PSA for people shopping life insurance - 30 year term may be pulled off market

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BruDude
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PSA for people shopping life insurance - 30 year term may be pulled off market

Post by BruDude » Thu Mar 26, 2020 9:10 pm

I just got notice that at least one major company has decided to pull their 30-year term products and increase pricing on their other term products due to the extremely low-interest rate environment. I expect other companies to follow suit in some form or fashion. It is likely that we will see a number of companies drop their 30+ year term policies and/or increase their pricing substantially, along with guaranteed universal life policies and other products with long-term guarantees.

Companies are also adapting quickly to the changing coronavirus news. Many are now postponing offers for anyone that's traveled in the last 30 days and postponing anyone diagnosed as positive for at least 90 days. Since we don't yet know the long-term effects of COVID-19, I would not be surprised if the insurance companies started postponing people for at least 1-2 years after a positive diagnosis once they're done evaluating the long-term risk.

In short, if you've been putting it off for some reason, you should probably reconsider waiting.

dru808
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Re: PSA for people shopping life insurance - 30 year term may be pulled off market

Post by dru808 » Thu Mar 26, 2020 9:30 pm

What do low interest rates have to do with term insurance? Has this happened in the past in low rate environments?

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grabiner
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Re: PSA for people shopping life insurance - 30 year term may be pulled off market

Post by grabiner » Thu Mar 26, 2020 9:40 pm

dru808 wrote:
Thu Mar 26, 2020 9:30 pm
What do low interest rates have to do with term insurance? Has this happened in the past in low rate environments?
Low interest rates make insurance more expensive. If an insurance company issues 30-year term policies, most of the payments will be to policyholders who die in 2041-2050. The company has a good estimate of how many policyholders will die, and thus of how much it must pay. It can guarantee having that much money by buying 21-30-year Treasury bonds, but with low yields, these cost more in current dollars than they did in the past.
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dru808
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Re: PSA for people shopping life insurance - 30 year term may be pulled off market

Post by dru808 » Thu Mar 26, 2020 10:10 pm

grabiner wrote:
Thu Mar 26, 2020 9:40 pm
dru808 wrote:
Thu Mar 26, 2020 9:30 pm
What do low interest rates have to do with term insurance? Has this happened in the past in low rate environments?
Low interest rates make insurance more expensive. If an insurance company issues 30-year term policies, most of the payments will be to policyholders who die in 2041-2050. The company has a good estimate of how many policyholders will die, and thus of how much it must pay. It can guarantee having that much money by buying 21-30-year Treasury bonds, but with low yields, these cost more in current dollars than they did in the past.
Interesting, I did not know they invested in long treasuries. What else do they invest in, do they invest like a state pension would?

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BruDude
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Re: PSA for people shopping life insurance - 30 year term may be pulled off market

Post by BruDude » Fri Mar 27, 2020 1:45 am

dru808 wrote:
Thu Mar 26, 2020 9:30 pm
What do low interest rates have to do with term insurance? Has this happened in the past in low rate environments?
Insurance companies invest in low-risk assets, a major source of which are bonds and the treasury yields are at all-time lows. They are also required to keep a certain level of reserves, with policies that have longer duration requiring higher reserves. When they are getting less return on their investments and have to keep higher levels of cash on hand, they have to raise prices to make up the difference, or get rid of the liability.

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Stinky
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Re: PSA for people shopping life insurance - 30 year term may be pulled off market

Post by Stinky » Fri Mar 27, 2020 11:16 am

BruDude wrote:
Thu Mar 26, 2020 9:10 pm
I just got notice that at least one major company has decided to pull their 30-year term products and increase pricing on their other term products due to the extremely low-interest rate environment. I expect other companies to follow suit in some form or fashion. It is likely that we will see a number of companies drop their 30+ year term policies and/or increase their pricing substantially, along with guaranteed universal life policies and other products with long-term guarantees.

Companies are also adapting quickly to the changing coronavirus news. Many are now postponing offers for anyone that's traveled in the last 30 days and postponing anyone diagnosed as positive for at least 90 days. Since we don't yet know the long-term effects of COVID-19, I would not be surprised if the insurance companies started postponing people for at least 1-2 years after a positive diagnosis once they're done evaluating the long-term risk.

In short, if you've been putting it off for some reason, you should probably reconsider waiting.
Very, very interesting. On the 30-year term marketplace, please keep posting back here as you get more information from companies as to what they're doing. While I was in the life insurance business for my career, I retired back in 2018, so I don't get up-to-date product information any more.

As to why low interest rates affect life insurance rates for term and guaranteed universal life -
Mortality rates increase by age. Everybody knows that a 75 year old is more likely to die in the next year than a 65 year old, or a 50 year old, or a 30 year old.

So, if an insurance company, wants to sell a product with level premium rates for a "guaranteed term", they must build up a fund (aka a "reserve") in the early years of the policy in order to provide for the expected higher deaths in the later years of the policy. The longer the "guaranteed term", the higher the reserve must be. (That is, a 20-year term policy must build to a higher reserve than a 10 year term policy, etc.) The reserve for a 30 year term policy gets to be a pretty sizable amount. That's why low interest rates can affect the pricing and availability of level term products.

BruDude, it would be great if you could post occasionally on the Forum as you see other companies taking product and pricing actions.
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