There’s No Time Like the Present: Individual Life Insurance Premiums Have Never Been Lower
By Richard Brindisi & Ronda Davis
Universal Advisor, 2006 Issue No. 3
People acquire life insurance for a variety of reasons, from ensuring their spouses are provided for to protecting their businesses to passing wealth down to the next generation. Whether you’re considering term or permanent life insurance, there’s no time like the present: the premiums for individuals have never been lower.
What’s caused this trend toward lower individual premiums? The biggest driver is that life expectancy for the population continues to increase; thus, premiums have adjusted accordingly. In addition, the insurance industry is extremely competitive, and life insurance continues to have significant tax advantages. Life insurance proceeds at death are paid income tax free and, if properly owned and structured, can be designed to be estate tax free.
This means that people who’ve traditionally shied away from life insurance are finding it to be an attractive alternative for ensuring their families’ financial security. For example, a 40 year old male non-smoker in preferred health can obtain a 20 year, $1,000,000 term life policy for $900 per year. The cost for the same coverage for a 50 year old is $2,345.
For permanent life insurance, consider a 60-year-old female in preferred health. If she passes away at age 85, the policy would provide her family with an after-tax rate of return of 8.38 percent; if she lived to 90 or 95, the after-tax rate of return would be 6 percent or 4.42 percent, respectively.
Because these rates of return are so attractive, some people are beginning to consider insurance as an alternative asset class within their investment portfolios. Although life insurance is not a wise investment if the goal is to provide for the insured party, it can be a wonderful investment for those people who have assets they don’t foresee consuming in their lifetimes that they’ve delegated to pass down to the next generation. Life insurance is paid out to families immediately after the policy holder passes away, as opposed to other investments that take significantly longer to mature. This is a great way to diversify those investments-to hedge against the passage of time.
Individual life insurance premiums have never been lower; as such, if you’ve been contemplating the purchase of life insurance, it’s the perfect time to buy. However, a word of caution: it’s important to seek the proper advice in determining how much insurance makes sense, what type of insurance best suits your needs, and who should be the owner and beneficiary of the insurance policies to coordinate with your overall estate plan. Too many people buy insurance without the proper advice and planning. It’s important to take a holistic approach.
Plante Moran Insurance Services is a member of FINRA. Securities offered through: Valmark Securities Inc., an unaffiliated securities broker-dealer. Member FINRA, SIPC.
