For certain persons and groups, life insurance is made available in different ways.
CPA’s are one of those groups.
Many times, an offering of insurance through member organizations make sense, but not always. With life insurance, you may actually have much more variety, a chance at lower premiums, and even more flexibility in policy options by using a private provider.
Our AICPA Life Insurance Program Review: Yes or No?
For those who are unsure what the AICPA life insurance offering is, let’s break that down first. It’s important to understand it clearly so we can make proper comparisons to other possible life insurance plans.
Here is the link to the AICPA website, namely their page on life insurance. In the middle of the page, you’ll see three different options, so we’ll discuss all of them below. All plans are provided exclusively through Prudential, who ranks #7 on our list of best life insurance companies in 2017.
CPA Life & Spouse Life
The first option is the CPA Life and Spouse Life term life insurance plan. It’s a term to 80 policy, meaning you can’t hold the policy beyond 80 years of age, and the premiums you’ll pay depend on what age bracket you’re in. As you attain each higher age bracket, you’ll pay a new, higher premium.
This means you’ll experience an increase in premiums every 5 years as long as you hold the policy.
You can qualify at Select, Preferred, or Standard rates with as much as $2.5M in death benefit. Your spouse may not be allowed more coverage than you. Max age of eligibility to begin this plan is 74.
The policy has a Cash Refund Opportunity (see below), but does not accumulate cash value within the policy itself. Because the policy is term insurance by design, you pay minimal premiums for an exact death benefit, nothing more.
AICPA’s Level Premium Term & Spouse Level Premium Term
Very similar to the above option, this type of coverage does a few minor differences including the availability for stable premiums. Of course, this will mean a slightly higher premium, as well.
The Level Premium Term (LPT) choice of life insurance is inherently different in structure, because you’re locking your rates in for up to 20 years (there is also a shorter, 10 year option), avoiding the rate hike every 5 years. After this period has ended, you have the option to continue the plan, but your rates increase annually with a maximum age of 95. While this is 15 years longer than the CPA Life option, the annual rate increases will be very, very significant.
Because of the ability to lock in your rates, the maximum issue age (age of eligibility to sign up) is 65 as opposed to 74 with the first choice.
If you’re over 65, you can disregard this option.
All other plan benefits, like available death benefit amount, riders, and Cash Refund Opportunity are the same.
Group Variable Universal Life
Different from the two above, this is not a typical term life insurance where you pay a set premium for a set death benefit; there are more moving parts.
Because it is a universal life insurance policy, there is a cash component within the policy. In all other aspects, the policy acts much like the first term option, with eligibility up to age 74, increases in premium every 5 years, and a maximum death benefit of $2.5M.
This policy can stay with you to age 100, with premiums increasing at each 5 year band.
So, going back to the cash component, how does cash value work within this GVUL?
When you pay your premiums, a percentage goes toward the base policy (including fees, death benefit, riders, etc.) and the remainder goes into a cash accumulation account, which can be anything from a fixed account to mutual funds.
The funds in this account are after-tax dollars, so they’ll accumulate tax free and give you tax free access (by loan). Just remember any withdrawals or surrender could result in taxes and/or penalties.
The Rest of the Marketplace
If you’re unacquainted with all the other policies available to you in the marketplace (seriously, who is?), you won’t know whether the AICPA life insurance plans were good or not.
First, let’s go over the Cash Refund Opportunity, and why it’s important when comparing other companies.
Honestly, it’s a very happy way for them to say they’re having you overpay during the year and giving you the difference later. What they’re doing is pooling everyone’s premiums during the year, paying out what they need, and refunding the remainder.
However, this is inefficient and it will likely end up costing you more in the long run.
In fact, the rest of the market simply offers lower term life insurance rates and skips the refunding because they price accordingly from Day 1.
Here’s an example of a healthy 45 year old male, non-smoker who wants a $500,000 policy:
|10 Year||20 Year|
*In this chart, all four companies have identical death benefit, identical policy duration, annualized premium and assumes best possible rate.
Obviously, there is a drastic difference here in premiums. Even if you were to get a ‘refund’ each year (which it’s not guaranteed by the way), why pay more? Not to mention the ‘refund’ may not even be enough to cover the difference in premiums at all.
Because the AICPA plan segments the crowd by only accepting CPA’s or members of similar organizations, they’re not utilizing the most valuable pricing asset a life insurance carrier has by shrinking the risk pool. This will, inevitably, cost you, the consumer.
There is no reason to pay more for no additional benefit, especially if you receive no type of interest on your so called ‘refund’ each year.
Another Major Downfall Of Life Insurance From The AICPA
Portability is an often forgotten aspect of a life insurance policy from any group type plan. Portability simply means the option to take your policy with you where you go.
The AICPA plan states they allow you to keep your policy as you go, with one exception: you must stay a member.
This presents several issues.
- Pay to Play – there are annual member dues, so simply keeping your membership for insurance benefits is costing you more.
- Cost of Age – assuming you don’t decide to keep paying the member dues and seek cheaper options, you’ll be forced to find a new policy at a new age, meaning higher premiums. Had you been able to keep the policy without any exceptions, you would keep your rates locked in at your younger age.
- Cost of Health – with the same assumption as above, you better hope your health is just as good as it was when you applied with the AICPA, otherwise a change in health will increase your premiums or even be cause for decline.
No matter which route you take, you’re likely going to pay more somewhere down the road. That’s hardly portability.
Final Notes To Consider
Despite already higher premiums and a less than opportune portability clause, the AICPA life insurance has more faults.
- What if you need more than $2.5 million in coverage?
- Why isn’t Disability Waiver of Premium offered on spousal plans?
- For certain health classes, why do you have to resubmit your health credentials every so often?
- Why is Preferred the only health rating requiring a physical?
- Why does coverage decrease at age 75 to half what it was?
These are just a few more of the holes in the plan. Unfortunately, the AICPA life insurance program doesn’t seem to be worth value, despite the organization claiming it appears to be one of the greatest benefits of being a member.