Understanding Bice Calculations And Their Impact On Term Insurance Policies

Term insurance is a type of life insurance policy that provides coverage for a certain period of time, usually between 10 to 30 years. If the insured person passes away during the specified term and the policy is active, a death benefit will be paid to their beneficiaries. Term insurance is initially much cheaper than permanent life insurance, such as whole life or universal life, as it is not designed to last through old age. Term insurance also does not accumulate cash value, meaning there is no cash payout if the policyholder outlives the policy term.

The Best Interest Contract Exemption (BICE) is a part of the US Department of Labor's (DOL) fiduciary rule, which raises investment advice standards for retirement accounts. BICE exposes firms to extra compliance requirements and litigation risk. Insurance companies with affiliated broker-dealer networks, such as Massachusetts Mutual Life Insurance Co. and Lincoln National Corp., have announced their intent to use BICE. This is because many insurance brokers rely on commission-based income, which would be impacted by the DOL rule. BICE provides these brokers with the ability to preserve the commission system.

BIC Exemption and Compliance

The Best Interest Contract Exemption (BICE) is a part of the Labor Department's final fiduciary rule, which raises investment advice standards for retirement accounts such as 401(k)s and IRAs. BICE exposes firms to extra compliance requirements and litigation risk. The Impartial Conduct Standards, which are currently in effect, are the sole conditions for the Exemptions during the extended Transition Period. These standards require that financial institutions and their advisors:

• Act prudently and in the best interest of the retirement investor without regard to the financial institution's or advisor's interests.
• Charge no more than reasonable compensation.
• Do not make misleading statements.

During the Transition Period, financial advisers and institutions can take several steps to protect themselves and demonstrate compliance with the Impartial Conduct Standards, including:

• Identifying and coding all retirement investors as ERISA Plans, non-Title I Plans, IRAs, etc.
• Ensuring that written policies and procedures for ERISA and other qualified retirement accounts incorporate the Impartial Conduct Standards.
• Implementing processes and controls for the delivery of non-fiduciary services to ensure that fiduciary advice is not inadvertently provided.
• Reviewing compensation structures and revenue streams to identify any potential conflicts.
• Reviewing sales and marketing materials to identify and eliminate any statements that could be viewed as misleading.

While the DOL proposed to extend the transition period for full implementation of BICE and other Exemptions by 18 months, it is unclear if the DOL will extend its current temporary enforcement policy. As a result, financial advisers and institutions should focus on complying with the Impartial Conduct Standards during the Transition Period.

Term Life Insurance Premiums

Term life insurance is a type of life insurance policy that provides coverage for a certain period of time, typically ranging from one to 30 years. It is significantly cheaper than permanent life insurance as it does not offer lifelong coverage or provisions for investing cash value. Term life insurance premiums are based on a person's age, health, and life expectancy. The insurance company calculates premiums based on health, age, and life expectancy, with older individuals paying higher premiums than younger ones.

Term life insurance policies can be further categorized into level term, yearly renewable term, and decreasing term policies. Level term policies have fixed monthly payments and a fixed death benefit for the duration of the policy, which typically ranges from 10 to 30 years. Yearly renewable term policies are one-year policies that can be renewed annually without providing evidence of insurability, but the premiums increase each year. Decreasing term policies have a death benefit that declines annually according to a predetermined schedule, while the policyholder pays a fixed premium.

The cost of term life insurance also depends on the insurance company's business expenses, investment earnings, and mortality rates for each age group. Additionally, factors such as gender, occupation, family health history, hobbies, and lifestyle can influence the premiums. For example, women tend to have lower premiums than men due to their longer life expectancy. Dangerous occupations and risky hobbies will also result in higher premiums.

Term life insurance is ideal for individuals who want substantial coverage at a low cost. It is a good option for young people with children, as it provides financial protection at a low cost. It is also suitable for those with growing families, as it can be maintained until children become self-sufficient. However, term life insurance premiums increase with age, and the coverage expires after the specified term.

Term Life Insurance Payouts

Term life insurance is a type of life insurance policy that provides coverage for a certain period of time, usually between 10 to 30 years. If the insured person passes away during the active policy period, the insurance company pays out a death benefit to the beneficiaries. The death benefit is a lump sum of money that is paid to the beneficiaries, which can be used to cover expenses such as funeral costs, consumer debt, mortgage debt, and other expenses.

The process of receiving a term life insurance payout is relatively straightforward. Here are the steps that beneficiaries typically need to follow:

• Contact the insurance company: As soon as possible after the death of the insured person, the beneficiary should contact the insurance company to initiate the claims process.
• Submit the required documentation: The beneficiary will need to provide a certified copy of the death certificate and complete any additional paperwork, such as a claim form. They may also need to provide policy information, including the policy number, and personal information of the insured and beneficiaries.
• Wait for the insurance company's review: The insurance company will review the claim and supporting documentation. This typically takes around 30 to 60 days, depending on the state's regulations.
• Receive the payout: If the claim is approved, the insurance company will issue the death benefit payout according to the payment option chosen by the beneficiary.

It's important to note that term life insurance policies do not accumulate cash value, and there is no payout if the insured person survives the policy term. Additionally, term life insurance premiums are typically calculated based on the insured person's age, health, and life expectancy, and may increase upon renewal.

Term Life Insurance Conversion Options

Term life insurance is a type of life insurance policy that provides coverage for a certain period of time, usually between 10 to 30 years. If the insured dies during the specified time and the policy is active, a death benefit will be paid to the beneficiaries.

Term life insurance is initially much cheaper than permanent life insurance, such as whole life insurance, because it is not designed to last through old age. Additionally, term life insurance has no cash value. However, many term life insurance policies offer the option to convert from term to permanent insurance.

Reasons to Convert Term Life Insurance to Whole Life Insurance

Converting term life insurance to whole life insurance can be beneficial for several reasons:

• You want to earn cash value with permanent life insurance. Whole life insurance allows you to withdraw money while you're alive, providing an emergency savings source.
• You still need coverage at the end of your term life policy. Term life insurance is often more affordable because it limits the number of years the insurance company might have to pay out.
• Your income has increased, and you can now afford the higher premiums associated with whole life insurance.
• You have health issues that may affect your ability to qualify for a new term life insurance policy. Converting to whole life insurance typically does not require a new medical exam, and your health rating will remain the same.
• You have dependents who may need financial support after your death. Converting to whole life insurance can ensure they receive a death benefit.
• You want to have funds to cover your final expenses, such as funeral costs.

Considerations of Converting Term Life Insurance to Whole Life Insurance

There are also some considerations and potential drawbacks to keep in mind when converting term life insurance to whole life insurance:

• Whole life insurance premiums are typically higher than term life insurance. The older you are when you convert, the higher the premiums will be.
• Whole life insurance policies may have a lower growth rate compared to other investment strategies.
• Accessing the cash value of a whole life insurance policy may incur fees or taxes, and withdrawing too much money can reduce the death benefit or even terminate the coverage.
• Whole life insurance premiums may not have an end date, which can make it challenging to keep up with payments if your income changes or becomes unstable.

Process of Converting Term Life Insurance to Whole Life Insurance

Converting term life insurance to whole life insurance typically involves the following steps:

• Check if your term life insurance policy includes a conversion option and confirm the deadline for conversion.
• Choose the type of whole life insurance policy you want to convert to.
• Calculate the cost of the new whole life insurance policy, taking into account the higher premiums.
• Decide on a partial or total conversion of your existing term life insurance policy.
• Work with a financial advisor or insurance agent to review and sign the necessary paperwork to finalize the conversion.

Term Life Insurance Riders

Accelerated Death Benefit Rider

This rider allows you to access part or all of the policy's death benefit while you are still alive if you are diagnosed with a terminal illness. This rider is often included at no extra charge, but there may be a fee for accessing the benefit. The money received through this rider is usually tax-free.

Accidental Death Rider

The accidental death rider increases the payout to your beneficiaries if your death is caused by a covered accident. It is sometimes referred to as a "double indemnity" rider as it can double the payout. However, the death must occur within a set period after the accident for the benefit to be paid out.

Child Term Rider

The child term rider covers your children on your policy and pays a small death benefit if a child dies before reaching a specified age, usually around 25 years old. This rider is typically very inexpensive due to the low coverage amount and low chance of a claim being made.

Guaranteed Insurability Rider

The guaranteed insurability rider allows you to purchase additional coverage in the future without the need for a medical examination or health questionnaire. This type of rider is beneficial when there is a significant change in your life circumstances, such as the birth of a child or an increase in income.

Long-Term Care Rider

The long-term care rider allows you to access your life insurance death benefit if you need to pay for long-term care due to a chronic illness or injury. This rider is often much cheaper than purchasing a separate long-term care insurance policy.

Return-of-Premium Rider

The return-of-premium rider refunds some or all of your premium payments if you outlive the term of your life insurance policy. This rider is typically expensive and can significantly increase the cost of your premium.

Waiver of Premium Rider

The waiver of premium rider waives future premiums if you become permanently disabled or lose your income due to injury or illness before a specified age. This rider can be valuable, especially when the premium on the policy is high.

Family Income Benefit Rider

The family income benefit rider provides a steady income stream to your family members in the event of your death. This rider is generally purchased by individuals who are the sole breadwinners of their families.

Term Conversion Rider

The term conversion rider allows you to convert a term life insurance policy into a permanent life insurance policy. This rider can be useful if your health has declined and you want to avoid the high cost of purchasing a new permanent life insurance policy.

Frequently asked questions