Comparing permanent insurance plans takes more effort than comparing term plans. There’s more at stake because premiums cost more, and you might need to use the policy’s cash value before you die. Here are some points of comparison to consider:
Is the policy participating or non-participating?
Some policies will pay you dividends, which you can reinvest into the cash value. These are called participating permanent policies.
What interest assumptions are being made?
When you first meet with a life insurance agent, they will provide illustrations to show how much cash value you will have accumulated by the end of your policy.
But to create a projection, certain assumptions have to be made. For example, an agent might show you a plan that assumes you’ll be able to pay off your policy within 10 years and earn an 8% return on your cash value each year. Is that really realistic, though? More likely, you won’t be able to earn that big of a return year after year. Financial planners agree that a balanced portfolio will deliver returns of around 5% to 6%. Keep that in mind when you’re assessing a plan.
What features are guaranteed?
Permanent policies come with guarantees. Namely, that your premiums will stay the same for the duration of the policy and that you will never be denied coverage because of a health condition.
Riders are extra coverages that can be added to a policy. They also come with guarantees. For example, one might allow you to purchase an extra $250,000 a year in insurance, regardless of your health.
What are the underwriting standards of this insurer?
Life insurance companies don’t offer markedly different products, but there can be a wide variance in price. Each insurer chases a different demographic and will price policies accordingly.
If you’re not the ideal customer according to their underwriting standards — every insurer has a slightly different approach to risk management — you can expect to pay higher premiums.
It can be difficult to figure this out on your own, but an experienced broker will be able to tell you which companies to consider and which ones to avoid based on their underwriting guidelines.