On August 13, 2016 an article appeared in the New York Times slamming the life insurance and long-term care insurance industries …..once again.
The article’s (Why Some Life Insurance Premiums Are Skyrocketing) authors are evidently telling us the reasons that insurance premiums must increase in order to maintain the promises that insurance companies made to their policyholders.
Well, I must have my rose-colored glasses on to believe that.
The problem is, your prospects and clients are also reading these articles – and believing the reports.
Let’s review the slanted nature of these types of articles and supply some actual fact to what journalists, like the ones that wrote the NY Times article, seem to overlook.
In their quest to attack an industry that might not be perfect (but certainly, at least in my opinion, is not out to rip off the customer), the outcome of these articles actually stir up consumer panic and further stir up a sense of distrust and frustration between agents and consumers.
You may need to use some of these “truths” to defend yourself against this article and others.
- Fact #1: The article includes commentary on universal life policies and long-term care insurance policies. Although there is generally no premium guarantee with long-term care insurance policies, UL policy premiums are increasing and do have absolute guaranteed premiums stipulated within the policy. This fact was not only not mentioned in the article, but it was also not pointed out that most, if not all of these policies, haven’t reached those premium guarantees.
- Fact #2: The authors state that “Universal policies typically cost more (than term insurance) but the coverage never expires.” This is not only inaccurate; it has to be inflammatory for any person reading this article with a UL policy that has lapsed. There are a numbers of reasons that a UL policy could “expire,” including the policy reaching its maturity date or by not paying sufficient premiums.
- Fact #3: The authors state that universal life is “a popular type that includes an investment account that accumulates cash when interest rates are high.” First of all, the description of what appears to be a separate “account” within the policy is simply not accurate. Unless designed that way (and most UL is not), there is cash buildup within the policy itself and tied to the insurance carrier's general account assets (for non-variable policies). Furthermore, the claim that cash is only accumulated when interest rates are high is also inaccurate. Cash can build up within the policy at the absolute lowest interest rate that the carrier guarantees to pay.
- Fact #4: At no time in the article did the authors cite the contractual terms of any of the policies that they included in their examples. No mention was made regarding the policy wording that indicates that higher premiums may be necessary than paid at the inception of the policy to keep the policy in force.
- Fact #5: Most importantly, nowhere was it discussed that UL is not a “fixed premium” policy. Rather it is a flexible premium policy that’s largely designed based on the needs, desires and financial ability to pay premiums of the person buying the policy. Also, that the initial premium of the policy, no matter how it was arrived at, can be changed by the policy owner at any time and for any reason, including lower interest rates which could shorten the life of the policy.
If you read this article, you will surely see other items that put a negative slant on the life and LTCI industries and that, with the items above, may need to be discussed with your policyholders.
On the other hand, and to be fair to the article, there are points within the article that should be considered going forward.
The low interest rate environment is now, and will in the future, may cause insurance carriers to have to radically change the structure of their policies so that their contractual obligations can be met and not questioned by those who do it recklessly.
They have done this in the past and should be able to do this in the future.
Be ready with accurate information when you talk with customers, and assuage their concerns that are often stirred up by the media’s inaccurate portrayal of life and long-term care insurance.
