If you are considering purchasing the type of universal life insurance policy that has lapse protection (secondary guarantees), you should purchase it before the end of the year, as premiums might see a significant increase in 2013.
Universal life insurance with lapse protection is a great policy for those who want lifetime coverage with guaranteed premiums and death benefit and who aren’t interested in accumulating cash value in a permanent policy. We often refer to these policies as “lifetime term insurance.”
Why the Increase?
The National Association of Insurance Commissioners (NAIC) will be enforcing new reserve requirements for these types of policies in 2013. Policy reserve requirements, as established by the NAIC, are basically those funds accumulated by insurance companies from premium payments and interest earnings in amounts that, together with future net premiums and future interest earnings, will be sufficient to pay claims arising beyond the current policy years of policies currently in force. The requirement is basically there to protect consumers to ensure that funds will be available in the future to pay a claim. The reserve is necessary in a level premium policy to cover claims costs that increase with age.
The new reserve guidelines will require greater reserves, so we’re expecting to see either higher premiums or product changes or both. These changes will be in effect for policies written on and after January 1, 2013 and there’s some talk of raising reserve requirements for some in-force policies. This won’t affect you if you currently have one of these policies, but the increased reserve demands for these older policies might also add to higher premiums for policies written in 2013. There’s some debate in the industry as to whether premiums for new policies will be affected, but I can’t imagine that most companies won’t be bumping up premiums to cover reserves.
So, if you are considering one of these policies, now would be a good time to start looking into it. Feel free to contact us for a no-obligation quotes.