Author Topic: What's the deal with annual renewable term insurance?  (Read 887 times)

Bartleby_the_Scrivener

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What's the deal with annual renewable term insurance?
« on: April 22, 2018, 01:00:52 PM »
So my wife and I wanted to purchase some plain-vanilla level term insurance. We talked with an insurance salesperson at a major life insurance company (one of the largest ones). The salesperson is strongly urging us to purchase this other type of insurance (I believe it's called annual renewable term) where premiums start low and then rise over time.

Although my wife and I aren't going to buy it, I'm wondering why she's pushing it so insistently. Are the commissions on that product higher than they are on level-term insurance? Perhaps I am a cynic, but her recommendation just does not make much sense to me otherwise.

secondcor521

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Re: What's the deal with annual renewable term insurance?
« Reply #1 on: April 22, 2018, 01:09:39 PM »
They must be.

Probably the insurance company has figured that ART is a pretty profitable business for them.  First, they get to price it annually so they can incorporate mortality risk appropriately and easily.  Second, and less obvious, as the price of the insurance rises over time due to mortality risk and their customers realize that they are more self-insured and don't need the insurance and it is becoming less affordable, the customers cancel the product, saving the insurer the $500K or $1M or whatever payout they were on the hook for, so all of those premiums, minus some commissions and paperwork costs, are pure profit.

You didn't ask, but what I did was buy vanilla level term insurance for either 10 or 20 years so I had my price locked in.  I then saved like mad so I could self insure as early as possible and drop the term insurance coverage.  Lots of online comparison companies, and the premiums were autodeducted from a checking account.  Make sure you pick an issuer who you trust to be financially sound so they can pay in the very unlikely event that you end up dying during the term.

Bartleby_the_Scrivener

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Re: What's the deal with annual renewable term insurance?
« Reply #2 on: April 23, 2018, 08:26:04 PM »
They must be.

Probably the insurance company has figured that ART is a pretty profitable business for them.  First, they get to price it annually so they can incorporate mortality risk appropriately and easily.  Second, and less obvious, as the price of the insurance rises over time due to mortality risk and their customers realize that they are more self-insured and don't need the insurance and it is becoming less affordable, the customers cancel the product, saving the insurer the $500K or $1M or whatever payout they were on the hook for, so all of those premiums, minus some commissions and paperwork costs, are pure profit.

Yeah, I think you're exactly right. I was surprised that this company didn't offer the level-term policy beyond 20 years. At one point in time that was an option, but the company probably found that it could make more money with the ART policies.

The salesperson only showed the projected renewal rates for 20 years, and they were already insanely expensive. I guess that's the way the company gets people to stop renewing right about the time their risk of dying starts accelerating.

KMMK

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Re: What's the deal with annual renewable term insurance?
« Reply #3 on: April 24, 2018, 07:51:14 AM »
Iím a broker. Iíd recommend talking to a broker so they can compare several companies. They should have shown you beyond 20 years, as yes term gets incredibly expensive at certain ages.
I wonder about the ART - is it only guaranteed renewable so they can increase the price every year (beyond the illustration they showed you? Do they hope for more cancellations because of the price increases or renewal process? I know people switch car companies a lot as the prices often go up every year. Itís so much better to have a stable amount for many years.

Bartleby_the_Scrivener

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Re: What's the deal with annual renewable term insurance?
« Reply #4 on: April 24, 2018, 07:55:31 PM »
Iím a broker. Iíd recommend talking to a broker so they can compare several companies. They should have shown you beyond 20 years, as yes term gets incredibly expensive at certain ages.

Actually, the gal with whom we talked was a broker. I asked her to look at some other companies' policies, but I've not heard back yet.

I wonder about the ART - is it only guaranteed renewable so they can increase the price every year (beyond the illustration they showed you? Do they hope for more cancellations because of the price increases or renewal process? I know people switch car companies a lot as the prices often go up every year. Itís so much better to have a stable amount for many years.

My thoughts exactly. My guess is that it is a policy that may fit people who don't have the money to spend in the first few years, but it definitely doesn't make sense for our needs.

Bartleby_the_Scrivener

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Re: What's the deal with annual renewable term insurance?
« Reply #5 on: April 29, 2018, 07:47:07 PM »
So the broker told me to take it or leave it... I'm slightly surprised that the company would leave money sitting there, but whatever.