Insurance policy premiums (the cost of the policy, ... usually monthly or annual rates) are not the only factors to consider when buying a policy, but they are undeniably very important. Many people do not know how widely premiums are spread often for very similar or same protection.

Most life policies are sold with stepping premiums (so called term policies), where the premium is the same for, let’s say, 10 years, and will jump to a next level for the next period then. These 10 year term (or, in insurance jargon, T10) policies are the most popular because they are the least expensive over the short term. On the long run, what seemed to be the the most inexpensive often turns out to be quite expensive, so comparison shopping and analysis (as opposed to simply ranking policies based on starting premiums) is important, ... including ‘time value of money’ calculations. (Another example for term policy cost-analysis, but this time of critical illness policies is available here)

The comparison is easier with so-called T100 life policies (a kind of permanent or whole life insurance, but without cash value), where the premium typically remains the same for the duration of the coverage.

With universal life insurance policies, cost analysis is even less clear-cut, meaningful, and possible, ... still it’s not meaningless either. The analysis below uses universal life policies, and is meant to dispel another myth about ‘good companies’.

A quantitative demonstration of why it is important to shop around when buying universal life insurance

Some people think that if a certain insurance company offered the best value for their premium for someone, under given circumstances, than 'It's a good company and we should stick to it' under different circumstances as well. As it is argued on other pages of this site, cost comparison is not the only aspect of deciding which available policy would be the best for any given person or situation. Nevertheless, finding cost saving opportunities is surely important. On this page, this is the only aspect addressed. I want to demonstrate that the above 'Let's stick to it' approach is highly debatable. A quick look at the charts below tells a lot about the impossibility of finding a 'best for all' solution, and the importance of doing comparisons for any given situation. Two of the best universal life policies from two large insurers - or rather, the total cost of protection in each - are compared in the charts.

In the first chart, the cost difference (in percentages) is shown for nonsmoker females, buying the policy at various ages, and at varying funding levels (that is according to how much investment is made within the policy, indicated here by the different colour columns in the chart), in relatively small policies (where the contracted amount is $100,000). As you can see, for younger women, Company A has significantly lower costs, especially when the Funding Ratio is high (that is, at higher levels of investment). At age 70 or above, Company B charges less for the protection; at this age, funding level does not play a role in the cost-difference. It is interesting to see the comparison for women aged 40, 45, or 50. For them, whether Company A or B offers the less costly protection depends on how much they are going to invest within the policy.


Chart 1 ($100K face amount, female, nonsmoker):

If we change just a single factor, face amount, in the calculation, we get a quite different picture (Chart 2). According to Chart 2, funding level still makes a difference in determining the cost, but with this larger size of policy, Company A has always significantly lower costs.


Chart 2 ($1M face amount, female, nonsmoker):

If we repeat now the whole exercise for smoker females, we can see again very significant (and varying) percentage differences in costs, - depending on face amount, age, and funding levels. (See Charts 3 and 4.) While for nonsmokers it was Company A that offered the lower cost most of the time, for smokers, at many ages and funding levels, it is Company B that is less expensive.


Chart 3 ($100K face amount, female, smoker):


Chart 4 ($1M face amount, female, smoker):

Let's have a look at the same comparisons of the same two policies, but this time for males (Charts 5 to 8). The same conclusions can be drawn, and the percentage cost differences are even more striking than for females.


Chart 5 ($100K face amount, male, nonsmoker):

Chart 6 ($1M face amount, male, nonsmoker):



Chart 7 ($100K face amount, male, smoker):

Chart 8 ($1M face amount, male, smoker):


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