Inexpensive Life Insurance

Inexpensive life insurance policies have gained renewed popularity over the last two years. The market for this product's two major applications, income replacement for two-income families and buy/sell agreements, is estimated at an astronomical $20 trillion. The policy's primary advantage is that it costs less than two separate policies that provide the same coverage. It allows two-income families to waive survivor's benefits in pension plans and eliminates estate-tax problems originating in buy/sell agreements.

In most businesses, including insurance, new products come into fashion, have their day in the sun and then fade in popularity. Interestingly, some products that have lost their appeal subsequently regain their luster and return to the market, in some cases stronger and more sophisticated than before. A case in point is this policy, which has reemerged and become increasingly popular over the last two years.

The resurgence of these policies was sparked, in part, by an article in the National Underwriter in January 2006 which asked why the concept had been ignored by companies that retooled their portfolios to include universal and interest-sensitive life policies. In effect, the article reintroduced the advantages and applications of such policies and, in the two-and-a-half years since its publication, the concept has again come into favor with agents and insurers. Today, these policies are being marketed through a variety of instruments, including universal life, interest-sensitive life, participating whole life and even various types of term life insurance.


Inexpensive life insurance policies also typically provide continuity of coverage for the surviving insured at the time of the first death. If there is not an identifiable charge for this privilege, the cost is absorbed as part of the overall pricing. Some policies allow the insured's to designate a larger continuation insurance amount at the time of application.

Another important continuity feature offered in many policies is the "split provision," which may be either narrowly phrased and offered at no additional cost or broadly worded and available for an additional premium. The provision responds to the fact that marriages, as well as business partnerships, can dissolve and that the insured's may desire to walk away with individual coverage's.

In response to market needs, some of these policies now allow for multiple primary insured's or for two primary insured's with term riders for additional insured's. While the traditional two-primary-insured's policy is sufficient in spousal situations and two-person partnerships or corporations, the flexibility of including additional insured's often is needed in businesses with three or more principals.

Some policies also allow a choice between level and increasing death benefits or provide different amounts of insurance on the primary insured's as part of the base coverage or through additional term insurance riders. Certainly, one can anticipate situations in which two business partners own unequal shares or the coverage for the senior partner is kept level while that of the junior partner increases over time.

This second generation of inexpensive life insurance policies, which are more sophisticated and accurately priced than their predecessors, allows agents to approach prospects with flexible and attractive solutions that should be able to withstand future competitive pressures. As a result, during the past two years, several companies brought these types of products to market, and others began to investigate the prospects.