What do higher term life insurance prices mean to insurers and buyers?
By Michael Gray
Over the last six months or so, we have seen some real maneuvering amongst the major competitors in the level term life insurance marketplace. Some of the strategies recently implemented by the players in the ultra-competitive term life business have been good for consumers and others not so good. Let’s look at some of these changes and their impact on the term life insurance buyer.
The trend toward higher prices for term life
Price may not be everything but in these tough economic times, it is extremely high on the list for term life insurance shoppers. The bottom line is that each of us want the absolute best deal we can get when it comes to any purchase and that includes life insurance.
For the majority of term life insurance companies, having the right price point is important to maintaining a competitive position in terms of sales, but not at the expense of profitability. Therefore, the inability to earn a reasonable return on investment portfolios is forcing many top companies to raise their prices. The chief reason is the interest rate environment.
According to Frank T. Gencarelli, Senior Vice President of Sales and Marketing at Banner Life, “The current investment climate compels us to raise level term rates to insure our future viability as a strong company.” Banner Life, like every other player in the market, has priced a certain rate of return into their overall pricing model and under the current economic circumstances, their built in pricing model is not sustainable. If the investment arena is not bearing the return priced into the model, companies have no choice but to raise rates and that is exactly what is happening.
All of the top term life insurance companies are having a difficult time earning the minimum rates of return on their investments. And the prolonged period of low interest rates has forced the hands of many companies, resulting in higher priced term life policies.
American General Life Insurance Company is another company that has increased rates this year. Prior to raising prices on their term life portfolio, they stated, “Persistent low interest rates continue to pose challenges for the marketplace. In light of this, we are increasing rates on our term products. The premium rate increases are a prudent decision which reflects American General’s commitment to effectively manage its products in the current economic environment.”
Since the beginning of 2012, many companies have raised rates, including ING Reliastar, Prudential and Genworth to name a few. Price increases have varied among insurance companies, ranging from 5 percent to 25 percent. If the interest rate environment remains historically low, more of the major term life insurance companies will be forced to increase rates.
If your clients are in the market for term life insurance or need to extend their level term period, now may be the time to take action.