8 Replies Latest reply on Apr 4, 2014 6:41 AM by sktn77a

    Should we convert term to whole life?

      Hello all; Several years back we got an annual renewable term policy from TIAA for my wife.  The face amount is $100K and every year we have the option of paying for an additional inflation adjusted amount, which we have done.  This year total coverage is about $132K.  The annual premium has ratcheted up quite a bit over the years, and we have gotten a number of mailings and e-mails from TIAA encouraging us to convert to a whole life policy.  No medical exam or additional application would be required.  Last year's premium, in total for the face amount and inflation addition, was $558, which strikes me as being a bit on the high side for a term policy.  My wife is 53 and in good health. I was wondering if anyone here has had experience doing such a conversion, with TIAA or any other insurance company, and what kind of rate increase -- if any did you experience.  My feeling is that if the rate for a whole life policy is comparable to -- or only a little more than --  what we're paying now, we might as well convert and at least be building some cash value that could possibly be used for other expenses in retirement. Any and all thoughts welcome! 
        • Re: Should we convert term to whole life?
          MyR Community Manager

          gaken1960, thank you for creating a new discussion thread! We appreciate and enjoy your participation in the MyRetirement.org online community and look forward to your future contributions.

          • Re: Should we convert term to whole life?
            You need to ask yourselves why you need insurance. Does the need still exist? Do you need it for estate purposes (I don't understand this usage but planners talk about it)? Did TIAA offer any written or verbal advice that you should consider?
            If you feel that you still need insurance, you have no other obligation to your current policy or TIAA other than an offer to convert it to a probably more expensive coverage. In my opinion, insurance is a poor investment so the cash value is going to cost you. Why don't you do some research by going to several of those Internet sites that offer many policies from a variety of companies and will provide quotes that you can compare with what you have now or will get in the future by conversion?
              • Re: Should we convert term to whole life?
                I'm with JerryD.  Your $558 premium for $132K of term at age 53 might be too high, although maybe not by much.  It depends on whether the rate holds indefinitely or, for example, it is only guaranteed to age 75, or so, which is more typical.  I would call a trusted broker (or even, as JerryD suggests, send out for quotes on the internet, such as Itechusa.com, or Selectquote.com or Quickquote.com) and compare with your TIAA rate and offer. If her life expectancy is 80 (if the rate is good that long), and you don't adjust any more, you will have paid $15,000, but if you had invested the premiums at a 10% return, you would have accumulated on the order of $75,000.  So, you might not do much better; you'll have to check (I'm no actuary). Realize that a term rate that is guaranteed not to rise means that you are paying more than each current year's value when you are young so you can pay less than each current year's value when you are old.  Obviously, you wouldn't be able to buy $100,000 of insurance for $558 when you are 79, but similarly, when you are 40 the cost of one year's term life would be much less than $558.  If you switch to another carrier now, you will lose the benefit of having locked in that rate (and paid into the pool) when she was younger.  So don't be surprised if you can't beat your current rate. But you should check just to make sure, and also check on Whole Life rates because their Whole Life conversion offer might be more competitive than the term rate you are currently paying. Remember that, in theory, a whole life policy is no better than buying a term policy and then investing the premium difference yourself.  After all, that's what the insurance company does. 

                Of course, her final premium will be determined after a physical exam, but any broker will quote you the lowest premium that assumes she is a non-smoker in good health.   You may or may not be able to justify insurance (will there be a loss of income?  will there be burial expenses you won't be able to cover?), but there is the peace of mind that insurance buys, and that is your personal decision.  I have a term policy on myself to replace my income, but only until I am 72.  I assume I will not be working that late, and the cost of buying insurance with a guaranteed rate to cover me much longer than that was considerably higher.
                  • Re: Should we convert term to whole life?
                    I had a term insurance policy for 200K while my son was still a minor or which I paid the measly sum of $16 a month. When the term ran out I looked for something better but the premiums were pretty high even for half the insurance because I now had the usual middle-age health issues (I'm 58.) I finally decided to renew my previous insurance as a universal life policy which would cost the same ($100 a month) as term insurance would now cost but I would have the security of knowing the premiums would never rise. Bottom line: as you get older insurance gets more expensive. If you can still pass a physical you can problem get term insurance at a reasonable rate.  At some point you may not need life insurance period. Because of various considerations I still want to keep mine, if at a lower rate. 
                • Re: Should we convert term to whole life?
                  My wife and I have term policies and at age 66 the premiums are so high they are a burden.  If your insurance requirements ( how much you would need in the event of a death) have declined you might want to reduce ( if you can) the amount of coverage to your current need.
                  • Re: Should we convert term to whole life?
                    You really need to decide what you need life insurance FOR. Without that you are flying blind, trying to guess at face value vs premium cost. And you keep saying "we" - is this a dual policy? Or is only one of you insured?
                    I'm not asking because I want you to post the answers. In fact, please don't post the answers, because it won't really help. But these are the questions you should be asking of a good experienced life insurance agent. Because if s/he is good, they will want to know what type of risk mitigation you are looking for. Most people want income replacement, but there are other reasons to buy insurance.
                    In my case, I am a Standard (not Preferred) mortality classification. In 2006 I purchased $500K of level term life, 15 yrs, for an annual premium of $1500/yr. Rates have come down since then, and if you're a Preferred they are especially favorable.
                    I could have purchased 20 yr or even 30 yr level term at slightly higher prices, but 15 yr was best for my financial planning, being good risk mitigation at the lowest cost for an acceptable time period.
                    Most people who are looking for income replacement drastically underestimate what's needed. You need to factor in inflation as well as familial considerations.
                    So first think about why you need insurance. Then decide how much. Only THEN do you investigate how to obtain that face value at the best possible cost. If it costs more than you can afford, you can decide at that point how to adjust your planning parameters.
                      • Re: Should we convert term to whole life?
                        My term insurance expired after my son was grown but I still felt the need for at least some life insurance. Unfortunately I had the usually health problems associated with middle-age spread, high blood pressure, diabetes, etc. My solution was to switch to a universal life policy which I could purchase from the carrier of my term insurance at the super-preferred rate, something I never would have qualified for otherwise. The amount I paid for it was still five times what I had paid for term insurance, but it compared favorably with what I could get for term insurance at the time given my health. And at leas the premiums will never rise. 
                          • Re: Should we convert term to whole life?

                            "And at least the premiums will never rise."


                            Be very careful about this.  Insurance companies cannot raise your individual policy premium, but the can raise the premium of entire groups.  That is to say, if interest rates are lower than they predicted when they issued the policy, they can apply to the State in which you live to raise everybody's insurance premium.  Either that or they reduce the earnings/dividends/whatever such that your cash value/insurance coverage can decrease.  Ask these questions specifically and read the contract details so that you know what to expect.