must remember that life is not static!
Financial needs change, and life insurance products should include features
that will allow for coverage to change
along with circumstances. When making a term life insurance recommendation, agents should consider the
issuing company’s financial strength,
the policy’s conversion privileges,
the policy’s waiver of premium rider
features and the ability of the policy’s
features to work simultaneously.
Perhaps the first step in assessing a
term insurance policy’s long-term viability should be whether the issuing
life insurance company offers whole
life products or limited payment products. A national study conducted by the
Melior Group last August indicated that
many Echo Boomers and Gen Xers are
choosing to purchase whole life policies instead of other asset alternatives.
Over one-third of those surveyed for the
study indicated they would prefer products that can be fully paid up, rather than
paying premiums over a lifetime.
data to the contrary, many consumers
and some advisors view the additional
cost for waiver of premium as a superfluous and unnecessary add-on. While
many people have no disability income
insurance, even those that are insured
can find their cash flow severely limited when disabled. A waiver of premium rider provides tremendous financial
and psychological relief to a disabled
insured by allowing life insurance protection to remain in place while the
premiums are waived by the insurance
company during the disability.
Preferably, a term life insurance
policy’s waiver of premium rider and
conversion privilege will work simultaneously. This is best illustrated by
example: William, a 38-year-old professional, purchases disability income
insurance and term life insurance with
a waiver of premium rider to replace his
income if he becomes disabled or dies.
The life insurance policy has a strong
waiver of premium rider that allows
him to exercise his conversion privilege
after filing a waiver of premium claim.
At age 44, William develops a chronic
neurologic syndrome called Lyme encephalopathy, leaving him permanently
disabled. While the income received
from William’s disability income insurance and Social Security benefits allows
the family to meet its monthly obligations, there is no money left for savings. However, because the conversion
feature in William’s term life insurance
policy allows him to convert his term insurance to a whole life insurance policy
with a cash accumulation feature after
he’s successfully filed a claim under the
policy’s waiver of premium rider, he can
continue to accumulate money without
additional outlay by his family. (Note:
The waiver of premium rider provides
that premiums for the base policy and
the rider will be waived if the insured
becomes totally disabled as described in
the rider. It does not necessarily allow
the insured to convert.)
“When making a term life insurance
recommendation, agents should
consider the issuing company’s
financial strength, the policy’s
conversion privileges, the policy’s
waiver of premium rider features
and the ability of the policy’s features
to work simultaneously.”
issues, high blood pressure and high
triglycerides. If a term insurance policy
does not permit conversion to permanent life insurance, or if the policy’s
options to convert are limited by face
amount or product selection, an insured’s future planning options and the
financial well-being of his or her family is placed in jeopardy. A term insurance policy that can be converted to a
number of product options (whole life,
limited payment, universal life, etc.)
helps to ensure flexibility with regard
to the lifetime success of a plan.
Waiver of premium
The addition of a waiver of premium
rider brings an additional element of
protection to a life insurance policy.
According to the Social Security Ad-
ministration’s Fact Sheet 2007, more
than one-sixth of Americans (about 51
million people) are disabled. Almost
half of those people are under the age
of 50. Various reports, like the National
Center for Health Statistics’ 2008 Na-
Conversion privileges with multiple
product options can be crucial to the
consumer who purchased term insur-
ance at ultra-preferred rates at age 29
but has grown into a 38-year-old cancer
survivor or a 42-year-old with weight
tional Health Interview Survey and the
U.S. Census Bureau’s 2002 Americans
with Disabilities Report, have found
that the likelihood of disability exceeds
the likelihood of death between the
ages of 30 and 65. Despite empirical
