What is the cheapest life insurance you know of?

[Carolyn Moshtagh]

For those out there who don't know much about life insurance this is a good time to get a few pointers.

For those of you that know about life insurance; which is the cheapest life insurance you can get?

The 3 types of life insurance are Term, Whole life and Universal (UL).

1. Term can be used to cover a short term debt such as a mortgage or a buy sell agreement. There is no cash build up that can be withdrawn, you can't take a loan against the policy or assign it to the bank as collateral.

2. Whole life gives you insurance for life and some allow you to pay for 10 or 20 years and never pay premiums again. Whole life normally allows you to put the policy on premium vacation so that you can stop paying premiums earlier.There is growth in the death benefits and you can assign the policy to a financial institution if you need to borrow money. Some whole life gives dividends that you have growing as cash value and this cash can be withdrawn from the policy with no effect on the death value ...it is not a loan on the policy, although you can do that...this is money you never pay back.

3. Universal is buying term and investing the rest. It gives you the benefits of a whole life policy and a term.

I hope to illustrate which insurance I think is the cheapest and to do so I will use the example of a client who is a 45 year old non smoker Male inusred for $500,000

Term 10
- most of you will agree that term is cheap, at least to begin with but as time goes on the cost increases. for the example above the year payment are:

year 1 to 10 $495
year 11 to 20 $2,225
year 21 to 30 $6,880
year 31 to 40 $18,360


So it does start cheap but if you want to keep your insurance in place you pay a lot after the term is up. Even if after 10 years you where still in excellent health and you got a new police the payments would be $1185 a month for 10 years and so on.


Next there is Whole Life

for the same client and amount of 500,000 paying for 20year

year 1 to 12 $16,860
year 13 to 20 $15,615

death benefit
at age 65 is $537,938.00
at age 85 is $1,325,018.00
at age 100 the benefit is $2,369,240.00

After 20 years there are NO MORE PAYMENTS. You can put the policy on premium vacation before the 20 years are up but the death benefits will be less.


Universal or UL

Here is where you need an agent who really understands how UL works

We are putting in $25,000 for 6 years

term to 100

put 25,000 up front every year for 6 years and within 7 days you get a policy loan for

Year 1 ......$17,000 after tax
Year 2 .....$21,486 "
Year 3 .....$23,354 "
Year 4 ......$24,874 "
Year 5 ......$22,429 "
Year 6 ......$19,266 "


PAY NO MORE MONEY INTO POLICY

Insurance paid IN TOTAL $ 6,135.00
Cash Value policy at year 100 $924,713.00

This type of maneuver in a UL policy is good for buy sell agreements, Individual life insurance, Paying for critical illness to age 100 (with a return of premium CI policy and this UL together).

To run an illustration suitable for your needs email me [e-mail] or call 416 500 9195

[Carolyn Moshtagh]

Thank you for your comments and adding value to this discussion, your points are all valid.

I encourage my clients to diversify their portfolios using Mutual funds, real estate, Insurance products etc as all offer advantages.

To do only one type of investing is not smart.

The point of this article however is not to use insurance as the only means of investing but to point out that TERM is not necessarily the cheapest insurance ( as some people think).

Yes we can renew at a better rate at the attained age and IF you are lucky and STILL in good health you pay less than my example...to go into all of that illustration is not worth it for my article as no matter how you twist the numbers they will not work out cheaper for life insurance than what I show in the UL

In my example using UL and investment loan strategy we pay a TOTAL of $6,000 for $500,000 insurance for LIFE .

This is not $6,000/yr but for life.

The benefit is tax free, something that investors in Mutual funds etc have to take care because when you pass away your funds are deemed disposed of and goes through probate and estate taxes BEFORE being handed over to your beneficiaries.

[Tim Empringham]

Two issues... you've ignored the time value of money and you've ignored the possibility that you may qualify for lower cost term insurance at each of the milestones if you don't have any new medical issues or conditions - the rates you've quoted are the guaranteed renewal rates.

If I ignore the second issue since I can't guestimate the potential savings (nor guarantee that you won't be in need of the guaranteed renewal rate for medical reasons) you can do a simple Net Present Value (NPV) calculation on the rates you'll pay to figure out that the best deal is (in today's dollars).

Let's assume for the sake of argument that this policy ($500,000) is in force to age 85 at which time the policy holder passes away and collects on the policy. Using a relatively conservative discount rate of 6% for the money your cash flows out to the insurer in terms of today's dollars are:

Term: $52,104.32
Whole Life: $189,540.71
Universal Life: $122,933.11

While I'll give you that the Whole Life and Universal Life policies have potential for greater value in terms of their underlying investments, the values you quote are estimates based on historic performance (and much like the mutual fund business, past performance is no indicator of future returns). If I take the $24,505 savings in terms of cash flow in the first 6 years when I compare between Term and Universal and invest it into a conservative fund at 4% and stop investing after that six years is up, by age 85 that fund should be worth over $640,000 (in addition to the $500,000 face value on my term insurance policy).

Having sold insurance in the past (and pushing Whole Life / Universal Life policies in general) I understand a lot of the benefits of the products, but for me I prefer to separate the risk prevention and investment components of my portfolio which allows me to minimize the overall cost of risk prevention significantly while leaving me free to invest my money to maximize investment returns for my retirement.

Each product has an appropriate audience, but I think it is more important to look at the overall strategy which may include separate investment vehicles such as Mutual Funds, Bonds, Real Estate, and other options as well as the investment component of insurance rather than simply comparing the simple costs of the insurance product in a vacuum.

[Carolyn Moshtagh]

Oh I forgot to say...the money in life insurance by passes probate and the estate and is paid out tax free to the beneficiary.

[Carolyn Moshtagh]

True, but is it cheaper and guaranteed? Can you put $6,135 and have $500,000 in risk management for your family and/or business as in the last example?

[George Torok]

Carolyn,
I believe that there is another form of insurance and that is self insurance.