Fair enough. I just don’t know enough about pricing at this level to be confident that there wasn’t something hidden long term that would screw over the company. Appreciate your feedback, it’s very helpful.
In terms of making a profit, the old adage outside of actuarial is that term doesn’t make any money. I was at a company that ran a term sale, and internally they had a limit on the number of policies expected over the three month sale. They hit the limit in like a couple of weeks, which led to panicked meetings. I’m at one of those meetings and someone (an ASA actually) pipes up with 'we have to shut it down, we’re losing too much money). An actuary buddy of mine pipes up with ‘Actually, yes we are. We’re just making less’. Lol.
Fair enough… if the premium is too low to cover the cost then it might cost them. And even with profitably priced term insurance they are only turning a teensy profit from your “simple trick”. But you’re not screwing them over unless you’re collecting double commissions or something significantly more than the commission for the 20-year term that the client ultimately ends up with.
Again, term is a lapse-supported product.
The company that I worked for that sold a lot of term certainly had a lower profit margin on term than the other products. And the post-level term was really REALLY ugly! But there’s not much post-level term and overall they were certainly turning a profit. Yeah, low-margin, but they were making it up in volume. It’s very competitively priced, so you kind of have to go all-in for low-margin / high-volume or just get out.
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No alarms set off at HO over this yet, so I’m going to assume it’s fine until told otherwise. Further pondering in addition to twig’s comments (thanks again) suggest HO won’t have a problem with this.
Next problem is, how do you take a competitive advantage and turn it into a call to action? Yeah, wrong forum :).
I have an idea on how to do that,but the tradeoff is that it’s not very scalable. Which means I’ve got a marketing person and a marketing advisor who will give me crap about the lack of scalability. I can hear it now, "What are you going to do if you’re doing 1 a day, and the next day it’s 100?'. My answer will probably be a Mr. Crabs meme like “I like money”. Or more likely, “That’s a problem for future SL to figure out.”.
For the termites in the crowd, here’s some numbers.
Age 40, birthday yesterday. Term 20: $49/month, for 20 years.
or
Age 40, birthday yesterday. Term 10: $29/month for next year less a day or two. Then exchange to a term 20 a day before your birthday. 1) save $20/month/person for the next year.
In the first scenario, 20 years from now you’re 60 and if you want to buy new insurance with medical exam, that policy will cost you $425/month. With the second scenario, you still have another year left at $49/month.
So scenario 2 saves about $240 in the first year.
Second choice, your birthday was yesterday.
Age 40 Term 20: $49/month for 20 years.
or
Age 40 Term 10, $29/month for just short of 2 years. Exchange just prior to age 42 (so at age 41) to $54/month. You saved about $480/person in the first two years, for a tradeoff of $60/year for the next 20. Breakeven puts that at about 10 years. Double the savings for two people - save almost $1000 in first two years, breakeven in 10 years, then an additional $5/month for the remaining 11 years…but now you get an extra 2 years at age 60.
Get in line, I’m practically giving money away here.
Is buy 10 yt day before birthday, convert to 20 yt 363 days later better than what you propose?
I assume that if you buy the day before your birthday then 363 days later (or even just 3 days later) you’re a year older and the premium for the 20yt would be higher.
Part of what makes this look so good is that we’re ignoring the fact that the initial purchase happens at the worst possible time from the consumer’s perspective… which is the best possible time from the insurer’s perspective.
It’s not nearly that drastic.
Buying it at the best possible time for the consumer, because their birthday was yesterday so they lock in their age for almost a year, so can save by dropping to a term 10 for almost a year.
The other end isn’t worst, it’s just becomes a tradeoff. you save a decent amount of money for a year or two, at a tradeoff of slightly increased costs in years 10+. in the term marketplace with young families, a lot of people will take that tradeoff.
And it’s absolutely crazy cheaper when you look at renewals, because you get another year or two at the T20 rates at age 60, instead of the renewal premium. It’s like $550/month vs $49. Technically sure, you just discard the policy in that last year (end of 20 years) and ignore that you’ve got another year at $49/month. IN practice, if you asked that 60yo at the end of the 20 years which of these three choices they’d like:
- renew at $550/month
- drop the policy
- keep it for almost another year at $49/month
That 60yo is likely to see a ton of value in 3).
Anyway, I never tell people what to do. I simply provide enough information that they can evaluate their choices properly.
Technically, you only lock in your current age premiums for the time until your birthday. So if you wait a year and do the exchange then you’re doing so at a year older and higher premiums.
IN practice though, you save so much by dropping to the term 10 that it offsets the mild increase in premiums after the exchange. The last numbers I ran, breakeven was 10 years out.
And if you look at this as a 21 year term (t20 with 1 year renewal premiums) vs a t10 with exchange, then this premiums is wildly cheaper over the full 21 years. Cheaper in the first 10, a wee bit more expensive in the next 10, then $500/month cheaper in the next year. (though in practice I suspect the comparison isn’t $550 renewal premium vs $49 premium. More likely $49 premium for a year, 20 years from now vs no insurance - still a big deal imo).
So the price of the 20yt is locked until you age up, and in my example you run the risk of a price increase. Without a price increase you pay 1 yr 10yt @ age -1 and then 20yt starts @ age.
I’d have to see what the premiums are. It might just be cheaper to just buy to 20yt the day before your birthday to lock in the lower premium than to play SL’s game.
And if you’re going to need insurance past 20 years then 20yt might not be the right product for you. It might be better to buy UL from the get go.
That said I do think insurers ought to offer 25yt and maybe even 30yt to cover the period from when you toss out the birth control for the first time until the youngest is finished with college.
But even if you buy term when you toss out the birth control, 20 years later hopefully you have enough set aside for retirement that if you were to die unexpectedly your retirement assets could be repurposed to spend on the last few years of high school & college for the kiddos. So it’s not a drastic marketplace shortcoming or anything.
What the market really needs is decreasing term. As you get older and have more set aside for college & retirement you need less insurance.
Inflation causes the purchasing power of term to decrease over time but most people could probably handle a bigger and more predictable decrease than that.
Maybe bundle a 10yt, a 15yt and a 20yt in such a way that the commissions / 1st year expenses aren’t triple what they usually are for a term policy.
Its nowhere near as directly correlated to term 20 as portrayed.
Peoples lifestyles increase. Costs increase. Debt lasts longer than youd believe, many people carry a mortgage into retirement because they moved up a couple of times (how many people buy one house when theyre young and stay there till they die and never extend the mortgage). Retirement savings are often zero for far too long, then put together way too late. Etc.
Decreasing fits the ideal. Level is a much better fit in practice.
In any event, this isnt a game, its a strategy that either directly saves consumers money now, or lets them tradeoff large savings now for mildly higher premiums later. And for folks with new mortgages, at the start of their career and paying daycare costs that tradeoff is huge. A dollar today for a young family is worth far more than the pv of a future dollar and much more than what an actuary would likely expect.
And consumers wont care much now but i know that people will be very interested in that extra year or two at current premiums, 20 years in the future.
Whelp, just cut the video explaining this. Coined a new term, “Term Stacking”, a trademark of SL, Inc.
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I think thats it. T10 for a year, then exchange for a t20. Guaranteed lower costs in the first year, in exchange for the risk of term rates increasing in the next year. And if term rates go down in the next year, even better.
I make the risks quite clear as part of the strategy. But imo the likelihood of both term rates increasing, and the increases being implemented before being able to trigger the exchange early are so minimal that im happy to suggest considering doing this. Last time there was a price increase i had a heads up of four or six months.
I don’t believe that this is a new phrase, but your use could be new.
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Interesting. I’ve never heard it called stacking. I’ve heard it called layering. In any event, there’s no prior usage of the specific words “term stacking” (I found some instances of the term life insurance stacking)… And life insurance stacking/layering isn’t the same as Term Stacking (T) SL, Inc.
Layering (or insurance stacking): combining multiple policies to create a decreasing coverage amount over time.(series)
Term Stacking: Placing one term after another in order, using the exchange option, in order to decrease premiums.(Sequence)
SL has a nice way to stretch out the level period of a term policy by another year or two. That said, as you mention, there are companies offering 25YT, 30YT and some even a 35YT level premium term policy. The additional cost for a +5 year longer term policy (for someone in their 20s or early 30s (prime market for a term policy)) isn’t much, and you only have to close the sale once.
Not the case in Canada. T10/T20 very aggressively priced. T15/T25, not so much. If you look at a T15, anyone reasonable will either pay a few bucks to go to a term 20, or jump down to a term 10 and save a ton. And T30 is fine if you’re < age 32, but after that, the prices way outstrip a T20, so it’s not an option.
Canada has a few companies with pick your own term, so you can get a T22, but again, not priced so well (though I’ll run the math on that, but I"m confident).
A lot of it is from the way they set the pricing with marketing’s input. They seem to want specific cells to be well priced, and outside those cells, they don’t care. At the extreme, a few years ago I saw a company publish a table of T10/T20, ages at 5 year increments and showing they were #1 in Canada. So age 30-#1, age 35-#1, age 40-#1, etc.
But at ages 31,32,33,34, 36,37,38,39, their prices were way out to lunch. It was seriously that crooked, they developed it deliberately and marketed it that way, like nobody would catch on.
Anyway, stuff’s different between Canada and the US. (another example is, I’m starting to see companies walking away from offering preferred or preferred plus rates. that’s the way all canadian companies worked until the 90’s until some US companies moved in.The companies then later exited the Canadian market. Now it’s an oligopoly again, with about a dozen companies. We need an SBLI or something to come north again.
I just asked a buddy who’s an advisor in the US if they have term-term exchanges in the US and this is what he responded:
American National Life was only US carrier I know of allowing term to term conversion, but only on their ART or 1 year term plan, and only in first 3 policy years. I used this for bunch of smokers who thought they were gonna quit, and I don’t recall any that did😊
Late last year American National stopped selling term completely, and now only sell permanent.
No other term to term conversions that I know of.
So it seems this isn’t even possible in the US.
The additional cost for a +5 year longer term policy (for someone in their 20s or early 30s (prime market for a term policy)) isn’t much,
Just to emphasize this not being the case in Canada, I’ve done thousands of term policies through the years, and I don’t recall a term 15 or term 25 ever. I’ve certainly made them available, but afair, 0 consumers went ahead.
Kind of like the fast food restaurant where the junior cheeseburger is $1.99 and the junior hamburger is $2.79 and it is totally possible to order a junior cheeseburger, hold the cheese. Corporate probably set the price for certain items and the franchise owner is free to set the rest of the prices and that’s the result. The franchise owner hopes at least some people will not take the time to compare the price of the hamburger they do want with the cheeseburger they do not and just pay the higher price for the hamburger.
I did notice some weirdness in the COIs on some UL policies at a former employer. (For those not overly familiar with UL: COI = Cost Of Insurance… the charge against a UL policy balance that is solely to cover the risk of them dying in the next period and we have to pay their claim.)
Generally speaking your probability of death decreases from birth to age 3 or so. For females age 3 is as good as it gets… every year after is worse than the year before.
So for females with issue ages > 2 the COIs should be strictly increasing.
(Depending on the mortality table, males usually have a little minimax around age 19 or so and then a few years of improvement before it starts getting strictly worse: a phenomenon I refer to as the dumbass effect, but even for males with issue ages over about 25 the COIs should be strictly increasing.)
But these weren’t. For females only, around age 42 or so the COIs started decreasing for about 5 years. We were effectively claiming that 46 year-old women are less likely to die than 42, 43, 44, and 45 year old women. Which is obviously incorrect.
I did some digging and of course it was the result of a spreadsheet error. (I know, there’s a thread for that.) But… these rates were already approved, certificates printed, policies in force so we obviously had to honor the erroneously-calculated COIs. We’d actually stopped selling that particular product with those particular COIs but we still had some on the books.
My next project was to calculate if we needed a premium deficiency reserve and they weren’t going down that much so thankfully a PDR wasn’t necessary.
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