A Matter of Lifestyle.
Term Policies, Long a Bargain, Rise Under New Regulations; Redefining 'Preferred' Status
After years of steadily declining, term life-insurance rates are starting to climb. At least four insurers, including Prudential and Transamerica, have already raised their rates. And AccuQuote.com, a company that provides online life-insurance quotes, expects term rates overall to rise 10% to 20% by the end of the year.
The increases are the result of a little-known insurance regulation called XXX, or "triple X," which requires insurance companies to hold larger claims reserves for their term policies. Until recently, insurers have been able to lessen the impact of the regulation, which was approved by state regulators in 2000, by shifting some of their reserve obligations to foreign insurers.
Now those so-called reinsurers are raising the prices they charge U.S. insurers, who in turn are passing those contracts to consumers. Some have simply raised prices, and others have tightened their underwriting standards. While a 6-foot-tall man weighing 230 pounds could have received a preferred rate a year ago, for example, the cutoff at some companies has dropped to 210 pounds.
Term coverage has long been the least expensive and most straightforward form of life insurance, and rates have declined steadily during the past two decades. Ten years ago, a 40-year-old man in good health would have paid about $1,000 a year for a 20-year policy. Now the best rates are less than $400.
The higher prices are coming at a time when some analysts had expected premiums to continue to fall. During the past year, about half of all state insurance regulators voted to adopt a new set of mortality tables for the first time in 20 years, bringing the promise of lower rates as the nation's longer life expectancies were finally taken into account. But the unrelated change in reserve requirements has meant those anticipated reductions have failed to materialize.
Instead, life-insurance buyers are receiving fresh scrutiny on a range of factors, including their driving records, as insurers look for other ways to boost rates. American General, a unit of American International Group Inc., now won't give its best rates to applicants who have had more than one moving traffic violation during the past three years, insurance brokers say.
"We have tightened our underwriting, which is tantamount to a rate hike," says Doug Israel, senior vice president of product development at American General. "We tightened our height-weight standards, our family-history standards, and driving-record standards." Mr. Israel says that the company hasn't raised rates during recent months, but has adjusted some of its rates both up and down, particularly for policies of more than $1 million.
The upshot for consumers? If you're planning on buying term insurance in the near future, now is the time to make your move. "About half of the companies haven't made their adjustments" to deal with higher reinsurance rates, said Byron Udell, chief executive of AccuQuote.com. By next year, more rates will be higher and underwriting guidelines will be tighter.
Right now, rates vary greatly from insurer to insurer. It's impossible to know how an individual's risk factors - age, health, driving record - will influence an insurer's pricing decision. Insurance brokers say, for example, that some insurers, including Genworth Financial, the financial-services company of General Electric Co. spun off in May, pay more attention to family-history issues than others.
Tight Underwriting Guidelines
A 5-foot-4, 114-pound, 33-year-old woman -who has never smoked and has no family history of heard disease or cancer -seeking a $300,000 20-year term policy has a choice of premiums ranging from $154 a year with West Coast Life to $174 at American General. Add a couple of two-year-old moving violations and the West Coast rate remains the same, while the American General rate climbs to $222.
"The guidelines are unexplainably tight," says Mr. Udell, adding that insurers have raised the bar for customers trying to get their lowest rates. He says that a common cutoff for blood pressure used to be 140 over 90, but now some companies will offer their best rates only to applicants with results of 130 over 80.
Insurers also have become more sharp-eyed about family health history. While companies formerly looked for a history of death from heart disease or cancer, now many merely want to know if a parent experienced the onset of such a serious illness -even if he or she survived -before ate 60.
Such problems can raise costly red flags. A 40-year-old man seeking a 20-year term policy could pay premiums of $395 a year by getting the preferred rate, but $495 if he gets the second-best rate.
Term policies typically have terms of 10, 20, and 30 years, for which policyholders make regular payments, often monthly or semiannually. Most policies lock in the level of payments for the life of the policy, although some are only guaranteed for part of the term, as in a 20-year policy with a 10-year guaranteed premium. Unlike some other forms of life insurance, there is no cash value that the policyholder can recover if he or she no longer needs the policy.
A 10% Increase
Empire General, a unit of Protective Life Insurance Co., raised rates on many of its policies by 10% on July 1. A spokeswoman for West Coast Life, another Protective subsidiary, said the company had increased its rates in January but had more recently rolled back the increases. She said the insurer had "noticed that rates have increased due to reinsurance issues" in the industry.
Transamerica Occidental Life Insurance Co., a unit of Dutch financial-services giant Aegon NV, raised the prices on all of its term products by $40 at the start of this month. "What seems to be pushing the rate changes is coming primarily from reinsurance," says Joel D. Seigle, senior vice president of life-insurance product marketing at Transamerica.
A spokesman for Prudential Financial Inc. says the company has implemented "small increases in some of our term policies," but said the increases weren't attributable to any one cause. He said that reinsurance pricing; the company's experience with its existing policies and competition in the marketplace all influenced Prudential's pricing decisions.
There are plenty of places to shop online for term life insurance, including AccuQuote.com, Insurance.com and Term4sales.com Once you enter information such as age, weight and health status, the sites will then spit out a series of quotes. The services all require, though, that you follow up with more detailed information -and the insurers will want to verify the information with follow-up calls and physicals.