So I’ve cooked up an arbitragely-adjacent strategy for consumers on a specific company’s products. Two things make this possible.
they use actual age, not age nearest
they have the exchange option, where you can swap from one term, to a longer term, in the first five years of the policy. Most companies that have this in Canada don’t offer it in the first year of the policy. This company lets you do so right from day 1.
Assuming your 40th birthday was last month.
Typical purchase, term 20 at age 40.
My strategy: Purchase a term 10 at age 40. In 10 months, use the exchange option to jump to a term 20. So this is basically a 10 month term with a term 20 renewal.
Client benefits: Premiums cut almost in half for the first 10 months of the policy. Their term 20 now has an optional extra 10 months, 20 years from now (since the term 20 was issued 10 months later).
Company benefits: Company gets almost an extra year of premiums on a term 20 policy.
I feel like this should be a question on an FSA level exam lol, but if someone in the field asked you if you were OK with this on a routine basis, how do you respond?
So I kicked this to a company rep who responded with a flyer and saying ‘this is fine’. Uhhhhh.
So I called them and said it’s fine for one, but if I do 100 in a month maybe you don’t want your name on my ‘approval’. Then I had to coach them that maybe they should kick it up a level so that a) head office knows what I’m doing and
B) if we don’t get higher up approval and I do this routinely, and ho goes holup, I’m not waving a piece of paper with her name on it.
Cross post to annoyed thoughts, they tried to school me that it was OK as long as I was careful with compliance and starts to explain compliance. Rep is unaware that I am probably the most compliant field person in Canada, their HO has changed their policies on online stuff based on my recommendations before…and that their compliance officer is 100% aware of everything I do. My last rep just retired dagnabit, now I have to train the new one.
Going right off topic I guess?
I was thinking of heading north about a 9 hour drive on may 24th weekend (long weekend in Canada). there’s a small lake where I was told that the walley/pickerel were absolutely insane there that time of year - like catch 100 in a day. Seems like itd be a fun trip with some students.
I looked at the long range forecast there. May 11 - and most days until then, they’re still calling for snow. Uh, no thanks. I did my winter camping trip.
I feel like there’s a lot of missing details here. Do both the issue age and term reset when you convert from 10 year to 20 year? But since you’re still 40 at the time of conversion the issue age just happens to be the same?
I mean, the biggest problem for me is getting an extra 10 months on the underwriting, but that seems like a problem that my employer would not be worried about.
The initial 10-year policy was purchased at a sub-optimal time for the client (should’ve bought right before their birthday, not right after) and then the 20 year policy is close to optimal from the client’s perspective. But that’s just part of only pricing in one-year intervals. A tradeoff between simplicity and precision.
Huh. But the exchange option from most canadian companies already do this, up.to five years. So i think maybe 10 months isnt a problem.
I thought the problem might be that they were getting 10 months of term 10 premiums instead of term 20. But the cost is heavily on commission upfront and at the time of exchange they pay term 20 commission less the commission already paid. So no real addition costs there.
Im starting to think this is a nothingburger for the company.
You are correct about the commissions, but even setting that issue aside… the whole premise of level term premiums is that you are willing to overpay in the early years for the privilege of underpaying in the late years. If the level term premium is $10 a month for 10 years… it’s really only costing the insurer $6 in the early years… and $14 in the late years.
You are constantly getting older and, in most cases, sicker. So you’re getting more likely to die. Ignoring commissions, term life is a lapse-supported product. Meaning that the lapses actually benefit the insurer.
In theory term life ought to build a small cash value, but in practice no insurance company offers that. They take the reserve from the lapse and use it to lower premium since it’s a competitively priced products. Lower than expected lapse rates will hurt the insurer.
So I think that you’re essentially lapsing the 10 year term early, which, again absent commissions, helps the insurer.
I can’t properly analyze the commissions without knowing all of the whys and wherefores of what is paid under what circumstances. They can certainly change the math.
Uh, I’m not sure what conclusion I failed to draw?
As long as the insurer isn’t getting screwed on commissions, they probably don’t care about converting from a 10 year term to a 20 year term. The “too high for the risk” level premium probably covers the administrative hassle of switching the policy.
Much.
First post was like “The Cider House Rules”. 500 pages and no conclusion.
I find it curious that the conclusion is ‘don’t care’. Not what I expected - even if only given the evidence that AFAIK, no other companies allow this. I assume it’s not allowed for exactly this reason.
Again, subject to the aforementioned commission disclaimer, the insurance company is probably turning a profit on this.
Certainly before you account for the administrative costs they are. The only possible issue is if the premium that they gain is less than the administrative expense that it costs them.