It’s in every human resources office across corporate America.
It’s in the federal government and even in mail order life insurance plans directly to the consumer.
Increasing premium term life insurance plans are definitely the norm in the way an employer offers life insurance benefits to employees and a very easy way for the consumer to sign up for life insurance with very few health questions.
It’s even present in the Department of Veterans Affairs’ (Veteran’s Group Life Insurance Program – VGLI) delivery of life insurance benefits to veterans after military service for those that wish to pay for it.
It’s very expensive and it gets unaffordable at age 75.
The best and rarely seen employer provided group life insurance program has to be the Serviceman’s Group Life Insurance (SGLI) Program. It provides a $400,000 death benefit for a small premium that does not increase with age for members of the military.
No matter what health condition a member of the military may have; they are covered under SGLI until they leave the military with no risk of a rising premium.
Why Increasing Premium Term Group Life Insurance?
Simply put, the cost of life insurance increases with age. Every birthday you have, you’re that much closer to your end of life expectancy date.
Therefore, this type of life insurance rates increase as the cost of life insurance rises as you age based on the actuarial tables according to age and gender.
Using the law of large numbers with minimal intervention on the conditions of the participants, increasing term plans can be administered on these simple principles with the goal of a large population in the plan to work best.
Planning For High Premiums Later in Life
Whether a person realizes it at the time an Increasing premium term group life insurance is taken out or not, in most cases the premium rates are simply not affordable in the older age brackets.
Then compound that with health conditions that might prevent an individual from qualifying at a preferred rate and you have a less than optimal situation.
In many cases, individuals find themselves captive to their increasing premium term plans because of their health conditions.
To prevent problems later in life a 40 to 50-year-old could simply pay just a little higher premium for a permanent plan instead of falling prey for that enticing lower premium of an increasing term plan.
They’re Employer Provided Benefits – They Must Be Good
The federal government offers an increasing premium term group life insurance plan that covers an individual for up to 5 times their salary. This is called the Federal Employee Group Life Insurance Plan Optional coverage B.
At age 50 this coverage begins to get noticeably expensive.
If an individual takes the time to look at their earnings and leave a statement on MyEPP, they will see the amount of money they’re paying a month on this optional coverage.
In most cases, there would be a huge saving on a level term plan if an individual chooses to turn off the optional coverage and buy a level term plan.
But the path of obtaining individual private life insurance to improve these costs is one that is less traveled.
Most just leave it alone and go with the employer provided benefit.
Very few take the time and look at the amount of money they can save on a monthly basis, to put term life insurance in place and sign a new SF 2817 listing the benefits to leave in place with the HR office.
Tip: We think FEGLI basic life insurance is a bargain. Career federal employees should use FEGLI basic and when between the ages of 45 and 50 shop around for a level term plan and dump FEGLI option B if being used. (This is the coverage that allows you to take up to 5 times your salary.) Below is how your life insurance tab should look on My EPP when you’re over age 50.
A level term life insurance policy will give you level payments at an affordable rate well past retirement. FEGLI optional coverage simply ends when the employee retires.
Then once you retire you will have the FEGLI basic coverage. After age 65 there will be no more payments and the death benefit with decrease down to 25% of the death benefit that you had when you retired.
These Plans Make Their Impact on Senior Citizens
It’s common place to speak with a 70-year-old senior citizen that has Globe Life or New York Life (and, by extension, AARP) increasing term life insurance policies where they insist they have great life insurance and they’re covered for life.
But when a call is made to the company because they can’t find their policy and the company explains that it’s a term policy that expires at age 80 or 90 AND the payments go up in 5 year bands; ultimately to an unaffordable amount of money per month at age 75; they are very attentive to what you have to say next.
The good news is, if they have decent health, there are whole life plans that will be lower in price than the age 70 price for the increasing term plan.
So Avoid Increasing Premium Term Group Life Insurance Policies When You Can Pay a Little Higher Premium for a Level Term or a Permanent Life Insurance Plan
The life insurance decision you make in your 40’s and 50’s will impact your life and your family’s life when you’re older. And resistance to Increasing Premium Term Group Life Insurance plans could make all the difference in the world.
Like we said earlier; these plans are everywhere. No matter the employer you’re with or the demographic you’re in, these plans are everywhere.
So if you’re above the age of 50; just had a birthday and you notice that your paycheck just got smaller; check your pay stub and see how much you’re paying a month for your Increasing Premium Term Group Life Insurance plan.
It will probably surprise you. It will also surprise you how much more level term life insurance benefits you can buy for the dollar spent, depending on your health.
Level Term Life Insurance
Level term life insurance, the most common form of term life insurance, is a life insurance policy that gets straight to the point.
It’s similar to regular term life insurance in that it provides pure life insurance coverage when you need it with none of the frills of whole life insurance, such as forced savings components.
Level term life insurance has a guaranteed level premium, and you aren’t required to annually renew the policy. The insurance premium stays the same for a set period of time – the length of time for which the policy is in effect (usually 10, 15, 20, or 30 years).
The longer the policy is in effect, the higher the annual premium will be.
For example, if you purchase a level term life insurance policy for 10 years, you’ll pay lower premiums than you’d pay if you purchase level term life insurance for 30 years.
The reason for this is you’ll get much older during the course of a 30-year policy than you’ll get during the course of a 10-year policy, and life insurance companies view older individuals as riskier to insure.
If you purchase a 10-year policy when you’re 30 years old, you’ll only be 40 years old when the policy expires; however, if you purchase a 30-year policy when you’re 30 years old, you’ll be 60 when the policy expires.
It costs more to insure a 60-year-old than it costs to insure a 40-year-old. Make sense?
Level term life insurance policies normally include renewal options. This means you can renew your policy at a maximum guaranteed rate if you choose to extend the term of insurance coverage.
This option is usually only implemented if your health has greatly deteriorated during the original term of insurance coverage.
If level term life insurance sounds right for you, begin your search now and make your purchase as early as possible to ensure the lowest premiums possible.
Whole Life Insurance
Whole life insurance is often taken out for family protection purposes to provide a lump sum to your dependents in the event of your death.
Whole life insurance provides death benefits as the title describes-potentially for your whole life. When you die the policy will pay out as long as you maintain the premiums.
This is different than Level Term which usually only pays out if you were to die during the term of the policy. Hence the cost of Whole Life Insurance is usually greater than a Level Term policy.
Whole Life Insurance policies often have other options such as waiver of premiums in the event of disability and the ability to pay up the policy in 10 years. There is often an option to include Critical Illness coverage in the policy so the policy would pay out either upon earlier diagnosis of a specific critical illness i.e. heart attack, cancer, stroke, kidney failure or upon death whichever happens first.
As can be seen whole life insurance is a flexible policy with many options so, as stated earlier, you should seek sound advice from an independent life insurance agent as to whether a whole life insurance policy is suitable to meet your requirements.