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Hello Fat Wallet Forum

I greatly appreciate the immense support this forum provides to ordinary folks like me who struggle with making financial decisions.Please allow me to seek your advice for structuring my term life insurance planning.

Background:I (age 40) and my wife (age 38) have not been able to secure the preferred/preferred-plus health classes from any other carrier other than Northwestern Mutual (NWM) which has given us the second best class. Still, the cheapest of the quotes which is NWM happens to be quite expensive compared to what we had hoped for. While we will continue to hunt for better quotes in the next few months through independent agents, we want the lock-in whatever best we are getting through NWM (will cancel it in case we happen to find something better).

The main point I seek advice/feedback/opinion on is: my plan to partly offset the cost of the expensive individual plan with the cheap employer provided group plans I and my wife have access to. We know the employer group plan increases in cost as we age (and we run the risk of losing coverage if we lose our job). At age 55 our employer plans get more expensive than the NWM plans, so I think of dropping it at that stage and solely relying on the NWM plan. We project our asset/debt situation to improve significantly (we both have decent well paying jobs) and that our insurance needs will decrease with time. So, we can afford to drop the employer plan when it gets too expensive. The idea is to lock in the benefit of individual plan but supplement it majorly with the employer plan during the first half of the coverage. In fact I am thinking that I can ladder my employer plan (i.e. reduce coverage) every couple of years or so after a reassessment of our assets/debts. (On the other hand I really need the individual plan only after age 55 but there is no way I can lock in a price with a deferred start date. So we can ignore this part since it’s not possible, or please correct me).

Here is an example for myself:I need coverage of $1.3 million based on todays assets/liabilities, But 15 years later (at age 55 when employer policy gets expensive) I would need only $500K in coverage. So I buy only $500K of individual NWM policy (based on what I need at age 55), and supplement it with $800K in employer provided group policy. Every 2 or 3 years I re-access my assets and liabilities and dial down by employer coverage till it drops to zero at age 55, at which point I only have the individual policy that I locked in 15 years back.

More explicit example:
Year 1: Individual: 500K, Employer Group: $800K
Year 4: Individual: 500K, Employer Group: $600K
Year 8: Individual: 500K, Employer Group: $400K
Year 12: Individual: 500K, Employer Group: $200K
Year 15: Individual: 500K, Employer Group: Nil

I will be grateful for any feedback/opinions and letting me know of any flaws in this approach. I am basically trying to save some money because I am not getting a good rate on the individual policy.Thanks a lot! 

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rated:
It's not clear to me what you need life insurance for - you have young dependents? If both spouses are working, I would think there's not much need for each other.

rated:
It sounds like due to medical issues, you are not in the best rate. In nutshell, you want employer to be primary and other insurance as secondary. It makes sense as long as you are being employed. That's the main risk associated with your plan. If you can get your health in better shape, you may be able to apply again for private insurance (non-employer).

rated:
Thanks for such quick replies! (I fixed the formatting of my original post)

@SlimTim I have two kids aged 4 and 8. I guess even though both of us are working, a loss of any of our incomes early on would be very detrimental to us both for kids college education and retirement planning for the survivor. But as we improve our asset/debts, the insurance needs decrease for us.

@NYKnicksFan Thats right. I want the individual insurance only because it will be the same level premium from age 55 and beyond (basically the last 5 years of my term insurance planning). The employer provided group plan will be too expensive for me then and I'll drop it.

rated:
While you need for insurance may drop to a lower dollar amount as you build your assets, make sure you account for inflation in your planning. For example, 500k in today's dollar (your age 40) is not same as 500k 15 years from now (your age 55).

rated:
SlimTim said:   It's not clear to me what you need life insurance for - you have young dependents? If both spouses are working, I would think there's not much need for each other.
  OPs name is "dad_of_two".  Just sayin' 

rated:
this sounds like a good plan. the only risk is that you would lose the employer group coverage if you left that employer, but presumably you would sign up with a new similar group policy with a new employer.

I have been considering doing something similar due to rising group life ins. rates as I get older. I was thinking about laddering the group policy with private 10 and 20yr level term policies, so that the level of coverage goes down as I get closer to retirement and need less and less income protection. Does anyone know if you can get a level premium/declining coverage term policy anywhere that would be a better deal than roll your own?

rated:
@fwuser12 Yes. Thank you. I will be factoring inflation in.

@RidicuRuss I guess the lucrativeness of group policy (ignoring its risks) decreases with age. So I'm guessing in the strategy that uses group policy in combination with individual policy, the group policy should be the first to be laddered (decreased in coverage), given its risk adjusted cost benefit relative to the individual policy will go down with time. If someone is completely averse to using group policy, a auto/manual laddering strategy will do well. Curious to know your/other thoughts

rated:
I am afraid of the stuffstorm that I may be stirring up here, but.....

[deep breath]


What kind of policy is the NWM policy?

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@DrDubious NWM stands for North Western Mutual and we're referring to the term life policy in this thread.

rated:
His concern likely stems from that NWM almost always try's to sucker you into permanent insurance or convert their term to permanent. It isn't common for their term to be the cheapest.

rated:
dhodson said:   His concern likely stems from that NWM almost always try's to sucker you into permanent insurance or convert their term to permanent. It isn't common for their term to be the cheapest.


More or less. Also, trying to figure out how you ended up talking to a NWM agent about term. Seems strange that they would beat all comers for that. OP, have you spoken to an independent agent who can actually sell you many companies' policies or just the NWM guy?

rated:
OP, your plan seems reasonable. The only issue with using employer-based life insurance is that it could go away at any time. If you lose your job or employer stops subsidizing that insurance, then you're 5 year older, maybe not as healthy, and without a large chunk of your desired coverage. Getting replacement privately at that point is gonna be much more expensive. So the decision hinges a lot on how stable your employment is and trend in benefits at your employer. If they're cutting corners left and right, subsidies for group life insurance is one of the first to go in which case your premiums may jump quite a bit.

You'd have to compare those risks to the costs and lower flexibility of a private term life ladder. Say keep the $500k for 15 years, then have a $400k 10-year policy, and another $400k 5-yr policy, or something along those lines.

rated:
You say only NWM gave you preferred rates. Did you actually apply to them and the others? It's rare for NWM to be the cheapest for nonsmokers. How are you able to get 800k of group coverage with no health questions?

As for laddering, inflation does much of that for you. A 20 year level term policy will be worth about half as much at the end in inflation adjusted terms. You might think today that you'll need less coverage in the future, but that's usually not the case.

For those that truly know laddering is the way to go (i.e. specific needs), Banner allows you to buy multiple amounts and durations within one policy.

rated:
@DrDubious I started with a NWM agent simply approaching me for whole life but I stuck to just applying for term life. I have shopped around through other independent agents who spoke to underwriters (ie without a formal application) from couple of carriers including Banner & Prudential and I applied to Protective. I think whats not favoring me is that I and my wife are not US citizens yet (we have a couple years to go before we become naturalized). Yes it came as a surprise to me as well that NWM had the most favorable quote for my case.

@Shandril & @RBirns Thanks. To see if I can avoid the risks of employer insurance, today I asked my NWM agent for 10 year quotes for me and my wife. Surprisingly the monthly premium per million dollar in coverage is same (actually a bit more) as for 20 year term. When I questioned why wouldn't the per million quote for 10 year be substantially less than for a 20 year (just like 20 year premium is substantially less than a 30 year), I was told that the agent doesn't decide that and his guess is that actuarial tables suggest that the probability of someone dying between age of 40 and 50 (my age is 40) and between 50 and 60 is the more or less the same. And dying probability rises sharply when we get into 60 to 70 yr bracket. So, my hope of using laddering with NWM individual policy at least is squashed. I will continue to explore laddering with other agents (talking to another independent agent for Mass Mutual currently), but still will signup with NWM to be safe. I am told by NWM that I can decrease coverage any time resulting in proportional decrease in premium (and I can always discontinue that policy upon getting a cheaperone)

@RBirns My employer (a major bank) provides employee paid group policies that require no medical tests uptill 1.5 million in coverage

rated:
dad_of_two said:   
@RBirns My employer (a major bank) provides employee paid group policies that require no medical tests uptill 1.5 million in coverage

  
Be sure to check if there is any window for applying.  Usually it's no questions asked for new hires, but after some time they require evidence of insurability.

rated:
Piggy backing on OP’s question, what is considered good policy in terms of price for a 40 yo male with no major-medical issues? Also, do you have to look out for anything in terms of companies and policy coverage and terms, or most of the policies are standard and worded same way?

rated:
sap283 said:   Piggy backing on OP’s question, what is considered good policy in terms of price for a 40 yo male with no major-medical issues? Also, do you have to look out for anything in terms of companies and policy coverage and terms, or most of the policies are standard and worded same way?
As far as companies, the main thing to look at is financial stability so you want insurers with good ratings with A.M. Best, Moody's, S&P, etc. The well-rated ones are more likely to still be around at the time your beneficiaries would collect on your policy. 

As far as policies, the least confusing and most straightforward life insurance is term life. Stick with that to reduce the issues with hidden fees, obscure terms, mediocre investment returns, etc. Term life having fewer options makes it a bit easier to compare. You want to pay attention to their definition of pre-existing conditions, their requirement for medical exams, their suicide policy, the treatment of accidental death (sometimes can be an addon to the policy for extra coverage). And beyond that, you can check their claim settlement ratio to make sure they don't deny claims too often. Also pick a policy that has your preferred pay-out method, say one-time lumpsum vs. smaller lumpsum followed by COL-adjusted monthly payments. That latter option makes some sense if you think of life insurance fullfiliing the double duty of paying for the short-term aftermath of your death with a small lumpsum and then income replacement for life of beneficiary. And it kinda avoids the situation where your beneficiary is not good with money and squanders the full lumpsum.

rated:
dad_of_two said:   Hello Fat Wallet Forum

I greatly appreciate the immense support this forum provides to ordinary folks like me who struggle with making financial decisions.Please allow me to seek your advice for structuring my term life insurance planning.

Background:I (age 40) and my wife (age 38) have not been able to secure the preferred/preferred-plus health classes from any other carrier other than Northwestern Mutual (NWM) which has given us the second best class. Still, the cheapest of the quotes which is NWM happens to be quite expensive compared to what we had hoped for. While we will continue to hunt for better quotes in the next few months through independent agents, we want the lock-in whatever best we are getting through NWM (will cancel it in case we happen to find something better).

The main point I seek advice/feedback/opinion on is: my plan to partly offset the cost of the expensive individual plan with the cheap employer provided group plans I and my wife have access to. We know the employer group plan increases in cost as we age (and we run the risk of losing coverage if we lose our job). At age 55 our employer plans get more expensive than the NWM plans, so I think of dropping it at that stage and solely relying on the NWM plan. We project our asset/debt situation to improve significantly (we both have decent well paying jobs) and that our insurance needs will decrease with time. So, we can afford to drop the employer plan when it gets too expensive. The idea is to lock in the benefit of individual plan but supplement it majorly with the employer plan during the first half of the coverage. In fact I am thinking that I can ladder my employer plan (i.e. reduce coverage) every couple of years or so after a reassessment of our assets/debts. (On the other hand I really need the individual plan only after age 55 but there is no way I can lock in a price with a deferred start date. So we can ignore this part since it’s not possible, or please correct me).

Here is an example for myself:I need coverage of $1.3 million based on todays assets/liabilities, But 15 years later (at age 55 when employer policy gets expensive) I would need only $500K in coverage. So I buy only $500K of individual NWM policy (based on what I need at age 55), and supplement it with $800K in employer provided group policy. Every 2 or 3 years I re-access my assets and liabilities and dial down by employer coverage till it drops to zero at age 55, at which point I only have the individual policy that I locked in 15 years back.

More explicit example:
Year 1: Individual: 500K, Employer Group: $800K
Year 4: Individual: 500K, Employer Group: $600K
Year 8: Individual: 500K, Employer Group: $400K
Year 12: Individual: 500K, Employer Group: $200K
Year 15: Individual: 500K, Employer Group: Nil

I will be grateful for any feedback/opinions and letting me know of any flaws in this approach. I am basically trying to save some money because I am not getting a good rate on the individual policy.Thanks a lot! 

  
I own an independent life/disability and long-term care insurance brokerage, located here in San Diego, CA, and we are licensed in most all 50 states. We are a family-owned brokerage, who has been around for over 42 years and work with over 60+ of the nation's top "A" or better AM Best rated carriers on the market. We are fully unbiased and we only focus on these specific lines of insurance. We are also listed as a broker/agent on www.Term4Sale.com and represent virtually all of the carriers that you see that site, with the exception of AAA, Northwestern Mutual, and a few others.

I think your plan would work, but you will also need to remember that group/employer-provided plans are usually Guaranteed Issue policies, meaning that they usually do not require a medical exam and that anyone can get covered. What this means to you, is that the very healthy people like yourself can sometimes end up subsidizing the rates for the unhealthy people with Type II Diabetes, or heart issues, due to the fact that the insurance carrier cannot segment out and assess your individual mortality risk, as they can with an individual policy. Also, group policies tend to be more expensive than a standalone term policy, but you will just need to look at the rate tables for your particular policy and do the math in order to know for sure. It’s essentially just basic arithmetic, but I’ve included a sample comparison, along with a rate table below.

In addition, these group plans are typically not portable, meaning if you were to ever leave your employer, you could not take it with you. Group plans also usually increase in 5 year increments, meaning that you have to look at the rate tables (which you should be able to get through HR or your Employee Handbook), and do the cost-per-thousand calculation, based on each of the age brackets and their scheduled increases. As I've mentioned, the age brackets are usually based on 5 year increments (ie: 35-39, 40-44, 45-49, etc.), and always increase with age, due to increased mortality risk. You will then want to compare these cumulative forecasted group rates to what you can find through a standalone term policy through an independent broker.

For instance, the largest group policy is provided to all Federal Employees through our Federal Government, and it is called FEGLI (Federal Employees' Group Life Insurance). The policy is actually underwritten and insured through MetLife, and although the policy is a really good deal when you're younger, the pricing gets much more costly once you get about 50 or so, especially depending on how long you need coverage. You would think that the Federal Government would provide the best rates, but this just isn't the case - You could actually get a lower term policy directly through MetLife, who has since rebranded their name to Brighthouse Financial. In addition, many Federal Employees do not even know that they're paying too much, as the premiums are usually automatically taken straight out of their paycheck, which is a bummer.

I have included rates below for FEGLI's Option B - Additional Coverage, and this was taken directly from OPM's website (https://www.opm.gov/healthcare-insurance/life-insurance/program-information/#url=Premiums-for-Employees )  SEE BELOW FOR MY FULL COMPARISON ANALYSIS BASED ON YOUR SITUATION - ALL RATES ARE ASSUMING $100,000 OF GROUP COVERAGE, AND THAT YOU COULD ALSO QUALIFY FOR THE BEST, PREFERRED PLUS NON-TOBACCO HEALTH CLASS FROM THE MOST COMPETITIVE CARRIER TODAY:

FEGLI Rates for Option B - Additional
Age Group Biweekly, per $1,000 Monthly, per $1,000
Under 35 $0.02 $0.043 - $4.30/mo  
35–39 $0.03 $0.065 - $6.50/mo
40–44 $0.04 $0.087 - $8.70/mo                 
45–49 $0.07 $0.152 - $15.20/mo
50–54 $0.11 $0.238 - $23.80/mo
55–59 $0.20 $0.433 - $43.30/mo
60–64 $0.44 $0.953 - $95.30/mo
65–69 $0.54 $1.170 - $117.00/mo
70–74 $0.96 $2.080 - $208.00/mo
75–79 $1.80 $3.900 - $390.00/mo
80 and over $2.64 $5.720 - $572.00/mo
 

 
Now, take your specific situation and ASSUMING you were an actual Federal Employee and offered the FEGLI group policy. Assuming a 40yr old male, Preferred Plus NT, looking for a $100k 15yr Level Term policy - The least expensive carrier on the market today is Protective Life and it is $9.20 per month.

FEGLI Group Policy: (Ages 40-44: $8.70/mo x 12mths x 5yrs = $522.00 total) + (Ages 45-49: $15.20/mo x 12mths x 5yrs = $912.00 total) + (Ages 50-54: $23.80/mo X 12mths X 5yrs = $1,428 total) = $2,862.00 in total premiums paid over 15yrs
Standalone 15yr Level Term through Protective Life: Ages 40-55: $9.20/mo x 12mths x 15yrs = $1,656.00 in total premiums paid over 15yrs, the policy is portable (you own it), and you saved $1,206.00 in total premiums!!

Of course, your group rate table pricing will most likely be different, but as you can see, the standalone 15yr Level Term through Protective Life would be a much better option here. It would also be a better option if you only went with a 10yr Level Term, assuming you could qualify for the top Preferred Plus NT rate as I've mentioned.

Lastly, I HIGHLY DOUBT that NWM's rates are lower than purchasing the policy through an independent broker. Also, you should be able to qualify for the top Preferred Plus NT health class with other carriers, as NWM's underwriting guidelines are typically rather "tight" and restrictive. Meaning, you'd qualify for a Preferred NT through them, but at the better/lower cost Preferred Plus NT with the other more liberal carriers on the market.

Below are the lowest rates for a 40yr old male (actual and age nearest 40), $500k 15 Year Level Term, Assuming both the best Preferred Plus NT health class, as well as the 2nd highest Preferred NT health class.. In both situations, Protective Life is the least expensive carrier - All rates were taken from www.Term4Sale.com and I'm listed as an independent agent/broker on that site, as I have previously mentioned:

PREFERRED PLUS NT - Protective Life: $20.37 per month, or $236.81 per year
PREFERRED NT - Protective Life: $28.91 per month, or $336.15 per year

What are they quoting you at NWM for a Preferred NT $500k 15 Year Level Term? I'd bet NWM's rates are more than what I've listed above.

 

rated:
Shandril said:   
sap283 said:   Piggy backing on OP’s question, what is considered good policy in terms of price for a 40 yo male with no major-medical issues? Also, do you have to look out for anything in terms of companies and policy coverage and terms, or most of the policies are standard and worded same way?
As far as companies, the main thing to look at is financial stability so you want insurers with good ratings with A.M. Best, Moody's, S&P, etc. The well-rated ones are more likely to still be around at the time your beneficiaries would collect on your policy. 

As far as policies, the least confusing and most straightforward life insurance is term life. Stick with that to reduce the issues with hidden fees, obscure terms, mediocre investment returns, etc. Term life having fewer options makes it a bit easier to compare. You want to pay attention to their definition of pre-existing conditions, their requirement for medical exams, their suicide policy, the treatment of accidental death (sometimes can be an addon to the policy for extra coverage). And beyond that, you can check their claim settlement ratio to make sure they don't deny claims too often. Also pick a policy that has your preferred pay-out method, say one-time lumpsum vs. smaller lumpsum followed by COL-adjusted monthly payments. That latter option makes some sense if you think of life insurance fullfiliing the double duty of paying for the short-term aftermath of your death with a small lumpsum and then income replacement for life of beneficiary. And it kinda avoids the situation where your beneficiary is not good with money and squanders the full lumpsum.

  
There is no such thing as definition of pre-existing conditions for life insurance.  If a policy is issued, you're covered for any cause of death except suicide in first 2 years.

Claim settlement ratios are not published for life insurance, because nonpayment of claims is almost nonexistent.  Claims in the first 2 years can (and will) be contested for any misrepresentation on the application.  A claim is only denied if someone lied on the application about something significant that would have affected the decision to issue the policy.  If there were no material "lies" or omissions, claim is paid.  After 2 years, all claims are paid.

rated:
dad_of_two said:   @DrDubious I started with a NWM agent simply approaching me for whole life but I stuck to just applying for term life. I have shopped around through other independent agents who spoke to underwriters (ie without a formal application) from couple of carriers including Banner & Prudential and I applied to Protective. I think whats not favoring me is that I and my wife are not US citizens yet (we have a couple years to go before we become naturalized). Yes it came as a surprise to me as well that NWM had the most favorable quote for my case.

@Shandril & @RBirns Thanks. To see if I can avoid the risks of employer insurance, today I asked my NWM agent for 10 year quotes for me and my wife. Surprisingly the monthly premium per million dollar in coverage is same (actually a bit more) as for 20 year term. When I questioned why wouldn't the per million quote for 10 year be substantially less than for a 20 year (just like 20 year premium is substantially less than a 30 year), I was told that the agent doesn't decide that and his guess is that actuarial tables suggest that the probability of someone dying between age of 40 and 50 (my age is 40) and between 50 and 60 is the more or less the same. And dying probability rises sharply when we get into 60 to 70 yr bracket. So, my hope of using laddering with NWM individual policy at least is squashed. I will continue to explore laddering with other agents (talking to another independent agent for Mass Mutual currently), but still will signup with NWM to be safe. I am told by NWM that I can decrease coverage any time resulting in proportional decrease in premium (and I can always discontinue that policy upon getting a cheaperone)

@RBirns My employer (a major bank) provides employee paid group policies that require no medical tests uptill 1.5 million in coverage

  
I'm a life insurance underwriter -- the fact that you are not a US Citizen plays no role in the medical rating.  

If you are a permanent resident and we choose to continue underwriting you, it will not have any bearing on the rating. The company should tell you exactly why you and your wife didn't get the best rating. If not, ask them. 

If you have any other questions, let me know. 

Pacific Life is also very competitive on Term coverage.   

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