What you Don’t Know Can Hurt You
Many people don’t realize that the terms of a life insurance policy may be subject to change. Unbeknownst to them, some of the key elements of the policy may shift, making the policy barely recognizable, and in some cases, no longer beneficial.
According to a recent survey, 60% of policy holders think that their policy terms are ‘set in stone’ or ‘guaranteed forever’. In the same survey, it was noted that 70% of the trust-owned life insurance policies managed by non-professionals (i.e. family and friends) had not been reviewed in over 6 years! If changes were made to their policies, they would have had no idea.
Sure, there are elements to a policy that are guaranteed, but there is often some wiggle room for insurance companies to adjust a few things at their discretion. For whole life policies (with guaranteed premiums and cash value), the company can reduce or eliminate dividends on participating policies. For universal life policies (with flexible premiums and death benefit amounts), the company can reduce the interest rate credited to the account (up to the minimum guaranteed rate), and fees may be increased (up to the maximum agreed charges). When profit margins are low, they may look for ways to cut costs.
The Light at the End of the Tunnel
For nearly ten years, low interest rates have translated to hard times for insurance companies. This year, the Fed is finally beginning to increase rates based on what looks like signs of a healthier economy. In March, they raised rates, and announced plans to further increase rates two more times in 2018.
When interest rates were at their lowest with no signs of letting up, some insurance companies made changes that affected certain policies. At least 5 major insurance carriers announced increases in charges to customers. Proformex* cited an example where the lapse age would have been reduced by 8 years, and the annual insurance premium would have increased by over $20,000 as a result of the increase in charges to a person’s policy!
If it Affects your Carrier, it Affects You
Here are just two of the factors that can prompt an insurance carrier to exercise its rights to make changes to your policy:
Interest rates
- Why it’s a factor: Interest rates have a direct impact on the profit margin for an insurance company. When rates go up, they can invest their money at a higher rate than they offer to their customers. It’s music to the ears of any insurance company when the Fed raises rates. Since rates have been so low for so long, however, it may take insurance companies a little while to recover.
- How it impacts your policy: If rates continue to go up, insurance companies may be able to reduce premiums or increase policy cash value. Be on the lookout for better coverage at better prices that may become available when profit margins allow insurance companies to have a little more breathing room.
Higher than expected mortality rates
- Why it’s a factor: Insurance companies calculate the expected payout of benefits for any given time period. If payouts are higher than expected, the profit margin of the insurance company takes a hit.
- How it impacts your policy: Insurance companies could choose to increase charges or reduce rates (as it applies to a policy) to cover its increased costs. Pay attention to notifications and terms on your policy, and determine how your premiums, lapse age, cash value and/or death benefit may be affected. You can switch to another carrier or make changes to your terms to best fit your circumstances.
Jack be Nimble
It will never be possible to predict how insurance companies will be affected by external factors, and whether it will impact your policy. But the sooner you respond, the easier it will be to recover from any changes.
In this age of rapidly advancing technology, there are several cutting edge tools that monitor shifts in insurance policy terms proactively. If you take advantage of the resources available to you, when your policy changes you can change with it.
If you are looking for an automated solution to help you better manage your insurance policies, feel free to reach out to Axia Global. Our team can help you and/or your affluent clients find resources that will suit your needs. It is our goal to make a measurable difference in your financial life.
*Proformex is a proprietary software that manages life insurance policies.
Note: The statements above should not be considered financial, legal or tax advice, but ideas for careful consideration with your trusted financial advisors and lawyers. For current tax or legal advice, please consult with an accountant or an attorney.
—————-
About Axia Global
J. Michael Roney, Founder of Axia Global, has worked alongside the best financial and legal professionals in the field to craft profitable solutions for even the most complex wealth preservation and estate planning cases. Together, the team at Axia Global has nearly a century of combined experience in the financial services sector.
