Warning: Cost of Insurance Increases

According to The National Association of Insurance Commissioner (NAIC) reports, 60+% of people who own life insurance do not really know what they have or how it works. My suggestion is to be curious, ask questions, and ultimately you will be the hero for “ringing the alarm!”

 

The low interest rate environment keeps a knocking……..

#1: AXA, the French insurer with a major presence in the US via the acquisition many years ago of The Equitable, is the latest in the ever growing list of life insurance companies to announce an increase to costs of insurance rates. This increase will affect certain Athena Universal Life II (AUL II) policies starting in January 2016. AXA announced this increase due to mortality and investment income expectations that were less favorable than anticipated when the COI (cost of insurance) rates were established. AXA has said that the increase will be significant and most pronounced to those above the issue age of 70 with a face amount of $1 million or more. AXA AUL II policies issued to those under age 70 or with a face amount less than $1 million are not affected by this adjustment. Inforce illustrations requested after September 28th, 2015 will reflect the changes in COI’s.

#2: VOYA (changed their name from ING) announced an increase to costs affecting the policies of nine universal life products sold in late 1990s early 2000s. This increase will range from 9% to 42% depending on the product. VOYA announced this increase due to a reinsurance rate hike and low crediting rates and deferred this increase to the customer. For the guaranteed premium products only the current charges will be affected, for the other products the increase will be seen as a percent of asset based charges, a percent of premium charges, or an increase in cost of insurance depending on the product.

When insurance companies price their products they are making future assumptions about many factors; i.e., interest rates, infrastructure costs, profit margins, lapses, mortality of the particular product line, aggressiveness in how they want to acquire market share, market segment focus…In regards to whole life, it is more conservatively priced and is packed with guarantees so if assumptions change the only “part” that can be adjusted is the dividend. There are no other moving parts so the product line is on more solid ground. Whole life is certainly impacted by the current rate environment but the only thing that can change is the dividend paid.

In general the largest single cost factor is the cost of insurance over the life time of any life product. In Universal Life, Variable Universal Life, Index Universal Life the insurance company reserves the right to increase the COI (cost of insurance). The PROBLEM lies in the fact that consumers have no idea what the “COI increase” notice means when they get it in the mail. I just had a situation where I was talking to a person in my network about recent COI increases made by Transamerica and they chimed in that they just received a notice from US Life that their COI increased and they had no idea what it meant to them and their policy!

 

 


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