The life insurance landscape is changing and will look much different at the end of the year than it does now. The vast majority of life insurance companies will have re-priced their policies by then and I’ll give you a hint as to the direction of premiums: it isn’t lower.
The pervasive low interest rate environment we’ve been in recently has the potential to create serious problems for life insurance companies in the long run if it continues. It won’t cause immediate problems, but life insurers must always take the long view, as policies that mature in death claims have typically been in force, on average, for over 30 years (which is why such a small percentage of term policies pay claims).
The Consolidated Appropriations Act of 2021 (HR133) allows life insurers to lower the minimum guaranteed interest rates used to price policies. It is important to understand that this change only applies to new policies, not to policies that are currently in force.
A life insurance policy is what’s known as a unilateral contract, which is a contract in which promises are made by only one party, in this case, the insurance company. An insurer cannot change an in force individual policy. So no need to be concerned that this change will affect your existing policy; it won’t.
Some insurance companies have already started to re-price their portfolios. Prudential has re-priced its term portfolio and Mass Mutual has re-priced two of its more popular whole life policies, with the entire product line scheduled to be re-priced by the 4th quarter.
That doesn’t mean that life insurance will no longer be attractive. Just as the yields on bonds have decreased, so will the yields on life insurance cash values. But nothing can take the place of life insurance in the arena in which life insurance works.
With that being said, if you or anyone you know (adult child, niece, nephew, employee, friend, neighbor, etc.) is contemplating a purchase of life insurance, you would be doing them a huge favor by letting them know of the impending changes on the horizon.
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