Ten year level term cheaper than annual term?


B

Bhoot Nath

I am a member of American Society of Civil Engineers (ASCE), which
provides group insurance plans (life, disability, health, etc.)
administered by Marsh companies. Life insurance carrier company is New
York Life.

What I find amazing is that the premium for 10 year level term is
LOWER than the premium for annual renewal term. For me (36 years old,
male, non-smoker, healthy in every other way), the premiums are:

Annual: (http://www.asceinsurance.com/gtlplan.asp)
Age 35-39: 3.54/per 10K/per 6 month = $0.708 per 1K, per year
Age 40-44: 5.22/per 10K/per 6 month = $1.044 per 1K, per year
Age 45-49: 8.40/per 10K/per 6 month = $1.680 per 1K, per year

10 Year Level: (http://www.asceinsurance.com/tytlplan.asp)
Select rate: $0.59 per 1K, per year (for insurance amounts >
250K)
Preferred rate: $0.48 per 1K, per year
(FIXED premium for 10 years)

All nonsmokers qualify for select; healthy nonsmokers like me qualify
for preferred. Thinking, that the website was out of date or had a
typo, I called Marsh. They confirmed all the rates listed above.

Over the 10 years, annual rates would cost 225% of the 10 year level
rate. This does not make any sense to me. I would have thought that
the annual rate would start lower than 10 year level rate and would
increase over time.

Is there any fundamental reason why 10 year level term insurance
should be cheaper than annual renewable term in thea early years? It
goes against everything I have read.

I would aprpeciate your comments and insights.

Bhoot Nath
 
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U

Uncle Jack

I am a member of American Society of Civil Engineers (ASCE), which
provides group insurance plans (life, disability, health, etc.)
administered by Marsh companies. Life insurance carrier company is New
York Life.

What I find amazing is that the premium for 10 year level term is
LOWER than the premium for annual renewal term. For me (36 years old,
male, non-smoker, healthy in every other way), the premiums are:

Annual: (http://www.asceinsurance.com/gtlplan.asp)
Age 35-39: 3.54/per 10K/per 6 month = $0.708 per 1K, per year
Age 40-44: 5.22/per 10K/per 6 month = $1.044 per 1K, per year
Age 45-49: 8.40/per 10K/per 6 month = $1.680 per 1K, per year

10 Year Level: (http://www.asceinsurance.com/tytlplan.asp)
Select rate: $0.59 per 1K, per year (for insurance amounts >
250K)
Preferred rate: $0.48 per 1K, per year
(FIXED premium for 10 years)

All nonsmokers qualify for select; healthy nonsmokers like me qualify
for preferred. Thinking, that the website was out of date or had a
typo, I called Marsh. They confirmed all the rates listed above.

Over the 10 years, annual rates would cost 225% of the 10 year level
rate. This does not make any sense to me. I would have thought that
the annual rate would start lower than 10 year level rate and would
increase over time.

Is there any fundamental reason why 10 year level term insurance
should be cheaper than annual renewable term in thea early years? It
goes against everything I have read.

I would aprpeciate your comments and insights.

Bhoot Nath

A couple of comments

Group rates are not necessaraly the lowest. The New York Life Group
term rates I've seen for the major engineering groups tend to be much
higher than individual rates for comprable level term coverage.
They also tend to have low coverage limits.

As for your questions, I expect there are two reasons- Level term is a
hyper-competive product, so they have to compete with the mass
marketers (quotesmith etc) and they expect that level term is somewhat
lapse supported, that is folks don't hold the policies for the full
term so the "surplus" premium over cost of the early years accrues to
the provider when the you drop the policy.

My bottom line advice- find a knowleaglble planner with access to a
wide portfolio of products and discuss your needs with them.

Best regards

Jack Slovic P.E.
 

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