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Thread: Why Some Life Insurance Premiums Are Skyrocketing - From the New York Times

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    Senior Member Level 1 marindependent's Avatar
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    Default Why Some Life Insurance Premiums Are Skyrocketing - From the New York Times

    Interesting article on the NYTIMES.com site about life insurance and life insurance premiums: Why Some Life Insurance Premiums Are Skyrocketing

    Like clockwork, Sara and James Cook paid $452 a month for life insurance. That is, until a letter arrived last year telling the elderly Georgia couple the premiums on the policy they’d had for 25 years were rising sharply.

    They held a universal life policy, a popular type that includes an investment account that accumulates cash when interest rates are high. But with rates at historic lows, it was being drained — quickly.

    When the Cooks’ daughter, Jo Ann Sparks, asked an expert to explain her options, she recalls: “He said to me, ‘Please don’t take this the wrong way and, not to be morbid, but your mother needs to die.’”

    Around the world, life insurers are wrestling with existential questions. Interest rates are near zero, and in some places have turned negative — unprecedented until recent years. It is contributing to a crisis moment for a business once considered a bedrock of financial stability and an industry that supports the retirement of millions.

    Read the rest on the life insurance article nytimes website.


  2. Scott W Johnson
    Whole Vs Term Life Insurance
    415-294-5454 CA LIC 0K10734

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    Senior Member Level 1 DavidBlock's Avatar
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    Scott ... this is not the first time I have seen this occur with UL policies. When first introduced to the public by EF Hutton, it was touted as the greatest investment since mutual funds. Interest rates were in the 20% range and brokers were replacing traditional whole-life policies left and right telling their clients look at this fabulous return. Your current carrier could never come anywhere near this! Low and behold, those policies started failing as soon as interest rates dropped into the "normal" range. After all, when you assume a 20% or even a 'conservative' (at that time) 10% rate; how could you possibly go wrong?

    Therefore, since current interest rates are at rock bottom and brokers let their clients pay far below what was needed to carry the policy the clients are paying. Part of the blame should be shouldered by the broker(s) who did not recommend the client increase their contributions to the policy. We all have access to inforce illustrations but how many of us utilize them? We are afraid to tell the client we possibly made a mistake and they have to pay more for their policies.

    In this particular case, the broker should have known 10 plus years ago (or at least 5-years ago) that there was an issue. This is not all of a sudden there is no money in the plan to carry it forward.

    I truly feel for this family and all those that are going through the same thing. I cannot tell you how many inforce UL policies I see lapsing because of these low interest rates. Carriers did warn all of us that this could happen when they built into the policy a secondary cost of insurance and alternate fee schedules. How many of us read that and understood it? How many of us just looked at the current costs and projections and were ecstatic to present this beautiful looking plan to our clients. Far less than the traditional whole-life, that is now looking like the best thing since ... well, mutual funds.

    Thank you for the post and I apologize for my "dissertation/frustration" but I am tired of agents blaming the carriers and not shouldering any of the responsibility. We need to service our clients and that means telling them the future of their policies as well as reviewing the past.
    David M. Block, CLTC
    President
    Insurance Specialties, Inc.
    PO Box 1809
    Candler, NC 28715-1809
    800.358.8844 toll free
    828-667-1119 local
    828-667-2229 local fax
    www.insurance-specialties.com

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    Senior Member Level 1 marindependent's Avatar
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    Thank you for your reply David. I certainly enjoy the civil conversation on this forum about matters such as this.

    I try and keep an open mind when clients come to me wanting a Cash Value Life Insurance plan, specifically a Universal Life Insurance policy. However, it is clients experiences such as this that make these policies often poor choices for them moving forward.

    I too believe that this is probably an example of the agent not fully explaining how these complex instruments work.
    Scott W Johnson
    Whole Vs Term Life Insurance
    415-294-5454 CA LIC 0K10734

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    Senior Member Level 1 DavidBlock's Avatar
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    Scott ... civility is the key as there is no sense in name-calling or obsessive ranting. However, to add insult to injury, now we have Indexed Universal Life, which can only lead to more issues unless there is a guaranteed floor, and guaranteed premiums. The other problem with what I just mentioned about the guaranteed premiums is that unless there is a catch-up provision, if you miss a premium you can often negate the guarantees. So yet another potential issue moving forward...

    When I buy and when I sell insurance I want as few restrictions and limitations as possible ... not the opposite. Moreover, when you sell complicated instruments such as insurance (though the idea is simple the product is more complex), you don't want too many OOPS clauses as I will now call them.

    Best of luck and continued success!
    David M. Block, CLTC
    President
    Insurance Specialties, Inc.
    PO Box 1809
    Candler, NC 28715-1809
    800.358.8844 toll free
    828-667-1119 local
    828-667-2229 local fax
    www.insurance-specialties.com

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    Great posts and great information. Scott you and David are Pros in the finest sense of the word.
    X

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    Senior Member Level 1 DavidBlock's Avatar
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    xrac ... thank you for the compliment! It means a great deal coming from you.

    Enjoy your holidays!
    David M. Block, CLTC
    President
    Insurance Specialties, Inc.
    PO Box 1809
    Candler, NC 28715-1809
    800.358.8844 toll free
    828-667-1119 local
    828-667-2229 local fax
    www.insurance-specialties.com

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