive 20 year fully guaranteed policy.

Chart H 20 year versus 10 year term (assuming that the consumer cannot re-enter or but a new 10 year policy due to health reasons)


            Premium       Premium         Difference     Premiums saved
Year Age    20 year plan  10 year plan    in premium     with Interest

  1  45        890.00        445.00          445.00            467.25 
  2  46        890.00        445.00          445.00            957.86 
  3  47        890.00        445.00          445.00          1,473.01 
  4  48        890.00        445.00          445.00          2,013.91 
  5  49        890.00        445.00          445.00          2,581.85 
  6  50        890.00        445.00          445.00          3,178.19 
  7  51        890.00        445.00          445.00          3,804.35 
  8  52        890.00        445.00          445.00          4,461.82 
  9  53        890.00        445.00          445.00          5,152.16 
 10  54        890.00        445.00          445.00          5,877.02 



If you can't pass a medical, the following are premiums that you WILL PAY for the 10 year policy. Remember, those premiums have nothing to do with anyone else's premiums, or what the company thinks it may or may not charge. They are the guaranteed premiums you face in the 10 year policy once you come to the 11th year.

 11  55        890.00      7,870.00       (6,980.00)        (1,158.13)
 12  56        890.00      8,895.00       (8,005.00)        (9,621.29)
 13  57        890.00     10,015.00       (9,125.00)       (19,683.60)
 14  58        890.00     11,250.00      (10,360.00)       (31,545.78)
 15  59        890.00     12,665.00      (11,775.00)       (45,486.82)
 16  60        890.00     14,270.00      (13,380.00)       (61,810.16)
 17  61        890.00     16,080.00      (15,190.00)       (80,850.17)
 18  62        890.00     18,170.00      (17,280.00)      (103,036.68)
 19  63        890.00     20,580.00      (19,690.00)      (128,863.01)
 20  64        890.00     23,350.00      (22,460.00)      (158,889.16)



It is my view that the person needing term insurance for 20 years is taking far too great a risk buying a term plan that does not provide a level premium for 20 years.

And if you need insurance for longer than 20 years, consider the guaranteed premiums for either the 10 or 20 year policy from year 21 and on.

Chart I Guaranteed premiums for 20 year versus 10 year term, from year 21 and on.

 21  65     26,465.00     26,465.00            0.00       (166,833.62)
 22  66     29,885.00     29,885.00            0.00       (175,175.30)
 23  67     33,670.00     33,670.00            0.00       (183,934.06)
 24  68     37,815.00     37,815.00            0.00       (193,130.77)
 25  69     42,415.00     42,415.00            0.00       (202,787.31)



Note that the premiums from year 21 and on are the same. Once again, the premiums once the level period is over are just awful. This will underline the fact that the 20 year policy, while still available to you at age 65, has a premium so far out of sight that you better not need it anymore. If you think you will need the policy longer than 20 years, then I urge you to consider 25 or 30 year level term.

Conclusion

There is no hard and fast rule about which way to go. Do you buy a full guarantee or take a chance that a company's projected costs will be what they have said they will be?

In many cases it is clear that the cost savings of buying non-guaranteed term policies makes guaranteed policies too expensive.

Compulife's TERM4SALE website makes comparing guaranteed with non-guaranteed policies much more simple.

When selecting the level term period from the list of options, you can compare just policies that are guaranteed, or you can compare both guaranteed and non-guaranteed policies. Once you have a better idea of the cost differences, you will need to discuss the matter with a licensed agent.

Compulife believes that the agent best equipped to answer your questions is one who subscribes to Compulife. For a list of agents in your area, click your browser's back button and from the screen that displays your comparison results, click on "List of Agents".