When it comes to life insurance, it seems that more folks are passing up plain vanilla term life for flashy hybrids.

In the past several years, the number of new term life policies in the U.S. has continued to fall, dipping to 41.1% of the life insurance market in 2009 from 44.6% in 2007, according to the American Council of Life Insurance. And last year, the slide continued. The number of new term life insurance policies sold in the U.S. dropped by 16% in the fourth quarter, compared with the same period in the previous year, according to insurance researcher and consultant LIMRA.

That's surprising, considering that a number of personal financial advisers and consumer experts still point to plain old term life insurance as the best choice when selecting a financial umbrella for your loved ones, especially before the kids are out of college.

"Term is still 99% the right thing to get, if you need insurance, and have a baby, and want to make sure they are fed and educated if you die," says Bob Hunter, director of insurance for the Consumer Federation of America. "But if you're looking for a tax break, then whole insurance makes sense."

"There's still too much non-term insurance being sold," he adds, "because agents make more money when selling things that are hooked onto it, or have premiums that go up. They have an incentive to sell you the wrong thing."

Nonetheless, consumers increasingly are purchasing life insurance policies that are other than straight term. For example, the number of new whole life insurance policies in the U.S. gained 6% in the fourth quarter over the previous year, while universal life insurance polices rose a whopping 20%.

Universal Policies Gain by Mimicking Term Life

Ironically, the driver of this double-digit gain for universal life insurance policies in 2010 was the addition in 2009 of term life features to these hybrid policies, says Elaine Tumicki, vice president of product research for LIMRA.

"Some companies introduced a combination of permanent universal life and term life insurance products in 2009, and that's why we've seen some term life insurance policies decline, while universal life and whole life increased in 2010," Tumicki says.

Term life insurance is considered attractive because of its low premiums which are set for a given number of years -- a 10-year, 20-year or 30-year period, for example. Universal insurance generally costs more and allows policyholders to have flexibility in determining when and how much to apply to their premium payments. Whole life insurance is a permanent insurance that is available until the policyholder dies, and it can accumulate a cash value.

Under hybrid universal-term life insurance policies, like those of term universal life pioneer Genworth Financial Companies (GNW), the policy starts like a term insurance plan, with a set number of years at a level premium that's designed to be comparable to traditional term policies. However, Genworth's Colony Term UL, introduced in 2009, allows policyholders to extend their coverage, after the initial term is set to expire, at a new, higher premium that's good until the policyholder is 95.

Genworth created the term-universal life insurance product as a means to compete with term products, while giving consumers a permanent and flexible universal life product, says Janet Deskins, senior vice president of Life Products for Genworth, in an email interview.

Consumers who aren't sure if they want permanent insurance or term insurance are best suited for this type of universal term life insurance, says Scott Witt of Witt Actuarial Services, a scheduled panelist at this week's National Association of Personal Financial Advisors (NAPFA) annual conference in Utah.

"The disadvantage with term universal life is there's no cash value like a permanent one," Witt says. "Cash values are useful if they lower your premiums later on or you can take a loan out against it. Then there is a living value to it."

Buy Long-Term Care Separately

In addition to this tweak to term and universal life insurance, other changes have been afoot in the life insurance industry.

John Ryan, a strategy consultant with Ryan Insurance and another panelists scheduled to appear on NAPFA's "Changing Face of Life Insurance" session, noted an increasing number of companies are offering long-term care insurance riders on universal or whole life insurance policies.

"They're becoming popular to where about 10% of policies are sold with this, versus 2% to 3% a couple years ago," says Ryan.

Witt is not a fan of these type of long-term care riders.

"If you need long-term care insurance, then you should buy long-term care," Witt says. "If you need life insurance, you should get life insurance. If you put the two together, you can erode your death benefits if your long-term care is paid out of that."

Long-term care riders are just part of a mix that's been introduced since the insurance industry was socked by the recession. And the wave of riders that's emerged is far different from the innovative products that came on the scene after the recession of the early 1970s, says Jim Mitchel, LIMRA vice president of developmental research.

In the six years that followed the dour early 1970s, those products included universal life insurance and stock-based variable life insurance. But since the current economic malaise hit, the insurance industry has largely pumped out new types of riders, says Mitchel.

He points to the example of a critical-illness rider, which allows policyholders to cash in a portion of their life insurance as a lump sum if they have a stroke. Then there are income-replacement riders, which allow policyholders to get an amount equivalent to their paycheck, that's paid out on a regular schedule rather than a lump sum.

In summing up the type of products introduced since the nation was hit with a recession a couple of years back, Mitchel says: "There may be some innovative products in the pipeline now, but I haven't seen a lot of innovation this year. A lot of people are introducing extensions of their existing product line."

Increase your money and finance knowledge from home

Understanding Stock Market Indexes

What does it mean when people say "the market is up 2%"?

View Course »

Investing in Emerging Markets

Learn to invest in a globalized world.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

At least you stick to your guns even though you have been blindly misled or deceived at some point in your life. Your first question about the cash account in month one is ridiculous and laughable. If you have money in an account of course it shows as a balance. In the product that I offer there is no ceiling so when the market tanks you benefit and when it does well you get the full benefit. Score again: Chad-1 You-0. You are not supposed to touch your money until you retire but at least you can if you need to. Muni bonds are not bad for short term investments. Essentially they still make you no money but at least you do get preferential tax treatment. There are surrender charges on all permanent insurance products but that is irrelevant because you shouldn't buy a product that you don't intend to keep long term. If insurance products worked like bank accounts then people would still have nothing because they would spend it all. That is the lifestyle and habits of the vast majority of Americans. If they aren't forced to save money they will be penniless their entire life. The chance of your policy lapsing for any reason other than you not making payments are so rare that the official language of the United States will be Chinese before that ever happens. What I mean is that the market would have to suffer continuous losses every year for 15-20 years. As for your 30 year term I don't know how old you are but I would dare to bet that you are overpaying for it and when it runs out you had better pray that you are either dead or financially independent otherwise Suze Orman can't save you and neither can anybody else. I own American Funds mutual funds. Don't think that I put all of my money into my insurance products. That would be foolish. Even though my insurance policy will over a long period of time outperform the mutual funds. Stop arguing with me my friend. You can't win. Keep listening to Dave Ramsey and buy a pair of kneepads. You will need them because you are going to spend a lot of time on your knees praying based on your current mentality.

May 20 2011 at 1:52 PM Report abuse rate up rate down Reply

I wanted to rebut Chad's 4 for 4 but there was no reply button. The fact that most people don't live within their means does not make it a an outdated concept, it simply means they are uneducated about how to do it. With your hibred product does my cash account show a balance in month one? If not how long till my cash account starts to show a balance and if not in month one why not? I believe in most of these products there is a celing as well as a floor correct? I benefit when the market tanks by getting 0% but what about the rebounds of 09 & 10 do I get the full 23.5% and 15% that the S&P did respectivley? My retirement and my insurance will always be seperate because over the long haul I don't want to touch my money before 591/2...I want my money to have the full advantage of compounding and you can't do that by taking loans out, wheather they are tax free or not make no difference, taking money out of something earmarked for retirement is just plain dumb. If I know or think I will need X amount of dollars in 7 -10 years then I will put my money in a Muni Bond, where I will get preferential treatment for tax purposes. I can do all of this much cheaper than inside any insurance prodcut. One other question is what about surrender charges? If I decide to quit how much of my money will you keep and how many years do these charges apply? Why do I have to pay to ge out? Is there any chance what so ever that my policy could lapse for anything other than me not making payment? I know you said the death benefit is guaranteed but can it fluctuate? I still see no value in what you are proposing. I pay 110.00 a month for a 30 year level term and have 750K in protection. I have a well balanced portfolio from a broker in American Funds that is doing wonderfully. I gladly pay him 1% a year to handle the portfolio and there is no way you can tell me that the cost of what you are advocating is less with a better return You are misleading people and probalby yourself. I know one thing the greatest investor in the world has never once said he or the american people would be better served by investnig for their futures inside a life insurance product...and he could benefit greatly because he owns several companies. Please feel free to show us your portfolio and the cost's associated with it. My broker showed me exaclty what it would cost me per year to do buisness will you?

May 20 2011 at 11:41 AM Report abuse rate up rate down Reply
Scott A. Olson

Using the cash value from a “no longer needed” life insurance policy to pay for long-term care insurance is a smart move and can save a lot in taxes.

However, in my experience, it rarely makes sense to buy products that combine life insurance (or an annuity) with long-term care insurance. You can usually get twice as much benefit with a “single pay” long-term care insurance policy; and the policy can even refund the premium to your heirs upon your death if you never used the policy.

Here’s a link to two more reasons:



May 20 2011 at 11:31 AM Report abuse rate up rate down Reply

I specialize in diabetic life insurance. In most case, I am able to get them standard rates. If anyone needs help with their life insurance, then feel free to contact me jlucik9@aol.com.

May 19 2011 at 10:02 PM Report abuse rate up rate down Reply

For the record, the company that ripped us off was a top rated company at the time.

May 19 2011 at 8:53 PM Report abuse rate up rate down Reply

BEWARE!! We took a "hybrid" policy out 20 years ago after the agent pushed it over whole life that we wanted. Now the company is dumping us because they don't want to be in the life insurance business and used some conniving methods to make a fortune from it in the process of disposing of that part of their business.. Figure how much more the policy would cost now being 20 years older IF we could get it. I was diagnosed with breast cancer last year, so, even though I'm OK and the Dr. said I would have to find something else to kill me, fat chance of anyone insuring me now and I couldn't afford the rates anyhow. Nothing but GREED.

May 19 2011 at 8:50 PM Report abuse rate up rate down Reply

Okay gang, let's calm down about the choices of insurance. The extreme comments do not serve any good purpose. The truth of the matter is that a competent, well-trained professional agent will find out a lot about a propect's situation, goals in life, and ability to pay. Next he oe she will consider what to recommend, while asking, "What would I do if I were in this propect's situatiopn and had the same goals and ability to pay. What is the very best solution to his or her problem?" Whatever that is, is what should be recommended. For some peiople the solution will be nothing but term, for others, nothing but some form of permanent, while sfor still others, it will be a combination of the two. Disability Income insurance is also very important, and many people have none at all, other than the illusive, hard-to-get Social Security benefit. Now, wasn't that reasonable? One size (or type) does not really fit all! Find a good agent witha good company, and talk to him or her.

May 19 2011 at 7:15 PM Report abuse rate up rate down Reply

Life insurance is meant for 2 things..Create an estate or Conserve an estate..that's it. Now for what product is best for you..it all depends upon each individual case. The important thing is to have enough life insurance in the event of a death. If you buy term make sure it's guarantee renewable & convertible (to at least 65). You can buy term today then convert it to a permanent policy in the future. Of course all this is determined upon how much you can afford in premiums.

May 19 2011 at 4:15 PM Report abuse +1 rate up rate down Reply

Term life insurance has no tax advantages but any permanent policy with cash value accumulation does have real tax advantages. The cash value increases income tax free over time. Over many years this can add up to large tax savings. You can also take loans out against the cash value and this strategy also has no tax consequences.

May 19 2011 at 2:31 PM Report abuse rate up rate down Reply
1 reply to ekkorach's comment

don't any of you cash value agents have any people you need to rip off? What about my ROTH IRA does that have any tax advantages? If I take a loan from my cash value who do I pay the interest too? What if I don't pay the loan back what happens to my death benefit? Is it effected in any way? Why did I buy my level term policy to begin with... I bought it in case I died, not so I could save money in it. I use my UNIK, my ROTH and a host of other great investment vehicles...ANYTHING but an insurance policy!

May 19 2011 at 3:05 PM Report abuse +1 rate up rate down Reply
1 reply to omnirail3's comment

Term is used when appropriate but it is by no means appropriate for everybody. Do I sell term? Absolutely, but before you start talking about ripping people off Mr Primerica (Lol) I would suggest you look into a product called Indexed Universal Life. It is tax advantaged because you don't pay taxes on the loans when you receive them later in life, similar to a Roth IRA, When you take a loan and don't pay it back it doesn't affect your death benefit because the death benefit is separate from the cash value and if the client dies the family gets both death benefit and cash value. You don't pay interest when you take out your money AND you have the benefit of the upside of the market but when the market falls you don't lose money. Roth IRA's are a much better product than typical IRA's or 401K's but you can't touch your money until 59 1/2 where a typical time period for an IUL is 7-10 years and if the market falls 50% like it did it 2007-08 then you are out of luck. Head to head my insurance policy will beat your Roth IRA and any other product on the market 100% of the time.

May 19 2011 at 4:34 PM Report abuse rate up rate down

Who is this quack who says agents who don't sell term sell the wrong thing? Whole life is a terrible product and all agents who sell it need to either leave their company or get out of the business but this article was obviously written by someone who knows nothing at all about the insurance industry. All he talks about is term, whole life and regular universal. I would dare anybody quoted in this article to give me a call and we will see how long they consider themselves an expert on the subject!!

May 19 2011 at 1:39 PM Report abuse -1 rate up rate down Reply
1 reply to chadtphp's comment

Hey Chad I have done my own research and I value the advice of Consumer Reports or Clark Howard, Suze Orman, and Dave Ramsey who all advocate that people should buy a term policy, live within their means, eliminate debt and pay down a mortgage. Why would I need a life policy at all if I was 65, debt free and financially secure? Other than having something for estate planning,(which is a completely different issue, that the average person will never encounter) there is nothing for me to protect. I love the fact that the agents who sell this crap, and I am sure you are a part of that fraternity, tell people about all the benefits of the forced savings and how valuble the cash value account wil be to me or my kids when they start college. What a great deal that the policy is guaranteed to return 4% but if I take any of MY money out I only have to pay the insurer back at 6%. If it is MY money to begin with why do I have to pay it back at all? much less at a higher rate of return than the policy is guaranteeing. Also just curious why in the world of insurance the term "dividend" doesn't have the same meaning it does with my investment broker? When I receive a dividend from Apple I owe tax, I may deferr paying that tax but that dividend is reported to the IRS as income. Funny but the dividends in whole life insurance do not trigger a tax consequence, could that be because it is actually the return of overpaid premiums and not a dividend in the true sense of the word. I own several business's and have been approached many times by agents selling this crap and no one has ever answered the questions I posed above in a way that makes fiscal sense. If you can do that you will have a new client ASAP.

May 19 2011 at 2:56 PM Report abuse +2 rate up rate down Reply
2 replies to omnirail3's comment
Cline Countryman

Omnirail- call 877-777-4301 and I will show you how to use life insurance inside a pension plan
and will explain the dividend concept. Don't call unless you plan on keeping your promise of becoming a client if I answer your questions posed.

May 19 2011 at 3:04 PM Report abuse rate up rate down

All of your arguments are valid if you are talking about whole life. I agree that whole life is garbage but if you do some research on a product called Indexed Universal Life you will sing a very different song immediately. I will deal with your points one at a time. #1: How many people in this country live within their means, have no debt and pay off their mortgage? Not very many. That idea became prehistoric about 20 years ago. #2: IUL's get the upside of the market with no risk of loss if the market does badly. The product I offer has averaged 10.3% the past 20 years and you don't pay interest to take out your money. I am 2/2 so far. #3: Company's who promote their dividends as a benefit are deceiving their clients because in whole life when you die you don't get the cash value so you could say my dividends pay me 25% and it would mean absolutely nothing. #4: When you take money out of this product you do not pay any taxes. Go research IRC 7702 if you need to prove that to yourself. That makes me 4 out of 4 and I could keep going if you want to present any more questions. Clark Howard, Suze Orman, and Dave Ramsey preach about a way of life that is now nonexistent in this country. They have all made millions for their opinion but that is merely an opinion and only believable to those who choose to believe it. At least you have insurance unlike 44% of American households but before you start using the word crap around somebody who knows what they are talking about you need to realize that if you and I met face to face you would become a client because facts are not opinions and I am giving you facts!!

May 19 2011 at 4:56 PM Report abuse rate up rate down