From Cryonics March-April 2012
By Rudi Hoffman
Background on Cryonics Funding
By now, most members and potential members reading these words are aware that Alcor is anticipating enacting an historic — and no doubt much discussed — new pricing model. This will almost certainly impact nearly everyone reading this article, even members of other cryonics organizations or those intending to sign up with a cryonics organization in the future.
After almost four decades of "grandfathering" the original rate which was in effect the day one became an Alcor member, Alcor is developing an incentive program which encourages — some would say requires — that the money needed to cover CURRENT cryopreservation costs be available at the time you "die" and the service is provided.
The reasons and rationales justifying this new program are many and are available on the Alcor website [see Cryopreservation Funding and Inflation]. The details and number of serious calculations performed behind the scenes — the "handwringing" over this issue — goes back decades, and is not the focus of this article. The summary is simply this: Due to technological enhancements and inflation, the actual costs of providing "state of the art" cryopreservation have increased. Eventually these costs go up considerably. Alcor has made a decision to continue to provide the best practices and procedures available. This means that the new higher costs must be paid, and this funding has to come from somewhere to make a sustainable organization. Rather than contribute a lower amount to the Patient Care Trust Fund, or subsidize shortfalls from the Alcor Endowment Fund, the Alcor Board has determined that Alcor cryopreservation pricing must have an intrinsic structure that acknowledges the reality of increasing costs.
Here is what this means to you.
Let's assume for a moment that you signed up with Alcor in 1994, the year the author of this article signed up. The cost of whole body cryopreservation was $120,000. If I had to be cryopreserved right now, Alcor would provide me with a service legitimately and currently costing $200,000. Recall, this includes adding $110,000 to the Alcor Patient Care Trust.
The new pricing model, to be instituted probably in 2012, says I will need to have a total of $200,000 going to Alcor to secure a state of the art cryopreservation. If I only have $120,000, they will still provide the best protocols and service they are capable of. However, prior to "dying" while remaining a member, I will be charged an additional amount, over and in addition to my regular Alcor dues, which will go into a pooled fund designed to help pay the difference between my funding amount and the actual, then CURRENT, funding amount.
For members who signed up at various points in time with Alcor since 1972, the metrics are pretty simple. For example, if you signed up as a "neuro" when the cost was $35,000, you now need to fund for at least $80,000, the current neurovitrification cost at Alcor. Ideally, you should acquire a substantially higher amount of life insurance coverage, for reasons which are explained below.
The "Rule of 72" and How to Plan for Your Future Cryopreservation Needs
This short explanation may seem like a digression at first, but we'll soon find out it is not. It is called "The Rule of 72." It is astoundingly simple, but powerful.
You can determine the future cost of a compound interest calculation by dividing the number 72 by the interest rate. The result indicates the number of years it will take to double the original amount.
For instance, let's say we are buying an item which today costs $200,000 — like a whole body cryopreservation at Alcor. Let's further assume that medical inflation increases costs by 7.2% a year. While no one knows for sure what inflation rate to expect in the future, you are almost surely aware of current macroeconomic events which make ongoing inflation virtually inevitable. It is extremely unlikely, given actual numbers of people signing up for cryonics throughout the planet, that the economies of scale available for commodities like electronics are going to happen in cryonics like they do for your iPhone.
Medical Inflation Rates
By way of a data point of hard reality, the health insurance premiums I pay went up 30% and 17% per year for the last two years. So 7.2% as a working figure for increasing costs of specialty medical interventions is not unreasonable. Although, to be fair, this is higher than the historical price increases Alcor has experienced, based on the analysis done by Robert Freitas [Scenario Analysis using a Simple Econometric Model of Alcor Finances]. However, it is substantially lower than worldwide medical inflation, which is estimated to average 10.5% a year.
Taking this 7.2% into the number 72, we come up with the number 10. This simply means it will take ten years for the buying power or cost of an item to double. In other words, at 7.2% a year inflation rate, a service costing $200,000 will double to $400,000 in — you guessed it — ten years.
Ten years from then it will double again — to $800,000. Needless to say, the reality of compound interest — and inflation is a type of compound interest — is both exciting and frightening. And, like other facts of nature, this simple fact of nature is inexorable, uncompassionate, uncaring, and exists completely independent of anyone's opinion. The mathematical reality of compound interest is as certain, as mindless, as absolutely undeniable as gravity.
Ignoring the effects of compound interest or gravity is inadvisable. Mathematical and physical reality does not CARE how precious you are, how you have sacrificed for years to pay cryonics dues for your family, how deserving and sincere you are, how loyal to the cause, how your spouse won't let you spend more on cryonics, how badly the kids need braces or shoes, how you have become old or uninsurable — insert your personal contingency and situation here.
While the mathematics of compound interest and randomness may not care about you, the decision makers at Alcor actually do. So there are options for hardship cases, along with mechanisms to attenuate increased costs for long term members unable to handle rising costs at Alcor.
If you plan on living another thirty years as you read these words, and you are serious about cryonics, you are at this very moment facing a serious — indeed a life threatening — challenge. It has been acknowledged for decades at Alcor that there is a fundamental problem with the grandfathering issue. But current Alcor management is choosing to address this enormous financial problem head on and to deal with it honestly instead of pretending it does not exist.
Again, what does this mean for you, in practical terms, about how much life insurance you should have to ensure adequate funding with Alcor and/or other cryonics organizations?
There can be no single "one size fits all" answer to this question. But there can be some broad parameters. If you are young or middle aged and/or can afford it, it is not unreasonable to have one, two, or even three million dollars of total coverage. Increasingly, we are seeing far sighted cryonicists establish a combination of levelized premium universal life policies with renewable and upgradable term policies to provide for both future cost increases as well as to take care of their loved ones.
I personally own $2,300,000 of insurance on my life. Not because I am hugely wealthy, or there is some magic way for insurance brokers to obtain life insurance. I pay my premiums like anyone else, and total insurance costs are a substantial portion of our household budget. This life insurance, however, provides for my current and future cryonics costs, takes care of my beloved wife, and, most importantly, is designed to go into a series of three Cryonics Trusts.
Does this mean you should become discouraged and depressed if you cannot even think of affording this substantial coverage, and do nothing?
Of course not.
While most of us probably cannot afford any far future contingency or cost of future cryopreservation, we certainly CAN recognize that funding above and beyond current cryopreservation minimums is prudent. Alcor has long recommended overfunding, and a 50% overfunding at current rates would amount to $300,000 for whole body members and $120,000 for neuro members.
It does not take a rocket scientist, economist, or financial genius to simply see that, in this circumstance, "more is better." Given the realities of compounding, having at least double the current minimums is certainly prudent. Recall, excess funds can be directed to your loved ones, causes you care about, and even your own personal revival trust. The Patient Care Trust funded by Alcor with each cryopreservation, is a "pooled" fund, designed to provide care in perpetuity for all cryopreserved members. If you want the possibility of being resuscitated from cryopreservation with personal funds, you should create a personal cryonics trust, which is generally funded with the financial leverage of life insurance.
We will deal with creative insurance and funding concepts in a later section. But if you remain reasonably healthy, the odds are good that there are ways to secure more life insurance now, while you are still relatively young and insurable. Annuity funding is appropriate for uninsurables, but this presumes one can reposition the lump sum of cash required to make current funding minimums. Again, it should be noted that Alcor is planning to look at "hardship" situations on a case-by-case basis.
This brings us to some practical considerations like, "How can I even think of affording the kinds of coverage that the gods of compound interest suggest I should have? Are there ways I can systematically engineer a policy or policies to address this inflation issue?"
This brings us to:
TYPES OF LIFE INSURANCE
We will start with some basics — Life Insurance 101.
Term life insurance is, as the name implies, life insurance that is level or in place for a TERM, or period of time. Popular choices include life insurance where the cost, also known as the premium, is LEVEL for fifteen, twenty, or even thirty years. It is pure death protection, generally builds no internal cash values, and the policy will indeed pay the full life insurance proceeds, known as the "face amount" of the policy — if you can arrange to die at the right time, that is.
Not surprisingly, given the fact that people tend to die in the later years of life, not the earlier years, term life insurance is relatively inexpensive for younger persons.
Term insurance is perfect in some situations, especially when we desire coverage for a period of time that can be known in advance. For instance, you are raising a family and you need a huge sum of life insurance to replace the income source you represent to your family. To replace this income, a lump sum of ten or twelve times your annual salary is needed, and it makes sense to fund this need with affordable term life insurance. There is a definite point in time — some twenty years out — when your kids will be raised, your mortgage paid down, your liabilities and financial responsibility to your family largely fulfilled, at which point this "backup" source of funds is no longer necessary.
Or, perhaps you borrow $500,000 on a thirty year mortgage for a house. Your mortgage holder or bank trusts you to pay the loan if you live, but wants life insurance on your life to pay the mortgage off if you die. There is a clear cut end point, a definite period of time the coverage is needed, a definable "term" of liability. In broad parlance, the need can be defined as "temporary" and term life insurance is completely appropriate for this "temporary" need.
A Range of Quality — What Do I Look For in Term Insurance?
Like nearly everything in life, there is a "range of quality" in term life insurance. Ratings and long term stability of the carrier, whether the carrier will allow ownership or joint ownership by a cryonics organization, rates, and quality of administration are among the metrics to consider. Availability and costs of riders, such as a disability waiver of premium, which waives the premium upon disability of the payer, may be a desirable option as well. Most, but not all, term policies can be "renewed" at the end of the term period. Most, but not all, term policies can provide guaranteed upgradability to a permanent or levelized premium policy with no evidence of insurability.
Is Term Insurance Appropriate for Cryonics Funding?
While not ideal for the reasons outlined above, term life insurance may be used to fund the cost of life insurance for cryonics. Depending on life situations, term insurance may be the only way an individual with cost concerns can afford to become a fully funded cryonaut. And, it often makes sense to ADD a large term policy in addition to a permanent policy to guarantee a cryonicist the ability to have more coverage when needed.
As an example, John is a 28 year old PhD student living on a $20,000 annual stipend. He wants to sign up for cryonics, but cannot afford the premium investment for a $300,000 Universal Life policy. So he buys a $300,000 term policy, and qualifies as a Preferred Nonsmoker. In addition to providing $300,000 of coverage, this term policy also guarantees that John can buy $300,000 of permanent coverage at the same Preferred Nonsmoker health category, no matter what happens to his health, anytime over the next ten years. This is called "guaranteed upgradeability" and is an important thing to ask about when shopping for term insurance.
Can I Pay a Net of Zero for My Life Insurance?
There are even new term policies which enable you to get every penny you put in the policy back after a period of twenty or thirty years, called "cashback term." These programs are becomingly wildly popular because they fill a space between traditional term and some type of cash value building policy. Obviously, the premium on these term policies is higher than conventional term policies which give you nothing back unless you die. The increased cost ranges from 50% to 100% above the cost of straight term. However, the actual number crunching reveals that the distinction in cost amounts to a guaranteed, tax free, risk free return of six to seven percent. Since this is substantially higher than equivalent risk free, or extremely low risk, investments available elsewhere, it makes sense for many analytical individuals to consider this remarkable new innovation.
Additionally, cashback term, like universal life, will pay itself for a period of time once the policy has been in force long enough to accumulate some internal cash value. This makes the policy much more "robust" in real world environments where even responsible people occasionally may miss a policy premium.
There is also the psychological factor. Many people would rather pay in $30,000 over twenty years and get the full $30,000 returned, than pay in $20,000 over twenty years, get nothing back, and be penalized for living by paying the much higher term renewal rate. This makes sense especially for cryonicists, who tend to be life extension enthusiasts who expect to live an extraordinary length of time.
Situations and circumstances differ among individuals, which is why there is no "one size fits all" generic best policy, or even type of policy. Beware of populist and non-nuanced articles or purveyors of advice who confidently prescribe any single type policy or program to everyone.
The Dirty Secret of Term Life Insurance — And How Insurance Companies Make Money on It
While most Alcor members know that the rates for the same amount of insurance coverage will increase at the end of the term, they are shocked, dismayed, repulsed, and downright annoyed when they find the actual extent of this premium increase. The rate does not just double, quadruple, or quintuple. No, you are getting older, and the insurance company wants to shake you off the policy before you do something rude like die during their coverage period. This increase is further compounded by the fact that the insurance company knows that folks who renew their insurance premium without evidence of insurability probably can't get coverage elsewhere, so they really jack up the rates upon renewal to reflect this reality.
As a consequence, according to the industry organization called the "Life Insurance Marketing Research Association" (LIMRA), some 97% of term policies do not result in a death benefit. This leaves a shockingly low 3% of term policies paying claims — not because the company reneges on the death benefit, but because the term policy has been dropped before there was a death claim!
It turns out the mathematics and variables actuaries use to determine rates are not just mortality at given ages, reserve requirements, reinsurance costs, time value of money, and costs of administration and policy acquisition. The so called "lapse ratio" is a major driver of premium cost. Basically, insurance companies don't want you to drop your policy in the early few years. The actual costs of underwriting, medical tests, medical review, field force compensation, and administration can represent up to five years of annual premium. So, naturally, brokers are encouraged to write "persistent" business that documentably stays on the books. However, the insurance company would also like it if you would be polite enough to drop their policy before you actually generate a claim. This is the basis of the astoundingly high renewal premium costs for term life insurance in the later years.
Is Cheap Term Better?
Ironically, the "cheap" term rates hyped on internet spreadsheets can wind up the most costly of all insurance. In addition to risk of non-renewability, disingenuous pricing due to health ratings, and being non-cryonics friendly, many initially cheap policies have even higher renewal rates. And the worst decision of all, of course, is a policy which escalates in premium in the later years, forcing the client to drop it before a claim occurs and is actually needed. The best life insurance for anyone to have is the one that is in force when you "die." The problem, of course, is that we do not know when that day is. And you WANT that day to be a long way off, in the later years when renewal term premiums can rise to costs in the hundreds of thousands of dollars.
The other broad type of life insurance goes under the name of "Permanent" coverage. Not surprisingly, this is coverage that is designed with "levelized" premium. While obviously more costly in the early years than term life insurance, this premium is engineered to stay level and to never increase. Most of the Universal Life policies utilized for funding human cryopreservation issued since the year 2000 have a "guarantee rider" which GUARANTEES the premium to never increase, even if the client lives to age 120. In actual fact, the premium often stops at age 99 or even before, with the death benefit staying in place even with no further premiums paid.
One can pay higher premiums and accumulate enough money in the "cash value" of the policy that the policy enters a blessed state called "Paid Up" insurance. Especially in recent decades, wealthy people have repositioned money to life insurance due to the safe, creditor protected, tax free growth available in permanent policies. A "Single Premium" policy is the logical extension and exemplar of this, in which an individual pays enough into his policy to never have to pay again. And the death benefit remains in force for as long as need be, even if that is age 118 or older.
Single Premium Policy, Modified Endowment Contracts, and Taxability of Life Insurance
A "Single Premium" policy can be thought of as the ultimate permanent policy. Because not everyone is able to reposition a lump sum sufficient to generate a single premium policy, there is also an option to pay the policy up over a seven year period. This so-called "Seven Pay Premium" also fulfills the requirements of the tax laws which determine the taxability of life insurance. In fact, life insurance has some tremendous tax advantages because the cash value of a life insurance contract grows with no taxes paid on the growth. Additionally, if you "borrow" the money out of your policy, (i.e., make a loan against the internal cash value) there are no taxes paid when you take the money out. So we have both tax-free growth and taxfree withdrawal of the cash values inside a permanent policy.
This benefit is so significant that prior to some tax reform acts in the 1980s, the Internal Revenue Service (IRS) claimed that life insurance was an "abusive tax shelter." The IRS promulgated several sets of guidelines to remedy this perceived tax shelter abuse. These guidelines specify when a policy is taxed as life insurance and when it is taxed as an annuity.
Universal Life Insurance Basics
Universal Life is a permanent policy which provides lower costs and more flexibility than Whole Life Insurance.
Universal Life is a more flexible form of permanent insurance than the old fashioned "whole life" policies which were the industry standard from about 1900 to 1980. Regretfully, many of the early Universal Life policies sold in the 1980s were predicated on the then-extant interest rates ranging as high as 14%. When the prevailing interest rates plummeted in the 1990s, these policies, whose internal interest rates were tied to interest rate monitors like the LIBOR, imploded and caused great havoc among consumers and regulators.
The Universal Life policies available today are a function of a remarkable product evolution process, which have generated verifiably more consumer-oriented and secure programs. For instance, the aforementioned "guarantee rider" is a component of many policies which memorializes in writing that the policy will be maintained in force at a given premium with the death benefit guaranteed. And this guarantee is under not just ideal conditions of high prevailing interest rates or favorable mortality costs — but even in the worst case scenario of ultra low credited interest rates combined with maximum internal cost of insurance due to such contingencies as world wars or pandemics.
You have perhaps seen an illustration for a life insurance policy. Rather than a simple rate card, as the old way policies were sold, nearly all policies today are a bit more complicated. In fact, they are complicated enough to require a multi-page illustration to explain them. These illustrations are about 16 pages on the short side — and some run to 90 pages! This is just the illustration, remember. There is also an application which also ranges from 15 to 45 pages in length.
Fortunately, newer illustrations are actually better than older illustrations. As a function of consumer and regulatory pressure, and more importantly the evolutionary, iterative processes of an extremely competitive free market, newer policies are not just better, they are easier to understand. By law, they have less industry jargon, every term of art is explained, and they are actually pretty fun to study.
Bucket of Money Analogy
A Universal Life policy has three basic components. We can think of the simple analogy of putting money into a bucket. Each month we throw our premium into the cash bucket, representing the cash value of the policy. That is, the Universal Life policy has a bucket for accumulating money, which grows in our name for our policy.
However, there is a small bit of money dipped out of this bucket. Some companies charge a premium charge before the money hits the bucket, sometimes called, not surprisingly, the "premium expense charge." And there is another cost — the actual internal cost of the life insurance, which is dipped out of the bucket. The internal cost of insurance, called "COI," is usually pretty small in the early years. And there are actually two separate schedules. One is the rate schedule of COI that the company charges now, expects to charge in the future, and, for all practical purposes, is the actual internal COI rate schedule.
It is certainly possible that over the period of time a permanent policy is to be in force, the following could occur: We could experience catastrophic social upheaval, major world conflicts, pandemics, or other perturbations.. These are what some would call "black swan" events which is risk managers' shorthand for the "unexpected unexpected." Should situations like this warrant it, nearly all modern insurance companies have a fallback "worst case" schedule of internal cost of insurance that they COULD utilize.
So we have the three variables: (1) the amount of premium we put in; (2) the rate of return of the money as it accumulates in the bucket; and (3) the internal cost of insurance — in essence — the internal "wholesale" risk cost of you dying in any given year.
Now that we have these three variables, we can program the computer to produce a year-by-year analysis of what the policy will do!
But what assumptions do we use? What interest rate for the money in the bucket? Which internal cost of insurance table?
As a practical matter, the company software will show two illustrations. The first, usually located in a table of columns on the right side of the page, is what the policy would do for you at the actual interest rate of cash value the company is offering today, as well as the current, actual internal COI.
Also illustrated, in three or so columns on the left side of the page, is what happens if the company were only crediting their contractually guaranteed minimum interest rate, each and every year. Additionally, a second, "worst case," scenario is predicated here — these "guaranteed" columns also assume that the insurance company had to do something else. Go to their internal "maximum charge schedule." Something that (to my extensive knowledge of the industry) has never actually happened.
These "guaranteed" columns assume both the lowest interest rate credited each year that the insurance company guarantees — and also that the MAXIMUM internal cost of insurance (COI)! is charged. The reason insurance companies do not actually USE their higher internal COI rates is because all their healthy consumers would promptly jump ship and get their coverage elsewhere. Technically called "adverse selection," insurance companies obviously go to great lengths to avoid such an egregious condition.
Comparing Universal Life Illustrations
We should acknowledge a harsh and ugly fact about Univeral Life illustrations. They are almost certainly wrong starting the second year of the policy, because we don't KNOW what the future interest rates will be. And modern policies, unlike old fashioned "whole life" policies, have a "variable" interest rate structure sensitive to prevailing interest rates. Is this a bad thing?
No, this is actually good — as in good for you and me — as consumers who want our policies to reflect the best possible interest rates credited to our cash value in our policies. But this rate credited to our cash value growth must enable the company to pay for their costs of doing business, provide adequate reserves to meet regulatory requirements, and remain in business long enough to pay your claim on that day, decades away, when you need them to do so.
What Is Variable Universal Life Insurance and Index Universal Life Insurance?
Insurance companies have developed innovations enabling the crediting of cash growth not just to reflect current, environmental fixed interest rates, but also to have some exposure to the stock market or equities. Variable life, or variable universal life, enables the client to select a portfolio of mutual funds which drive the growth of the cash value. This may seem like a good idea given the long term rates of equities historically being higher than fixed or guaranteed returns. While Variable Universal Life (VUL) policies may have a place, they are generally not acceptable for cryonics funding.
The reason for this is straightforward. The stocks and mutual funds making up the equity portion of the policy can fluctuate wildly in value over time. This, in turn, means that the internal cost of insurance is withdrawn from the fluctuating values with the inverse of "dollar cost averaging." Your internal policy costs are withdrawn from your cash accumulations, meaning that more stock is liquidated when the relative share price is lower. The result of this, as the millions of people who bought VUL policies during the market upswing of the 1990s (and kept the policy through the volatility of the 2000s) found out to their chagrin, is a policy implosion. Unless more money is put into the policy, the policy death benefit goes away. The policy has both zero cash value and zero death benefit!
Not the ideal policy for the kind of secure, worry-free cryonics funding most people want and that cryonics organizations prefer.
Index Universal Life
Index Universal Life is an attempt to provide some higher growth rates to the cash value of a policy, while still providing a "floor" of 0% or perhaps 1% even if the stock market, as measured by a stock market index like the S&P 500, takes a dive and goes negative. The cash value is actually not invested in the market. Instead, the insurance company uses an index as a determiner of growth credited to your policy, if and only if the change in the year is positive. Since there is a "floor" on the downside of the market in declining years, there obviously must be some equivalent tradeoff of growth in the years the market goes up. This is accomplished by having a maximum, or "cap," that is credited, or crediting only a percentage of the actual growth of the index, or other various ways of enabling the insurance company to give you most of the upside without any of the downside of market fluctuations.
Bonus Interest Credits on Policies
It should be noted that some insurance companies may have a competitive current interest now — and also offer additional incentives as the policy ages — such as an extra percentage point of interest after being in the policy for ten years. This strategy of enhancing cash value is distinct from the exposure to index returns, and often competitive with Index Universal Life while being somewhat more straightforward. This "reward the persistent client" structure within the Universal Life program both encourages persistency as well as making the illustrations look better. Recall that illustrations with fixed, as opposed to stock market sensitive, rates are run showing the current interest rate, even on the non-guaranteed side of the illustration. And prevailing interest rates currently remain counterintuively low. Bank CDs are in the 1-3% range, savings and money market funds at 1/2 to 3%, and the Federal overnight rate close to 0%.
What this means as a practical matter is that a Universal Life policy currently illustrating a 4.5% interest rate could actually be a better transaction over time than a Variable UL or Index UL being illustrated at a higher interest rate. Long term integrity, a track record of doing the right thing for existing clients, and contractual guarantees are all variables one should consider when comparing policies.
The Report Card: Universal Life Gets an "A" — and a "B" — and a "C"
Most Universal Life policies incorporate the cash value of the policy into the face amount of the death benefit. In other words, the death benefit of the policy stays level while there is some growing cash value inside the policy. This means, for instance, if you have a $300,000 face amount policy, your beneficiaries get $300,000 if you "die." But what if you have $23,000 in the cash value? Your beneficiary is still going to get $300,000.
Is the insurance company ripping you off? Paying the claim, but stealing your portion of cash instead of paying it to your beneficiaries? Actually, not really. The cash value is required to keep the premium and the face level at a given premium level. However — it IS possible to have a UL policy in which the cash value goes in ADDITION to the face of the policy. By selecting what is called "option B," your cash value, adds to the face amount and death benefit of the policy as it grows. But, it turns out, there are tradeoffs. And, depending on your circumstance, these tradeoffs may be significant.
Think about this. The insurance company has an INCREASING total liability. Along with an INCREASING risk of you dying each year. So the premiums charged to generate an "option B" universal life program are higher. By how much? Depends on age and other factors, of course — but here is an actual, real world example for your edification.
Example of Universal Life with Option B — Actual Costs
Recently, a very smart, very analytical engineer called for some quote options for cryopreservation funding. In fact, he did risk analytics and was responsible for purchasing, of all things, insurance on rocket launches and their payloads. The premiums on these policies are in the hundreds of thousands of dollars, so this guy understands that legitimate risk offloading comes with equivalent pricing.
He is also deeply aware of increasing costs for specialty technology, and was concerned, as we all should be, about how future cryopreservation costs would be impacted by inflation and new technologies.
In his forties, the "option A" universal life he was looking at for $300,000 would cost about $207 a month. And this includes the "guarantee rider" enabling a death benefit of $300,000 irrespective of future interest rates or societal conditions.
If he elected the "option B" choice, his premium is around $400 a month. However, it does accumulate a higher cash value. And this cash value does indeed go to increase the death benefit of the policy, enabling it to have an INCREASING death benefit mathematically designed to increase at rates commensurate with inflation rates!
There is, it must be noted, one additional tradeoff one normally makes with "option B." Unless overfunded quite heavily, the "guaranteed to age 120" component is not there. This means that, should both those "worst case" scenarios occur every year and funding is not adjusted, the policy could go away before age 120. On those left handed three columns, we can wind up seeing some "zeros" in the later years. While sometimes hard to explain to clients, in the real world these zeros would not occur, because the funding can be adjusted to make sure the policy remains in force.
Option C in Universal Life
Option "C" simply allows one to have an increasing death benefit with the cash value going in addition to the face of the policy for a period of time, and leveling the total death benefit off starting at some selected age. For instance, in the example above, the premium would still be a bit lower than Option B, perhaps $350 a month. And the face amount would rise each year to a maximum of $500,000 and stay at that level till a claim occurred.
Are These "Inflation Adjusted Policies" Good for Me?
Like other basic "what's the bottom line" questions in life, the answer is "it depends." At your age, health, and financial picture, an "Option B" Universal Life could be a PERFECT choice. Or it could be an unaffordable program which is not optimal at all in your situation, where a high face upgradeable term would be better. You need to have some illustrations run and talk over them with a knowledgeable planner or broker to see what makes the most sense for you.
What If I Am Uninsurable?
You may not be. Modern underwriting can generally cover people with controlled diabetes, blood pressure, or even a history of cancer or heart problems. Alternately, annuity funding does not require any underwriting, but the actual cost of cryopreservation is required.
An Example, with Actual Costs, of Good Cryonics Planning
A 35 year old software engineer elects to buy a $500,000 universal life policy and qualifies as a preferred nonsmoker. He pays $230 a month, but this premium will never go up. He also adds an upgradeable 20 year cashback term policy for $250,000 for another $60 a month. He makes his wife the beneficiary of the coverage not currently needed for his cryonics. He plans to "upgrade" part of his term policy to a levelized premium Universal Life policy every 5 years as he can afford to do so. Even though he technically only needs $200,000 for his current Alcor full body cryopreservation, he is planning ahead. At the same time he is showing his love for his family by having sufficient life insurance to replace his income.
Cryonics planning and funding, like other components of life, is more of an ongoing process and attitude of enhancement over time as opposed to a single one time event. No one ever claimed that having a realistic, technically advanced, medically credible, financially secure opportunity to overcome permanent physical death would be easy, cheap, or simple. To have a chance at a vastly extended life, in addition to large amounts of luck, each of us must commit to periodically reviewing and upgrading our cryonics funding arrangements.
Rudi Hoffman is an insurance agent and Alcor member.