There was a huge change that took place in the life insurance industry recently. This is driven by a new rule for calculating insurance costs that went into effect January 2009. Truth be told the change has been a lot more gradual than that though. What has been happening is that life insurance costs have been decreasing dramatically since about 2000. The Insurance Information Institute says that term life insurance premiums are now 50 percent lower than they were a decade ago. The internal cost of insurance of cash value life insurance polices, such as Whole Life, Universal Life and Variable Universal Life, have also dropped causing a noticeable reduction in premium rates for these policies.
The average consumer isn’t even aware of this. The life insurance companies aren’t coming out and saying “it’s cheaper to get a new policy today even if you’ve had your current policy for 4, 5, 6 years”. They don’t mind collecting the higher premiums. It then becomes up to the life insurance agents to communicate this to the consumers. Did your agent tell you? Have you heard from him/her? With such a high turnover rate in the industry as well as a pretty uniform misunderstanding of life insurance there has been a huge disconnect between the insurance companies and the consumers. Again, the life insurance companies don’t mind. They are the ones that are profiting off of you, the consumer, paying more than you need to for your life insurance.
The biggest driving force behind cheaper life insurance is simple; people are living longer. With all the advancements in technology and medicine people have been experiencing longer lifespans, thus longer life expectancy. The costs of life insurance are based on the probability of you passing away. With longer lifespans, those probabilities are decreasing greatly. Since life insurance is such a competitive industry, the insurance companies are passing this savings onto the consumer. What they aren’t complaining about is the old policies that many consumers continue to keep in place and continue to pay. These are the real money makers for the life insurance companies.
What Happened In January 2009?
The mortality tables have changed. Effective January 2009, all life insurance companies must use the Commissioners 2001 Standard Ordinary Mortality (CSO) table to calculate insurance rates on new policies. This is an update to the the Commissioners 1980 Standard Ordinary Mortality (CSO) table that was previously used. Under the new 2001 CSO, the average 65-year-old male is expected to live to age 81, up from 78 under the previous table. Meanwhile, a 65-year-old female is expected to live to age 85 today, compared with 81 under the old table. A lot can happen in 21 years and a lot has changed.
As I said earlier this has been a gradual change. In fact, life insurance companies started incorporating the 2001 CSO years before they were required to. However, as more and more life insurance companies started to transition to these new insurance rates it caused competition in the industry to heat up. This further drove down the price of life insurance.
There Must Be A Downside…
With every positive there must be negative right? Well maybe not always but in this case there is. The biggest downside to this is seen in cash value life insurance. The IRS has rules and restrictions about how much money can go into permanent life insurance policies. With the costs of insurance within these policies decreasing so isn’t the overall amount of money that can be in the policy. This makes the design and funding of permanent and cash value life insurance policies all that much more critical. The typical life insurance agent doesn’t fully understand these concepts properly and could end up doing one of two things: leaving you paying more costs and fees than necessary or leaving you with a tax nightmare that you weren’t prepared for.
It is easier than ever to save money on your term life insurance policies, get your insurance assessment today. With cash value life insurance policies it has become even more important to work with a qualified professional that truly understands the inner workings of the type of policy that you have and the funding that is available, to make sure you are putting yourself and your life insurance policy in the best situation, contact me.