What’s the Best Duration for Your Term Client?

What’s the Best Duration for Your Term Client?

8 November 2021

By Alan S. (Al) Lurty

MBA, RICP®, WMCP®, FLMI®

 

Hi everyone!

If you’re a life insurance producer, you certainly understand the value of today’s guaranteed level premium term products – locking in a competitive rate for a fixed number of years that is guaranteed not to change. However, your client may be wondering what the ideal term duration is. Assuming that the need for life insurance isn’t a very short-term (<10 years) one, here’s a simple tool that helps demonstrate the value of various term durations (spoiler alert: the answer might not be what you were thinking!)
In my first example, I assumed a case for a female, age 35, best rate class for $1 million of face. I used Prudential’s Term Essentials product for 10, 20 and 30 years, but any product or sample client could be used. In this example, the analysis shows that using today’s rates, the 10-year product, on both a total outlay and a present value basis over 30 years, is less expensive than the 20- or 30-year products.
 
BUT (stay with me…) this assumes that upon reaching the end of the 10- or 20-year period, the client can “re-enter” for the remainder of the period using today’s rates for their then attained age, e.g. (using today’s rates for a 45-year-old female ten years from now). We don’t know which direction future term rates will go, but given the low interest rate environment and understanding term profitability to carriers, I personally wouldn’t want to bet that term rates in the future will necessarily be as low or lower than they are today. I’ve shown additional columns with an assumed 30% increase in overall pricing (i.e. a general increase that isn’t case-specific; given the pandemic-driven increases in no-lapse UL pricing we’ve seen recently, this is certainly feasible) and the analysis starts getting much closer for this particular cell. We can study this for various combinations of age, gender, rate class and face amount (I’ve included a couple other cells in the spreadsheet). The uncertainty on this aspect alone might help convince your client to lock in the maximum available duration (and possibly even consider no-lapse guarantee products for even longer periods of certainty).
And this doesn’t consider what might happen should an adverse health event occur and the client no longer qualifies for the best rates, or may even be uninsurableLocking in today’s rates and underwriting class by choosing the longest duration now might save a lot of regret later. 
This is a simple example of the kinds of product analysis we can provide.  Others include analysis comparing GUL to current-assumption UL, ROP term analysis (if you can find one today it could be a very good value), and many others. In addition, we offer valuable services to carriers, distributoand InsurTech firms – check this link here
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