Permanent Life Insurance At A 20% Discount? Fact Or Fiction?

Everyone wants a deal. My wife never buys anything without throwing out the Dave Ramsey line, “Is that the best you can do?”, and I am amazed at how much and where she gets discounts. Too bad Dave has never asked his own life insurance agent that, but we’ll save Zander Insurance for another day.

With life insurance the premiums are set by law. Agents and companies aren’t allowed to discount the rate to earn business. We can’t do the car salesman thing and say, “What would it take for you to drive away in this life insurance policy today?” But what we can do is reach out and let everyone know when there is a big change coming that will dramatically increase the cost of life insurance and give you the opportunity to act before the price increase. Why do you buy a brand new 2012 car or truck when there are 2013’s on the lot. They are identical except for a large difference in price?

Below are bullets on a rule change just adopted by the National Association of Insurance Commissioners. These don’t reflect my opinion, but a mandated rule change governing reserves held by life insurance companies to back no lapse guarantee UL’s. I’ve been saying for years that one of these days soon they will have to raise the rate in order to maintain the integrity of the product. We’ve watched company after company pull the under priced products from their conversion portfolios and now companies are either announcing that they are pulling the product all together (ING), or giving a time line for rate increases. The NAIC says these changes have to be in place 1/1/2013.

–   On September 12, 2012 the National Association of Insurance Commissioners (NAIC) adopted changes to Actuarial Guideline XXXVIII (AG 38).

–   AG 38 governs reserves for universal life products with secondary guarantees and has been modified multiple times since its initial adoption in 2003.

–   The most recent revisions were a result of product designs that began to emerge in 2010 that reduced reserves below that intended within the spirit of AG 38.

–   As a result the industry, state regulators, the NAIC, and The American Council of Life Insurers (ACLI) trade association have been attempting to develop a new version of AG 38 since mid 2011 while a broader principle based reserve (PBR) framework could be adopted.

–   At a high level, the recently adopted revisions result in a different reserving approach dependent upon when the underlying policies were issued. For business issued since 7/1/2005 but prior to 1/1/2013 companies will have to determine if any additional reserves are required using various PBR techniques. For business issued on or after 1/1/2013, a clarification to the formulaic reserves that must be held has been provided.

–   Insurance companies have been following this development closely and additionally has had extensive conversations with various state regulators regarding not only these developments but also the approach we have taken in product design, as well as the underlying reserve approach we have utilized.

–   While we are confident that the reserves most companies holding were consistent with the intent of AG 38, these modifications will have some impact to secondary guarantee universal life products. Our Term portfolio will not be affected by the changes to AG 38.

–   Like the rest of the industry, we are still evaluating the potential impact.

–   We do expect the industry’s overall price of guaranteed premium universal life to go up and we expect some premium increases on the virtually all company portfolios for policies issued on or after 1/1/2013. We will begin announcing these further rate revisions beginning in early December, 2012. Further updates will be distributed to provide more information around these increases.

–   It is important to note that the revisions to AG 38 impact the reserves that have to be held and have no impact on the underlying benefits or guarantees for policies issued.

I scavenged these bullets from a company announcement that came out today, one of the industry leaders in no lapse guarantee universal life, and made it generic where their name was, but the news is clear. If you have a no lapse guarantee policy in force, especially estate insurance,  while the company may have to come up with more reserves, they can’t get it from you. And if you buy a no lapse guarantee UL now, which by the way kicks all of AARP’s products rear ends as well as all the other final expense companies, you will have the advantage of lower rates and you will be protected from any need the company has to increase the reserves.

These products are too good to be true, but the companies have to honor them. Their prices will never be seen again and if you already have one it’s guaranteed that the company can’t raise your rates. This week alone two of the biggest players in this market have announced rate increases and one has announced the end of their selling the product at all. The size of the increases? We haven’t seen the new rates yet, but 10% to 20% is a reasonable expectation. Can you say fire sale? I would never say buy insurance you don’t need, but if you are considering buying permanent coverage or if you have a universal life whose death is coming and you need to replace it or if you know anyone considering a final expense life insurance policy it’s time to quit jacking around unless you like the idea of paying 20% more than you need to for the rest of your life.

Bottom line. This is incredibly important life insurance news. I know the whole life players are all going to say they told me so, but listen now and save a ton of money. If you buy after 1/1/13 even at 20% more it beats whole life to death. If you have any questions or would like to see just exactly what a policy would cost, call or email me directly. My name is Ed Hinerman. Let’s talk now, not later.