Last time I compared term life insurance and permanent life insurance to determine which option was most suitable for you. The main argument against term insurance is that premiums often increase dramatically at renewal, becoming up to five times as expensive at the first renewal and up to one hundred times the initial premium at the final renewal. The premium increases do not reflect the increase in an individual’s income. On the other hand, permanent insurance is likely to be too expensive initially, beyond the means of the average consumer. There appears to be room for an intermediate product that has neither the outrageous renewal increases of term nor the staggering initial costs of permanent insurance. PPI Solutions, along with Assumption Life, came up with a solution, called LifePhases and LifePhases Plus.
An introduction to LifePhases and LifePhases Plus
What is LifePhases and LifePhases Plus? LifePhases is a term insurance product with premiums renewable every ten years. At age 66, the death benefit decreases by 10% every year until coverage is terminated at age 75. For example, if you had $1,000,000 of coverage, it would decrease by $100,000 each year starting at age 66 until the policy expires at age 75. This way, the individual has protected his family during the phase of life when it is most needed. LifePhases’ purpose is to act as an alternative to term insurance and is meant to address temporary needs. Like term insurance, LifePhases offers the flexibility of conversion to a permanent policy offered by Assumption Life.
LifePhases Plus is a permanent insurance product with similar premium increases. The difference is that starting at age 71, the coverage decreases by 7.5% each year until 25% of the initial insured amount remains at age 80. For example, if you decided to get $1,000,000 of coverage, it will decrease by $75,000 each year starting at age 71 until you have $250,000 remaining at age 80. At that point, your insurance is paid up, meaning you no longer have to pay any premiums, but the sum insured remains in force until your death. LifePhases Plus is a suitable alternative to permanent life insurance, since it covers a large amount when it is most needed and is reduced to 25% to cover permanent needs such as final expenses, taxes and providing a legacy.
Premiums
The premium increases every ten years for both LifePhases and LifePhases Plus. These increases are guaranteed to be limited to 50% of the previous premium, such that if the premium for the first ten years is $1,000 annually, the renewal premium will be $1,500 in the next ten years and $2,250 in the following ten years. Here is a chart comparing the monthly premiums of term 10, term-to-100 and Lifephases for a 30 year old male, based on $1,000,000 of coverage.
As you can see, increases are much more reasonable than those in term 10 and term 20 products, and are more in line with your wage increases. Also, the initial premium is also more manageable than for an equivalent permanent policy. For those interested, the renewal for term 10 at age 70 is over $3,500/month. The chart was shrunk to on the y-axis to display the data clearly, which is why the green bar goes through the roof.
There are a limited number of premium increases for LifePhases and LifePhases Plus, both of which is dependent on your age. The younger you are, the more premium increases there will be. For example, if you were issued a LifePhases policy between ages 18 and 30, you will face three future premium increases. There will be two premium increases if you obtained your policy between ages 31 and 40, one premium increase between 41 and 50 and no premium increases from age 51 to 55. A similar pattern is observed in LifePhases Plus, except that the age brackets are adjusted upwards by 5 years. The maximum issue age for LifePhases is 55 and for LifePhases Plus is 60.
Here is a table of sample LifePhases premium at different issue ages:
| Age | Male | Female | ||||||
|---|---|---|---|---|---|---|---|---|
| 30 | Year 1-10 | Year 11-20 | Year 21-30 | Year 31-45 | Year 1-10 | Year 11-20 | Year 21-30 | Year 31-45 |
| $122.4 | $182.7 | $271.8 | $404.1 | $88.2 | $130.5 | $192.6 | $287.1 | |
| 40 | Year 1-10 | Year 11-20 | Year 21-35 | Year 1-10 | Year 11-20 | Year 21-35 | ||
| $202.5 | $301.5 | $451.8 | $140.4 | $209.7 | $312.3 | |||
| 50 | Year 1-10 | Year 11-25 | Year 1-10 | Year 11-25 | ||||
| $351.9 | $525.6 | $242.1 | $360.9 | |||||
| 60 | N/A | N/A |
Here is a table of sample LifePhases Plus premium at different issue ages:
| Age | Male | Female | ||||||
|---|---|---|---|---|---|---|---|---|
| 30 | Year 1-10 | Year 11-20 | Year 21-30 | Year 31-50 | Year 1-10 | Year 11-20 | Year 21-30 | Year 31-50 |
| $185.4 | $277.2 | $413.1 | $617.4 | $138.6 | $206.1 | $306.9 | $457.2 | |
| 40 | Year 1-10 | Year 11-20 | Year 21-40 | Year 1-10 | Year 11-20 | Year 21-40 | ||
| $334.8 | $499.5 | $748.8 | $252 | $375.3 | $563.4 | |||
| 50 | Year 1-10 | Year 11-30 | Year 1-10 | Year 11-30 | ||||
| $653.4 | $978.3 | $494.1 | $738.9 | |||||
| 60 | Year 1-20 | Year 1-20 | ||||||
| $1,302.3 | $1,009.8 |
Term versus LifePhases
Of course, just showing the premiums in isolation is not very helpful. They need to be compared to traditional term and permanent products to show their value. Here is a table comparing term and LifePhases premium at different ages:
Age 30:
| Male, Age 30 | Female, Age 30 | |||||
|---|---|---|---|---|---|---|
| LifePhases | Term-10 | Term-20 | LifePhases | Term-10 | Term-20 | |
| Year 1-10 | $122.4 | $45 | $67.23 | $88.2 | $34.2 | $46.89 |
| Year 11-20 | $182.7 | $201.6 | $67.23 | $130.5 | $145.8 | $46.89 |
| Year 21-30 | $271.8 | $475.2 | $522.81 | $192.6 | $305.1 | $344.43 |
| Year 31-40 | $404.1 | $1190.7 | $522.81 | $287.1 | $799.2 | $344.43 |
| Year 41-45 | $404.1 | $3577.5 | $3305.16 | $287.1 | $2507.4 | $2101.95 |
Age 40:
| Male, Age 40 | Female, Age 40 | |||||
|---|---|---|---|---|---|---|
| LifePhases | Term-10 | Term-20 | LifePhases | Term-10 | Term-20 | |
| Year 1-10 | $202.5 | $61.2 | $108.63 | $140.4 | $43.2 | $79.11 |
| Year 11-20 | $301.5 | $475.2 | $108.63 | $209.7 | $305.1 | $79.11 |
| Year 21-30 | $451.8 | $1190.7 | $1379.43 | $312.3 | $799.2 | $883.89 |
| Year 31-35 | $451.8 | $3577.5 | $1379.43 | $312.3 | $2507.4 | $883.89 |
Age 50:
| Male, Age 50 | Female, Age 50 | |||||
|---|---|---|---|---|---|---|
| LifePhases | Term-10 | Term-20 | LifePhases | Term-10 | Term-20 | |
| Year 1-10 | $351.9 | $149.4 | $290.43 | $242.1 | $99.9 | $192.51 |
| Year 11-20 | $525.6 | $1190.7 | $290.43 | $360.9 | $799.2 | $192.51 |
| Year 21-25 | $525.6 | $3577.5 | $3305.16 | $360.9 | $2507.4 | $2101.95 |
For the short-term, term 10 and term 20 have lower initial costs than LifePhases. Depending on your age, the renewal premium on the term 10 policy will either be similar to the renewal premium on LifePhases or somewhat higher. The renewal premium on a term 20 policy is always higher than the second renewal of LifePhases.
Permanent versus LifePhases Plus
Here is a table of permanent life insurance premiums at different ages:
| Age | Male | Female |
|---|---|---|
| 30 | $479.43 | $412.38 |
| 40 | $757.71 | $648.66 |
| 50 | $1202.22 | $1027.71 |
| 60 | $2092.05 | $1767.87 |
In this scenario, minimally funded level-cost-of-insurance universal life was used to mimic term-to-100. They are both permanent life insurance products with no investment component – a suitable comparison for LifePhases Plus. The premium comparison is similar to that of term and LifePhases, except that LifePhases Plus has slightly higher initial and renewal premiums. This is necessary since all permanent products – LifePhases Plus included – is always more costly than term insurance since there will always be a payout of death benefit in permanent policies. Although the coverage on LifePhases Plus eventually reduces to 25% of the original amount, the premium is much more manageable than on a minimally funded universal life policy. Also keep in mind that premium is only paid until age 80 for LifePhases Plus, while premium doesn’t stop until age 100 for the universal life.
Conclusion
LifePhases and LifePhases Plus are new products that came out in 2012. With their features and premium sweet spots, I predict they will create a new niche between term and permanent products, giving consumers more options and flexibility. Their popularity will be on the rise as consumers look for alternatives to term and permanent life insurance. Whether they are suitable for you or not will once again depend on your specific situation, so remember to consult an insurance professional before you make your purchase.
LifePhases and LifePhases Plus are only available through independent insurance advisors contracted with PPI Solutions and PPI Advisory.
Please note that premiums were not optimized for the best rates. Instead, they are used as a general comparison. Premiums for term 10 were illustrated from Equitable Life. Premiums for term 20 were obtained from Manulife. Premiums for universal life were obtained from Canada Life. All premium is current as of February 2014.
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