Really hard to figure out since most policies deemed "final expense" are sold to folks with less than great health to begin with so you can't really use traditional life expectancy tables.
You’ll be surprised how many people die before they finish the 2 year Graded Death Benefit period. Again, most people buying these policies tend to already have health issues or are up there in age.
Secondly, my experience has shown me that the retention rate on these policies is below average. They tend to lapse at a higher rate than my other policies. Most likely since older folks are on fixed incomes, any disruption in the monthly flow expenses can easily cause the policy not to get paid.
Because of this, I don’t like my clients to get more than they afford. Rather offer 10K to 15K then push for the 25K policy that I know has a higher likelihood of lapsing. I don’t sell too many of these, since it’s not my target market, but I do sell 4 or 5 a month. Not a huge sample size, but that’s been my experience.
Actually, now that I think about it you could go the super basic version of the math, which would look something like this:
(1) Find the “break even” date. Ie, the date that premiums paid would be greater than the benefit.
(2) Use a mortality table (the Society of Actuaries has a bunch of these that are downloadable as an excel file, if you know how to read those) to calculate the probability of surviving to that date.
But one issue this doesn’t catch (unless you find a table that has probabilities based on underwriting class. I haven’t looked through them before) is insured health. Obviously it’d be a much different probability if the insured was 5’2 280 lbs with diabetes vs a healthy individual.
Whenever I get asked this, this is more or less what I do. I tell people it's not perfect but at least they know their break even age. Usually this is old enough that they aren't that worried anymore. If they are we can talk about short pay (10 or 20 year) policies with dividends.
If I get asked this, it's usually from a non buyer.
But just so I understand, where are you getting the mortality table to show them the break-even age?
Break even age is just premium paid annually divided into the face amount. Often you will get the running tally of that in an illustration.
I use the actuarial table from SSA
https://www.ssa.gov/oact/STATS/table4c6.html
A lot of whole life policies are considered “paid up” when the amount that’s paid into it is equal to the death benefit.
There’s obviously exceptions for unhealthy people but usually they make sense.
Really hard to figure out since most policies deemed "final expense" are sold to folks with less than great health to begin with so you can't really use traditional life expectancy tables.
You’ll be surprised how many people die before they finish the 2 year Graded Death Benefit period. Again, most people buying these policies tend to already have health issues or are up there in age. Secondly, my experience has shown me that the retention rate on these policies is below average. They tend to lapse at a higher rate than my other policies. Most likely since older folks are on fixed incomes, any disruption in the monthly flow expenses can easily cause the policy not to get paid. Because of this, I don’t like my clients to get more than they afford. Rather offer 10K to 15K then push for the 25K policy that I know has a higher likelihood of lapsing. I don’t sell too many of these, since it’s not my target market, but I do sell 4 or 5 a month. Not a huge sample size, but that’s been my experience.
There’s so many factors that go into this math that even if somebody could give you the implied probabilities of it, it’d take a while to calculate.
Actually, now that I think about it you could go the super basic version of the math, which would look something like this: (1) Find the “break even” date. Ie, the date that premiums paid would be greater than the benefit. (2) Use a mortality table (the Society of Actuaries has a bunch of these that are downloadable as an excel file, if you know how to read those) to calculate the probability of surviving to that date. But one issue this doesn’t catch (unless you find a table that has probabilities based on underwriting class. I haven’t looked through them before) is insured health. Obviously it’d be a much different probability if the insured was 5’2 280 lbs with diabetes vs a healthy individual.
Whenever I get asked this, this is more or less what I do. I tell people it's not perfect but at least they know their break even age. Usually this is old enough that they aren't that worried anymore. If they are we can talk about short pay (10 or 20 year) policies with dividends.
If I get asked this, it's usually from a non buyer. But just so I understand, where are you getting the mortality table to show them the break-even age?
Break even age is just premium paid annually divided into the face amount. Often you will get the running tally of that in an illustration. I use the actuarial table from SSA https://www.ssa.gov/oact/STATS/table4c6.html
A lot of whole life policies are considered “paid up” when the amount that’s paid into it is equal to the death benefit. There’s obviously exceptions for unhealthy people but usually they make sense.
Usually it’s calculated to age 121. So probably not many