Page 2: The Triple X life insurance regulation: Did it live up to the hype?
What you'll find when shopping
For life insurance policies with longer terms (such as 20 to 30 years), some companies have either raised rates or started offering partially guaranteed term policies, which shorten the term for which your rate is guaranteed. For example, if you own a 20-year term policy, your premium may only be guaranteed for the first 10 years. After the tenth year, the insurance company has the right to raise your rate. Shorter term insurance policies (such as 10 years) are unaffected by Triple X.
|See if your state has adopted Triple X.|
If you take the 10-year guarantee, your premium will be cheaper for the first 10 years than if you had taken the full 20-year guarantee. Basically, you're taking a risk: Do you want to pay a little extra to guarantee that your premiums will be locked in for the next 20 or 30 years? Or do you want a cheaper rate for the first 10 years and take the chance that your company won't raise rates after that?
Traynor, of The North American Co. for Life and Health Insurance, says that for a 30-year-old male, a 20-year, $250,000 term policy could cost $213 each year. However, if the premium is guaranteed for the first 10 years only, the same policy will cost $180, or 18 percent less. The gap between these rates grow as you grow older. A 20-year, $250,000 term policy could cost a 50-year-old man $750 if the price was guaranteed for the full 20 years. If it was guaranteed only for the first 10 years, it could cost $555, a 35 percent difference. The main reason is that mortality expense goes up as a person grows older. So to guarantee the rate for 20 years, the company has to charge the insured more.
|"The reputable companies who operate in the competitive term market are going to cut off their left arm before they raise rates on those policies."|
And in some cases, the premium for a shorter term guarantee is actually cheaper than pre-Triple X premiums. At Jackson National Life Insurance Co. of Lansing, Mich., a healthy 30-year-old male could pay $202.50 for a 10-year guarantee on a 20-year term product. If he bought the policy before Triple X, the same policy would have cost him $12 more annually, according to William Gray, senior vice president of product development for Jackson National.
Triple X has prompted some companies to create products that help ease the burden of paying more for term insurance. North American created a 30-year term policy with a level premium, but your death benefit decreases by 3 to 4 percent each year after the fifteenth year. Traynor says the idea came out of focus groups from people who needed insurance for a short-term debt, such as a mortgage or college education, that will be paid off in the foreseeable future. "A lot of consumers said 'I need a lot of insurance right now, but I don't need a lot forever,'" he says.
Keep in mind that insurers will emphasize that your rates may go up if they're not guaranteed, not will go up. Your rates will be raised if your insurance company is having trouble meeting its future reserve requirements, or if the mortality expense turns out to be more than anticipated.
If you're unhappy with your rate, you can either keep your insurance in force and pay the increased premiums, or lapse your policy and get insurance somewhere else. Some insurers will also let you convert from term to whole life insurance without a medical exam, though that varies by company and what your contract says. Some insurers will only let you convert from term to whole in the first three to five years of your policy, others will let you convert after 10 years. Some companies will also charge you more in premium if you want the option to convert later. The longer you want the option for in your policy, the more you'll pay.
Christopher Nickele, vice president of the actuarial department at Zurich Kemper Life Insurance Co., which also raised its rates and shortened premium guarantees on term policies, says many insurers won't raise rates on partially guaranteed term policies for fear that customers will leave them for better prices elsewhere. "The reputable companies who operate in the competitive term market are going to cut off their left arm before they raise rates on those policies," he says. "If I'm a company, the first time I yank the rug out from somebody is going to damage my reputation in the marketplace."
On the other hand, Crosson, of A.M. Best, says that unless there are some groundbreaking developments in calculating life expectancies or mortality rates, she would expect that life insurance companies would eventually raise rates on partially guaranteed term policies. "Whether or not they raise rates is going to be playing out for some time," she says. "Unless something dramatically changes, I would expect them to raise rates."