The Jacobs Company
Life Insurance Definitions

Guaranteed vs. Current Term Premium

A simplified Yearly Renewable Term (YRT) illustration for a 36 year old male non-smoker, buying $250,000 of term life insurance might look like this:

Year Current Guaranteed Current Re-entry

Year	Current	Re-Entry	Guaranteed
1.	$225.00	$225.00	$225.00
2.	$260.00	$260.00	$260.00
3.	$295.00	$295.00	$295.00
4.	$330.00	$330.00	$330.00
5.	$357.50	$357.50	$357.00
6.	$390.00	$390.00	$390.00
7.	$422.50	$422.50	$422.50
8.	$462.50	$462.50	$462.50
9.	$497.50	$497.50	$497.50
10.	$547.50	$547.50	$547.50
11.	$637.50	$1865.00	$277.50
12.	$740.00	$2010.00	$392.50

The hypothetical illustration above was run to illustrate two crucial points. First, notice that the current premium (which is based on current mortality) and the guaranteed premium are the same for the first two years. After that, the guaranteed premium is considerably higher than the current premium. In most YRT plans the insurance company reserves the right to charge up to the guaranteed premiums. However, guaranteed costs would generally be realized only if insurance company mortality experience worsened substantially (i.e., a plague hit the US). Some companies guarantee the current premium for only one year; others may guarantee the current premium for several years. Obviously, the longer the current rates are guaranteed, the better for the consumer. Since life insurance companies have stayed historically very close to their current premiums, guaranteed premiums
are not a major factor in comparing YRT plans.

More Definitions

Guaranteed vs. Current Term Premium
Re-entry Premiums
Preferred Underwriting
Universal Life and Universal Variable Life (more detail)
Retaining Tax Benefits of Life Insurance
Graded Premium Whole Life
Problems with Underfunding a Universal Life Contract
Net Interest/Net Rate of Return

This document was last modified on July 26, 1999