My own accountant was a member of his professional association term program. He was paying $972 at age 54 but it was going to increase to $1,814 net the following year . He asked me about market numbers and I brought him $1,650. He didn’t think that was so much better until I told him it was a level premium for 10 years when his CPA term would increase to $4,147 after 5 years.
He was initially incredulous. Once he realized there was no catch and it wasn’t too good to be true he asked me “Why would anyone stay with that program?” My answer: “You only would if you had no other choice or didn’t know something else existed.”
He actually wanted insurance for 20 years and I found him a level premium option for $2,800. Yes he would be paying a little more for 5 years but it would be a huge saving when the premium rose to $4,147 then $7,450 for years 11-15. The CPA term then forcibly cut his death benefit down to $500,000 at age 70 while he still paid $7,450, another 100% incense in cost. The competitive market option stayed at $2,800 for the full million for 20 years.
A married couple were both professors at Michigan State University. They each had term insurance insurance through the school and the premiums were increasing every five years. The premiums in five year increments were $708, $1,320, $2,028 and $3,888 over the next 20 years.
The husband qualified for 10, 15 or 20 year insurance for roughly $600, $800 and $1,000 respectively. The wife’s pricing was $500, $600 and $780.
An 59 year old attorney I met me at a conference was paying over $7,000/yr for $2,000,000 of term insurance through an association program. At 60 this premium would jump to over $15,000 then $27,000 at age 65 and an eye popping $60,000 at age 70. At only standard rates (4 levels down) I could get him the $2,000,000 for 10 years for $8,000, 15 years for $10,500 and 20 years for $15,000.
A physician in her fifties had $3,000,000 of term insurance through the American Medical Association and was paying $6,720. The premium was increasing to $9,360 at age 61, $15,450 at age 66, $41,310 at age 71 and policy ends at the 75.
She was healthy and qualified for preferred best rates and is now paying $6,100/yr for a 20 year level policy. A 10 year level would be only $3,400/yr. She is literally saving six figures in term premiums over the years. It’s almost unbelievable.
The Young Professional
A 30 year old professional came to me for insurance coverage when she and her husband were having their first baby. She looked at the pricing for $2,000,000 of term and it was very inexpensive at $356/year after the refund going to $458 after 5 years. The market rate for a 10 year level was $320 so it was obvious which way to go. I asked her how long she might want the insurance and she replied she thought she would want it for at least 20 years and maybe 30 years.
The association term cost would be $356 for the first five years, $458 for the next five, then $725, $783, $1440 and finally $2,980 for the last five years. Meanwhile, new insurance chosen from the market at large would be $550 for 20 years level and $990 for 30 years level. Saving a few bucks in the early years was no worth tripling the cost down the road.
Furthermore, she may not stay in the profession once she had more children and didn’t like the idea of being forced to maintain her association membership to keep the insurance.
The Old Guy
A gentleman nearing retirement age learned his association coverage would drop by 50% at age 70 and wouldn’t be available at all at 75 and he definitely needed it in force for longer. We were able to get him the full amount for 10 years at a third the cost he would have been paying for only 5 years through the association.
The Conversion Conundrum
Because association coverage doesn’t have the same contractual rights as individual market options, the policies often aren’t portable, meaning they can’t be taken with you if you leave the association or the company. Many times the only option to keep the coverage is to convert. The problem is, the insurance companies often only have one product to convert to, an antiquated, expensive product no-one in their right mind wold ever choose unless they were backed into a corner and had no other choice.
A 60 year old man who comes to the conclusion he needs to convert his $1,000,000 of association term to a permanent product would need to cough up about $40,000 in annual premiums while an individually underwritten lifetime guaranteed premium and death benefit policy may be available for as low as $15,000/year. For a 40 year old the numbers might be $15,000 vs. $5,000.
The Group Insurance Ridiculousness
A 44 year old guy came to me with his 40 year old wife. They each had $340,000 of group term through his employer. He is currently paying $1,188/yr with the cost increasing next year to $1,656 and rising in 5 year increments to $2,748, $4,692, $7,728.
$350,000 at standard rates (4 classes down) a 20 year term would be $620 and a 30 year term would be $980. The savings are almost beyond belief.
He wife, who could qualify at preferred rates, would save even a larger percentage. Today she will pay 33% of the group term rates while in 10 years she will be paying only 13% and in 20 years less than 5% of the group term rates. These numbers are so ridiculous that we sometimes have a hard time getting people to believe it.
The Very Healthy Guy
Another professional advisor told me he was healthy so he took an insurance exam to get the best rates possible through his professional insurance program once he could take advantage of that option at age 45.
Once again, the competitive market option looks best at $550 for a 10 year level term premium and $1,050 for a 20 year level term.
My brother-in-law is a doctor and 15 years ago he purchased $3,000,000 of insurance through me instead of through his professional association. $2,000,000 of it expires this year and $1,000,000 in 5 years. Back when he made these decisions, 15 and 20 years seemed like a very long time. However, things changed. It turned out that he now needs insurance for a longer period of time.
The problem… even though he is very active, fit and looks healthy, he is now uninsurable or highly rated rated with any carrier we approach. The term coverage is ending and converting all or a portion of the existing policies is his only insurance option. If he had gone with the association term the cost for converting to keep coverage in force would have been very limited and much more expensive.