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The end of term life insurance as we know it?

A regulation on the horizon called Triple X may change the face of term life insurance forever. The regulation, under consideration by the National Association of Insurance Commisioners (NAIC), will force insurers to abandon lengthier term policies because it requires them to increase their monetary reserves.

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The NAIC drafted the regualtion about 10 years ago, but recently a growing number of insurance regulators have moved to support it. The regulation ended up being called Triple X because the temporary designation of "XXX" caught on before NAIC's actuaries could give it a permanent numerical code.

The regulation requires insurance companies to maintain a high level of monetary reserves so that they can pay claims. The NAIC hopes this will lead to increased stability and solvency. The commission thought that companies were pricing their term life products too low to be able to pay out on policies down the road.

Triple X a double-edged sword

Currently, only New York requires insurance companies to meet these standards. Karen Eldred, spokesperson for the New York Department of Insurance, believes the increased financial stability of insurers benefits consumers. "This regulation ensures that companies have the proper amount of reserves to pay off claims and keep companies stable," she says.

Tom Arifman, head of life insurance for Horace Mann, sees two sides to Triple X. "It is definitely a double-edged sword," Arifman told Insure.com. "On one hand, it increases premiums consumers have to pay. Naturally, no one will like that. On the other hand, it does increase the likelihood that companies will be able to live up to their commitments, which may be even more important in the long-term interests of the consumer, even if it is harder from them to see."

If other states begin adopting Triple X laws, term life insurance for periods of 20 or 30 years may become a thing of the past. That's because the Triple X regulation mandates that insurance companies cannot guarantee premiums beyond five years, like they can now. Because companies need to have more money in reserve for lengthier policies, they would need to substantially increase the premiums they charge on a 30-year term policy in order to keep their coffers full.

Horace Mann, which insures educators, anticipates a similar regulation being passed in Illinois, its home state. "We tried to bring our pricing in line with the regulation as it is being debated," says Arifman. "We don't guarantee a premium for 20 years. It's guaranteed for five years, then we may adjust it according to the financial realities of the product."

The status of the regulatioj is in flux right now. The NAIC is reviewing a modified version of Triple X, which would allow companies to offer 10-year term policies. If the group approves the new version, states could put it into effect in 2000.

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