Life Insurance 365

There are assumptions of both all equity (meaning a relatively aggressive 100% stock allocation) and 60/40 (meaning a less aggressive allocation of 60% stocks and 40% fixed return securities) asset allocations. Variable Universal Life funding premiums range from $2,400 to almost $36,000 in an age range of 25 to 75-assuming a 10 percent long-term average rate of return-consistent with the historic returns of aggressive investors and calculated via life insurance policy illustration. A particular problem is highlighted: A 45-year-old female’s calculated funding premium (all-equity allocation) of $4,200 for $1 million of coverage looks like a great bargain until we add a probability analysis and see that there’s less than a 50/50 chance that her policy will sustain to and beyond age 100. This is not to suggest she definitely won’t have any insurance when she dies, but it does suggest that the timing of her death may be such that she outlives her life insurance policy.

Continuing the example of the 45-year-old female seeking $1 million of lifetime life insurance coverage, we can recalculate the funding premium according to her risk tolerance and willingness to stipulate a probability of success with which she is comfortable. If 90 percent is her threshold, then her funding premium needs to be roughly $6,350, not $4,200. While this represents a dramatic 50 percent increase in annual funding for this policy, not only does she better assure herself that the policy will sustain no matter how long she lives, but the underlying statistical analysis suggests that the life insurance policy death benefit at age 100 - should she survive to that age - could exceed $14 million. 

There are resources to pay more premium than necessary, not only does the higher funding premium give the life insurance policy a more comfortable confidence that it will sustain to age 100, but the total life insurance policy Cost of Insurance charges will be less. This is because the higher funding premium will - all things being equal - create cash value faster, thereby more quickly diminishing the net amount at risk.