A few weeks ago, I wrote about the effects of the market rates on interest and your life insurance.  As a result, consumers and purchasers of life insurance are faced with the decision to purchase an “interest sensitive” or “non-interest sensitive” product. 

If your financial goals and insurance needs do not include the continuing evaluation of the “reward or risk” of varying and unpredictable interest rates, then a non-interest sensitive life insurance product may best match your needs. 

Hermann Sons offers two competitive non-interest sensitive whole life plans for our members – plans that are not directly affected by a low or extremely high interest rate environment.  I use the term “not directly” since poor investment results would affect any insurance company’s operations.

Our 20-Year Pay Plan (also known as our H and J Plans) can be purchased on the lives of adults or juniors.   Adult certificates are written for those ages 18 to 70 with a maximum face value of $249,999. Junior certificates can be written for newborns to those 17 years of age with a maximum face value of $50,000. 

As the name implies, the owner of the life certificate will pay premiums (annually, semi-annually, quarterly or monthly) for a period of 20 years.  After 20 years of payments, the life certificate is paid up and no additional premiums are required. However, the coverage continues for the insured’s lifetime or until canceled for the certificates cash value or the cash value is used for a non-taxable exchange for a larger life certificate if the health of the insured allows this exchange. 

Many people like the simplicity of this product that provides for life insurance payments at a fixed cost.  They know the life certificate is paid up in 20 years regardless of how interest rates perform in the marketplace.  The 20-year plans are marketed with annual payments or less, therefore a single premium option is not available.

While not guaranteed by the contract, the death value can be increased annually by the addition by the   Grand Committee of an annual Refund. This annual refund can be used by the member to pay annual lodge dues or to purchase paid up insurance to add to the death benefit of the contract or can be can taken in cash.  The refund amount is approved annually by the Grand Committee (our Board of Directors) and is based on business performance, but not directly on the current interest rate environment.  At the current time, no annual refunds are paid on 20-year certificates beyond the 20-year payment period.  No matter how large or small the annual refund is, the face amount of the life certificate is always paid upon the insured’s death regardless of the length of time the certificate has been in force.

Our other non-interest sensitive product is our Senior Adult Final Expense (SAFE) plan, a plan sold to members who are 50 through 90 years of age.  This product is sold only as a single premium product.  The annual refund is determined annually by the Grand Committee and is added to the death benefit of the certificate.  The annual paid up addition is expressed as a percentage of the death or face amount of the certificate.

Both of our non-interest sensitive products will pay at least the face amount of the contract no matter how long the certificate has been in force and regardless of changes in the market interest rates since the refunds are based on the profitability of that line of business.  In either case, you enjoy the peace of mind of knowing the minimum amount your beneficiaries will receive while you know the exact amount of your payments, either as a single premium (SAFE Plan) or for 20 years (H and J Plans).

As a consumer, you must determine which path is right for you given your time available for financial planning.  Your time is needed for monitoring of your health insurance needs, your disability insurance, your long term care needs, your auto and home insurance needs, and, of course, the planning for your retirement though your 401(k) and/or IRAs.  Also, the premium cost per thousand dollars of life insurance will be different between all types of life insurance contracts and that varying cost between products must be taken into consideration when making your decision.

My next blog will discuss our interest sensitive plans (FLEX Plans).  However, you can discuss the difference between an interest sensitive and non-interest sensitive plans with your Hermann Sons agent or our Marketing Department at any time.