Insurance actuaries have a difficult job. They must combine a number of factors—information about purchasers, economic health, product attributes and competitive pricing – to price policies so they are attractive for purchasers and generate profit for the insurance company.
Recent history suggests that many actuaries underestimated two important factors – persistently low interest rates and increased longevity – when they priced Universal Life insurance and Long Term Care insurance for women. This is leading to changes in pricing.
Universal Life Changes
In a recent blog post, author Michael Kitces reviewed some changes in Universal Life Insurance that have occurred as a result of low interest rates and new government actuarial guidelines. “The National Association of Insurance Commissioners has created new reserve requirements for universal life policies that offer so-called “secondary guarantees” (also called “no lapse guarantees”) — which guarantee that the policy will remain in force, for life or a specified period of time, as long as any required ongoing premiums are paid, even if the cash value turns out to be insufficient to maintain the policy.” These new reserve requirements are being implemented over the next few weeks.
Because interest rates have been so low for so long, most universal life policy issuers have either stopped writing new policies, or have (or soon will) increased their pricing on new policies that they issue. These price increases could be in effect early next year. Some of these insurance carriers are even lowering the annual interest credit that they pay on existing policies to very low levels.
Not all universal life companies have completed the process of raising their prices on new policies. If you need a permanent policy with a “no lapse guarantee” then it would be worth a call to an insurance agent to see if you could purchase a policy before these new reserve requirements are implemented.
Long Term Care Policies for Single Women
According to an AARP Public Policy Institute Fact Sheet on Long Term Care (LTC) insurance, 64% of the LTC benefits paid out in 2010 went to women. Single women with health conditions represent the group with the highest incidence of LTC usage.
To begin to better reflect this reality, the largest LTC provider, Genworth Financial, is changing the way that it prices its LTC policies. In the past, Genworth used a unisex rating table to price LTC for new customers. Starting in January, they will make a variety of changes to their LTC offerings to make them more profitable. Among these are:
- Charge different annual premiums for women and men.
- Introduce new blood tests that are currently used for life insurance underwriting for new policy holders.
- Use lower investment return assumptions for policy premiums to more realistically reflect today’s interest rate environment.
These changes may end up being copied by other LTC carriers, so if you are a single woman it may make sense to buy a policy as soon as possible.
~ Allyn Hughes, CFP®, CLU®, ChFC® – Brooks, Hughes & Jones – Partners in Wealth Management – Tacoma, WA