Coming on the heels of another rate decrease by one of the leading term life insurance companies we have raised the question with some companies, if the best rates are going down, whose pocket is that coming out of. We understand that making your best two rate classes more competitive lures more healthy young people with less risk, but when you lower the profit margin at that point, don’t you have to either raise rates on impaired risk cases or approve less of them to offset that loss.
The cost of preferred plus and preferred life insurance has been going down steadily, not because the mortality experience is better, but because that is the business companies want to load their shelves with those clients. They know that the claim’s experience is almost certainly near zero, partly because of less deaths in younger ages and better rate classes, but also because the younger and healthier life insurance owners tend to lapse their policies more frequently. This lapse ratio is significant across the spectrum of people insured, but it is definitely less for people who have health issues for obvious reasons. The more health challenged a person is the more they have their own mortality on their mind and the more they want a life insurance company to carry that risk.
So, the stage is set. With a rate decrease a company could, say, instead of insuring 100 young and healthy adults, might be able to insure 120. Good news for them even if they don’t keep it in force, but things have to balance out somewhere and the way that is generally done is by making underwriting on standard and higher rate classes a little tougher. So the impaired risk crowd gets to defray some of the burden on the company for cutting such a good deal to the young and healthy. Almost the opposite of the theoretical Obamacare. Since they can’t make every young and healthy person buy life insurance, and since they want their business, they shift the burden the other way.
This lends even more credence to the notion that you shouldn’t be using an agent, or an online agency, that is so enamored by the term life insurance rate war companies, that they try to place their impaired risk business there also. We see this becoming more true with each rate decrease.
If you aren’t sure you got a fair shake on your life insurance because of a health or mental health issue and you don’t believe your agent really shopped it and really picked the best company for you, call or email us. We can help.
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