New life insurance rules could make rates noticeably cheaper
People who have hesitated to purchase a policy may find that they have new motivation on its way.
Changes to life insurance rules in all states except three are more than likely to bring rates down by a considerable amount. There have already been at least two insurance companies that have decreased their term life policy rates and other insurers are expected to follow.
The regulations involve telling insurance companies how much money they must keep in reserve.
The two insurers that have already implemented rate decreases in part resulting from the life insurance rules change are Lincoln Financial Group (LNC) and USAA Life Insurance Co. According to USAA, the term life insurance policy rates have been reduced by an average of 2.6 percent. Overall, the drop ranges from 0 to 15 percent, depending on the individual being covered.
The new prices will impact only new policies that became effective as of the start of 2017. Older customers with USAA life insurance policies are likely to see an even greater reduction in their premiums than younger ones as the older policyholders would have faced the highest rates to begin with.
The industry hopes that the rate reductions from the life insurance rules will draw a new wave of customers.
USAA Senior Vice President and Chief Actuary, Shawn Loftus, said “We’re hoping it will cause our members to look again at life insurance.” He also added that “The average consumer thinks coverage is actually more expensive than it is.” USAA sells to active and retired military service members as well as their families.
Loftus’s claim that consumers are frequently unaware of the true cost of life insurance is supported by research. A 2016 survey conducted by LIMRA and Life Happens, insurance industry groups, showed that consumers expected life policies to cost twice as much as they actually do. This was the response given when asked how much annual premiums would be for a 20-year $250,000 term life policy for a healthy thirty year old person. The average estimate was $400, when the actual average annual premium was closer to $200, half the estimated amount.
The new life insurance rules may give the sector the opportunity to show people what the policies truly cost and that they are often very affordable.