Guaranteed Life Insurance Policies – Solid Option?

by Sep 16, 2016

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The life insurance landscape is ever changing, which complicates policy decisions. The latest trend is a permanent policy featuring a guaranteed death benefit, or “secondary guarantee.” These are often issued at a lower premium.

So, is this a wise choice? Not in my opinion.

Like every other business, the life insurance industry is looking to create the ideal product which will deliver full buyer satisfaction. This secondary guarantee is the latest version of that ideal. But it is less than ideal, and here is why:

  • First, the premiums must be paid within the grace or you lose the guarantee, no exceptions. That might be a challenge for a 90 year old.
  • Second, the guaranteed products do not build cash value of any significance, so at some point in the future 75, 85 years, the policy is simply an unsecured promise by the insurer. (?)
  • Third, in a policy lifespan of say 40 years, things change, but these guaranteed policies are not “changeable.” Your options are limited, and if you want to go outside of those limits, you lose the guarantee. And considering the ever-evolving life insurance landscape, choosing something fixed doesn’t make much sense.
  • Fourth and most important– these “Guaranteed” policies are built on a Lapse rate actuarial model. So let’s assume a company expects a 25% lapse rate over time for the policies issued, but they only experience a 15% lapse rate. This is a problem!

This is a time bomb scenario in which insurers have massive unfunded liabilities. Some advisors are not considering the consequence this choice will yield in 30 years, because they are planning to retire long before then. But where will that leave you?

In working with industry analysts, I have found that the lapse rate model for some companies may already be failing. Our research leads us to advise against going this route, and urge significant caution in using a Guaranteed product. There are more secure routes to take.

If you have questions email Kyle at  or call 203.698.9342.

Written by: Steve Shepard

Founder/Principal, Shepard Insurance Group. At Shepard Insurance Group we begin every relationship with a face to face meeting with the client. In a comprehensive discussion of coverage needs, personal concerns, objectives and finally appetite for risk, we can arrive at the proper insurance solution. Understanding the client is the first step to accurate execution.

September 16, 2016

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