There are changes with permanent life insurance pricing coming in the next few months.

• One Major carrier has given us advance notice that there is to be approximately a 10% average increase in rates for all permanent life insurance;
• This 10% average means that some age groups will see no changes, but others will see very significant increases in pricing (20%-40%)!
• The same carrier will be implementing a 0.5% reduction to the contractual guaranteed interest rates offered within tax sheltered policies. (The guarantee is contractual for life);
• In the past few years, there has been an expectation that insurance rates would be increasing, as a large assumption in pricing these policies is the interest rate environment;
  • Background can be found in a recent report by the Conference for Advanced Life Underwriting (CALU):  CALU InfoExchange – Buyers Market For Level Cost
• With historically low interest rates, the insurance industry has been waiting for some movement, with carriers trying to hold back any changes, to avoid losing sales;
• One company increased rates a few years ago in anticipation of lower interest rates, and has suffered greatly, as all other carriers held out;
• It is inevitable that the other carriers will follow suit, with increases to their own permanent insurance rates, and subsequent decreases in guaranteed interest rates;

What is the opportunity?

• Current pricing is still available until December 4, 2010 (needless to say, current rates are lower than they should be)
• Current contractual guarantees are still available to be locked in for life on these policies secured before March 2011.

What does this mean if you are considering permanent life insurance?

• The 10% increase is self explanatory – it will cost more for the same insurance!
• The rate reduction for guaranteed accounts has a far greater impact
• Example of the impact of rate reduction
  • Assuming you need permanent life insurance protection;
  • If  you pay for the life insurance with monthly deposits;
  • You then decide to utilize the tax-exempt accumulation offered by your insurance policy;
  • You deposit $10,000/year, in addition to the monthly deposits.
  • Assuming the current guaranteed rate is 3.5%, a 0.5% decrease in annual credited interest rates to 3.0% actually means they would see:
     - after 10 years, 2.75% less accumulated value
     - after 20 years, 5.44% less accumulated value
     - after 40 years, 11.25% less accumulated value
• This is a significant loss, if you are looking for guaranteed interest rates and tax-sheltered accumulation.

Call your advisor to see how this may impact you.