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The Triple X life insurance regulation: Did it live up to the hype?

If you were shopping for term life insurance late last year, there's no doubt you heard the following salespitch in some form: "Buy now, or you'll pay more later."

The salespitch stemmed from a regulation known as Triple X, which was adopted by more than half of the states in the U.S. on Jan. 1, 2000. The law, was drafted by the National Association of Insurance Commissioners, requires life insurance companies to keep their reserves at certain levels in order to pay claims.

Since term insurance was so cheap for so many years, many state insurance regulators across the nation worried that there wasn't enough money in reserves to pay out death benefits. Before the regulation went into effect, many insurance companies warned customers that they'd have to raise rates, eliminate longer term policies, or cut down on the length of the guaranteed premium rate.

So with the threat of Triple X, came the pressure for consumers to buy term life policies before prices went up. Velvet Beard, group product manager at QuickenInsurance, a Web site that offers insurance quoting, says her site processed a record number of life insurance quoting, says her site processed a record number of life insurance transaction in November and December. "It seems that everybody who thought they should buy term life insurance did so at the end of last year," she says.

Now that we're three months into the new year, was all the rush justified?

Some companies buckled, others held steady

If you bought term insurance at the end of last year, you probably did the right thing. Some life insurance companies did indeed raise rates and shorten premium guarantee periods, while other have opted to keep rates steady and take a "wait and see" attitude.

Why did some companies and not others have to raise rates? A company did not have to raise rates if its reserves were already at an adequate level under Triple X. Some states, such as New York, already required insurers to hold reserves at very conservative levels, says Cynthia Crosson, senior financial analyst at A.M. Best.

Laura Bazer, vice president and senior credit officer at Moody's Investors Service, says the companies that increased their rates are likely the ones that offered the lowest rates before Triple X went into effect and that probably weren't maintaining adequate reserves. "These companies could no longer support the low, low pricing," she says. "It just wasn't sustainable."

"These companies could no longer support the low, low pricing. It just wasn't sustainable."

The popularity of term insurance is another factor that prompted some companies to raise rates. Tim Traynor, senior vice president of the North American Co. for Life and Health Insurance in Chicago, says that term insurance comprises between 75 and 80 percent of his company's policies in force. Since the company relied so heavily on term insurance premiums for profits, it had to raise rates and offer limited premium guarantees in order to meet the new reserve requirements.

On the other hand, Murray Payne, a spokesperson for State Farm Life Insurance Co., says that less than 20 percent of his company's premium dollars come from term insurance, and thus much of its financial strength comes from the sale of other products. Since State Farm Life sells a substantial amount of permanent insurance, it did not raise term rates. "State Farm's financial strength allows us to take a longer look at this thing, " Payne says.

Beard, of Quicken Insurance, says the insurers that boosted their rates are already feeling a competitive pinch from those who did not. Four of out of 12 life insurance companies that offer quotes on her site raised term rates after Jan. 1. Some have already told her that they are now thinking about lowering them again. "They're trying to find a way to re-price the products in order to be more competitive with the companies who didn't lower their rates," she says.

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