Life Insurance In 2016, Rates & Trends To Expect
The life insurance industry saw big changes in the later part of 2012, and we can expect to see even bigger changes moving forward today in 2016. Many of the major life carriers increased their premiums in 2012, and some companies even dropped some of their most popular products from their portfolio like the 30-year guarantee level term policy. This was mainly due to the historic low interest rate environment. While low interest rates are great for obtaining a mortgage or auto loan, it makes it difficult for insurance companies to make profit. Before you play the World’s smallest violin for the large, evil insurance companies, let me explain how it will impact the consumers moving forward.
The insurance industry is one of the most regulated industries in the county. Life companies invest the majority, around 70%, of their assets in secure, low risk investments like corporate and government bonds. When these investments yield little profit the companies can no longer guarantee insurance products for extended periods of time, especially 30 years or forever, in the case of a permanent guaranteed universal life policy.
The insurance and whole financial industry is seeing stricter regulations moving forward in 2016. With Dodd-Frank Act and AG 38 “Actuarial Guidance 38,” financial companies, especially life insurance companies, have a bumpy road ahead. AG 38 went into effect on January 1, 2013. The new requirement imposes life insurance companies to carry more reserves for policies that have a death benefit guarantee (referred to as a “secondary guarantee”). These changes will be fully implemented for all new sales, regardless of company, dated on or after January 1, 2013. Many companies including ING (now Voya Financial) have already suspended the no-lapse guarantee universal life product with MANY more expected too. The no-lapse universal guarantee policy is the preferred policy of choice in the U.S. for the affluent looking to protect and preserve their estate from taxes.
The life insurance industry experienced some bumps in 2012 but today it has stabled. As long as interest rates remain low and the government continues to strengthen regulations in the finance sector, these trends will continue in the years ahead. With AG 38 becoming effective January 1, 2013, one of the best estate planning tools, the no-lapse guarantee universal life policy, is on the verge of becoming extinct. In this economic environment when people need these guaranteed polices now more than ever, they are disappearing before our eyes. If you are in the market for the 30-year level guaranteed policy or no-lapse guaranteed universal life policy, I would suggest you secure one soon before they’re gone and we look back and remember the “good old days.”