Increasing Longevity and Life Insurance

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Alzheimers disease is the top reason people claim long term care benefits  by Michael Carian

We will live for 120
years in the future.
Photo by Michael Carian

The Globe and Mail reports that a group of scientists in New York may have found the fountain of youth.

Researchers at the Albert Einstein College of Medicine have discovered that by manipulating a protein in the hypothalamus in the brain of rats, they can extend the rats' lifespan by 20 years, and during that time, their memories get better, their muscles get stronger, their skin gets more supple, and their bones get denser. Good news for humans, since scientists have already slowed down the aging process in a variety of different species.

These type of experiments have scientists seriously predicting that the average human lifespan could extend to 120 years. Add to this the advances in stem cell research, and there's little doubt we'll be living longer in the future.

Canadians know this too. A recent survey from the Journal of Aging Studies that the Globe piece references revealed that 59% of respondents wouldn't mind living for 120 years “if science made it possible to do so in good health." Interestingly, though, Americans are less enthusiastic, with 56% of people responding to a similar Pew Research survey saying that they would not like to live that long.  

Living longer (even if it's not quite 120 years yet) is a mixed bag if you have life insurance.

 The Good News

  • Term Insurance rates have gone down in response to increased age expectancy. For example, Transamerica offered a 40-year-old, male non-smoker $500,000 of Term 10 coverage in 1998 at a rate of $510 per year, and that same 40-year-old male non-smoker can now get $500,000 of Term 10 coverage for $365 a year.
  • There are more options on the type of term plans available. Companies used to just offer five and 10 year term policies. Now, many carriers offer Term 30 plans. Industrial Alliance offers a pick-a-term policy, which allows insured individuals to pick from Term 10s all the way to Term 40 policies.

The Bad News

  • Permanent policies have actually gone in the opposite direction — increasing dramatically in recent months. People are paying much longer for their permanent policies. Someone paying $2,500 a year for a Universal Life Level Cost policy will have paid $50,000 more if that person lives another 20 years.
  • Some older permanent policies expire at age 90 or 100. This could be a big problem with an increasing number of centurions in the world. As a result, these people will have put thousands of dollars into their policy and their plans would expire without value.

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2 Comments

  1. Ami Maishlish 08/28/2013 at 2:59 pm

    While we all hope to live to 120, it’s possible that a miniscule percentage of the presently living population will become centurions. Regardless, the slowly rising expected mean lifespan deserves consideration. Certainly the generalized nonsense that people will not need life insurance beyond their working years deserves quick assignment to “file G” (garbage), particularly as evidenced by the number of the previously misguided with such nonsense having to scramble for expensive, narrow choice, and limited maximums policies once their term insurance expires.

    Relating to your point:
    “Some older permanent policies expire at age 90 or 100. This could be a big problem with an increasing number of centurions in the world. As a result, these people will have put thousands of dollars into their policy and their plans would expire without value”:

    Yes, “some” but very few permanent policies “expire at age 90 or 100″ without residual values. Most Whole Life and a good percentage of so called T100 policies, however, “mature” at the insured’s age 100 with a residual value at or nearly the issue face amount. In other words, and in general, such policies would pay out the maturity value without the precondition of the life insured’s death.

    In essence, the design of all life insurance is based on YRT (Yearly Renewing Term) where the pure risk assumption fee (pure cost of insurance) naturally increases yearly as the life insured’s age increases. In order to create a level premium, the exponential curve is flattened though increase above the YRT cost in the early years. The surplus becomes a reserve that in turn reduces the amount of YRT needed for the next policy year, etc. The sum of the reserve plus the sum insured under the YRT is the face amount. In Whole Life and other “policy holder accessible cash value” (CV) contracts, the CV (Cash Value) is payable to the policyholder regardless of death of the life insured. In “term” insurance, the CV is paid to the beneficiary along with the YRT amount (total of the two = “the face amount”) if and only if the life insured dies AND the policy is not deemed “void” or “expired”. Otherwise the “reserve” or CV flows back to the coffers of the life insurer. This, of course is taken into consideration in the pricing of the products making “term” insurance seem to be “cheaper” when in fact the opposite is more likely in the long run.

    Regardless of any of the above, it is imperative that consumers be familiar with the contractual provisions of their life insurance policies, AND should insist that the actual completed life insurance application form in its entirety, including any schedules, as well as the needs analysis worksheet be included in their documentation package. The answer as to whether the policy will reach a final expiry date without values or whether it will mature and for how much, and/or whether it has any policyholder accessible cash accumulation at the end of each policy year, should be easily found in the life insurance contract and delivery package. If the package is incomplete or missing it should be requested from the insurance company ASAP
    By Ami Maishlish

  1. LSM Insurance 08/28/2013 at 3:00 pm

    Thanks Ami. Metropolitan Life of Canada Issued several interest sensitive policies in the late 80′s and early 90′s which expired at 90 or 100. They had one plan called Interest Plus which expired at 90 and another plan called Flexiplus which expired at 100. There were thousand of these policies sold.

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