The decline and fall of the term life insurance premium

"When in doubt, the courts favor consumers over manufacturers," says Barney. "Salespeople rarely fare well in those conditions."

What's more, if the customer remains healthy and insurable, ALL term insurance allows for re-entry if premiums fall – simply by replacing the term insurance policy. The guarantee, argues Barney, is worthless – it promises the customer something he already has.

Barney's advice: Don't even muddy the waters by mentioning "re-entry." A number of your clients will think "renewable," no matter how carefully you explain it. And they will blame you and your company for the confusion. Scritchfield agrees – he doesn't sell re-entry these days either.

Term life and the needs of seniors

When people are in their 20s, 30s and 40s, they frequently have children relying heavily on their income. But once their children have graduated from college, one of the chief reasons for temporary coverage – the need to finance a college education for their children – vanishes.

As clients enter their 50s, however, their incomes frequently increase, while the number of dependents decreases. The home mortgage may be largely paid down, as well, which reduces the availability of the home mortgage tax deduction. Finding ways to defer taxes may become more relevant during this period of life, writes Peter Katt, an independent fee-only tax advisor and writer, and frequent critic of the insurance industry.

So when is term insurance appropriate for seniors? Suzanne Sargent, vice president of BSI, Inc., an insurance brokerage and consulting company and an industry veteran of nearly three decades, believes that term insurance may be appropriate for older clients who need to accelerate retirement saving – especially where they can do so on a tax-advantaged basis in retirement accounts and qualified plans and by taking advantage of catch-up provisions. In some cases, the savings in premiums for term insurance can be productively employed for retirement savings – the essence of 'Buy Term and Invest the Difference."

She has also seen return-of-premium term used where clients plan to use any premiums returned at the end of the term to pay down a home mortgage or otherwise reduce debt. If the elderly clients are business owners and are passing the family business or farm on to the next generation, they may wish to take out a term policy on their heirs: The need for such insurance generally is not permanent, but the death benefit can help policy owner/beneficiaries deal with the disruption.

Lastly, a term insurance policy may make sense for grandparents who wish to fund education for their grandchildren – a need which naturally expires once those children graduate from college.

Underwriting challenges

Naturally, most insurance companies are reluctant to issue policies to the elderly. But if your client is in exceptional health, both Scritchfield and Sargent have had success getting clients underwritten on policies extending into their 80s. Be prepared for disappointment, though, adds Sargent. "It's tough to get."

Legislative developments

In recent years, term insurance vendors attempted to convince regulators to introduce a separate "term only" insurance license allowing some agents to sell term insurance exclusively. The new licenses would be much easier to obtain than existing insurance licenses – either without an exam, or with a simplified test.

Supporters, including the National Conference of Insurance Legislators and Rep. Shirley Bower, D-La., argued that existing insurance licensees were underserving low-income and minority communities. Life insurance agents, relying on commissions from permanent insurance policies for their livelihood, were focusing their efforts on the affluent, while low-income populations went underserved.

The measure was opposed by a number of financial planners organizations, including the National Association of Insurance and Financial Advisors, and was finally condemned by the National Association of Insurance Commissioners Market Regulation and Consumer Affairs Committee.

The reason? NAIFA President C. Robert Brown argued that even working- and middle-class customers ought to understand the full gamut of insurance products available to them.

"A fully licensed life insurance agent can help find a solution that best suits that individual's needs and circumstances," wrote Brown in a statement. "An agent licensed to sell just one product can't. Consumers deserve better."

The downside, of course, is that fully licensed insurance agents who rely largely on permanent product commissions for their livelihood will focus their efforts on the affluent – potentially leaving working families underinsured, even with term insurance. Ultimately, term life insurance licensing efforts were defeated in Mississippi, Illinois, and Alabama. With Congress in the hands of Democrats starting next year, however, we may see more such measures before state insurance commissioners in the months and years to come.