How to Select the Best Single Premium Life Insurance Policy

Selecting the best cash-value life insurance policy is a difficult task involving a number of complicated concepts and analyses. However, because the investment element of single premium life insurance is a paramount concern, focus should center on the following factors:

  1. Compare the current rate being credited to policy cash values and the length of the guarantees. All else being equal, policies with higher current rates and longer guarantee periods will be better than those with lower current rates and shorter guarantees.
  2. Check to see how the company will determine the rate credited to policy cash values after the guarantee period. Policies that determine the rate based on a specific money rate or bond index leave the company with little room to manipulate the amount credited in an adverse way.
  3. Look at the current mortality and expense factors and compare them with the guaranteed maximum mortality and expense factors. The mortality factors currently being used should be competitive. If the difference between the current mortality rates and the maximum rates is small, the company has little room to use higher mortality charges as a means of reducing the effective rate credited to cash values.
  4. Look for a bailout provision that reduces or eliminates surrender charges if policy performance does not meet reasonable guidelines.
  5. Check the policy loan provision to see if the company uses a “set aside” provision to credit borrowed amounts with a lower rate than nonborrowed amounts. If the insured anticipates borrowing from the policy, a company that does not use the set aside method is preferable. If borrowing is not anticipated, a company that uses the set aside method may be more desirable since the company should, in theory, be able to credit higher interest to policies without borrowing than they otherwise would be able to without the set aside provision.
  6. Check the financial soundness of the company.
Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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