We used to play dominoes when we were young, kind of a fun game. We would stand them all on end in some intricate design and then tap the first one and watch joyfully as they all fell. We are currently witnessing a real live domino effect with life insurance companies scrambling for a way to knock over their domino. For years these companies have offered their most competitive lifetime guarantee universal life products for conversion. That didn’t mean it was cheap to convert. It was still a product that was guaranteed not to lapse until you did and guaranteeing coverage to age 121 is simply not cheap. You hear buy cheap term insurance all the time but you never hear anyone saying buy cheap permanent life insurance.
So we went a little crazy on Protective Life this week over their way of getting around the policy promise to convert at the same rate class you were originally approved at. Some Protective life genius customer hater figured out that if the product that could be converted to had a built in best rate class that was a standard rate, not preferred plus, then even the healthiest, wealthiest loyal customers that wanted to convert would go away rather than get screwed. They don’t want you to convert because they have decided it’s not profitable for them. If your car insurance company changed your deductible to $5000 when you paid for $500 because they decided it wasn’t profitable to let you keep it at $500, that wouldn’t fly very well would it? What if they found some legal loophole that made it legal to do but they never told anyone about it until you needed the insurance.
Now comes Transamerica with a small change in their conversion option. Up until recently, and no one seems to know exactly when because like Protective, they didn’t tell anyone, you could convert to their very best lifetime guarantee (sounds permanent, right?) at the rate class you were originally approved at. Now they’ve pulled that product from conversion and offer a cash value UL at twice the price of their TransAce GUL. But it builds cash, right? Well, yes it does, but it also has a surrender charge that builds right along with the cash value rendering the cash useless. Or, as an option they decided they like the Protective whole life trick of making the best rate class for their whole life conversion standard. How can they do that? Morally they can’t, but this is business and you’re only customers so anything goes. If you originally bought term insurance and were approved at the Trans best rate class, well, conversion to the best rate class of their whole life at standard is easily twice as much as it would cost to go out and buy a new policy.
Our advice? Know exactly what your term conversion option is, and if it is among those companies that are deciding they don’t want you to convert, while you’re still healthy buy their low cost guaranteed universal life. If it’s still a good option, consider converting what you can, while you can. If you think you might need some permanent life insurance at some point you should consider pricing it now. Along with companies pulling the best products out of their conversion line up, they are also getting ready to increase the cost per thousand. Locking a good no lapse guarantee UL now could save as much as 20% and for something that you will pay for from now until you die, 20% is huge. If you have questions or need clarification on your conversion option, call or email. We can help.
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