People are often very interested in life insurance company ratings, wanting, of course, to have the highest rated company so that they can be assured that the company will be there in the event that a death occurs.
While part of the company rating speaks to claims paying ability, part also speaks to the company performance. Are they profitable?
I have often gone off on agents who sell and companies that allow agents to sell universal life policies based on non guaranteed assumptions rather than the conservative guaranteed values. Using assumptions is nothing more than a sales ploy that allows an agent to quote a lower price than the competition, even though what they’ve done is sold a policy that is at risk of self destructing through no fault of the person who is insured.
Several factors can affect the non guaranteed values of a policy. Mortality experience is one. If a company experiences a higher than normal mortality cost over the past year, they can change the assumptions in your policy to reflect that experience. If they have a lower interest income than expected they can adjust the assumptions based on that. They can also adjust the assumptions if company performance, as measured by a decline in reserves or profitability, goes down.
Insurance companies invest their cash on hand, and the performance of those investments can have an impact on how they treat assumptions in non guaranteed policies. Having investments in mortgages has been a long accepted part of the portfolios of insurance companies. The hit that the whole world took because of sub prime mortgages didn’t miss insurance companies and those companies that took the hardest hits will probably drop a notch in ratings and, in order to boost profits again and get their ratings back up, they will likely raise the rates on non guaranteed UL’s.
What this means for those that own these policies is that they will have a choice of paying a higher premium, or having the policy lapse well before the age 100 expectation they had.
Remember, if the agent had sold and you had bought based on the guarantees, the sub prime mess wouldn’t impact your policy at all.
Bottom line. Life insurance is about family protection, family futures. People seem to pay more attention to vacation detail than they do to what life insurance agents are presenting them. Make your agent show you the guarantees. Don’t do business with an agent who wants to steer you toward some belief in assumptions.