Why Did My Life Insurance Rates Increase?
What Do I Do Now?
…and What Options Do I Have Now?
One of the most common questions I receive is “Why did my life insurance rates go up?” This relates to the type of policy your originally purchased.
Most people purchase “Term” insurance for the affordability and providing the most coverage during your most vulnerable years. Most are sold with 10, 20, or 30 year rate guarantees. When the term on your life insurance runs out or expires, the life insurance companies can’t cancel you. They do, however, price most people out within a year two, as the premiums increase by as much as 4-10 times that of your rate guarantee, and increase every year thereafter. In other words, at the end of your level term period, your policy changes to an annual renewable policy.
The only times we see clients exercise this option is when they have a very serious or terminal disease. Paying higher premiums for a year or two will make financial sense (if affordable) to receive the original death benefit. If there’s been a prolonged illness, there will likely be considerable medical bills left behind to your family, and yes, they will almost always be financially responsible.
Once your policy is approved, the life insurance company no longer monitors your health. After your policy becomes active, your medical records, prescriptions, surgical records, etc. will not be looked at unless you died within 2 years of activating a life insurance policy. This is a standard “contestable period” to reduce insurance fraud.
Keep in mind, you can cancel term life insurance whenever you longer need or want it. We recommend reviewing existing life insurance policies so you’re not blindsided by price increases. If there’s a question about this date, check with your agent or the insurance company.
I’ve Paid Into My Policy for 20 Years. Now What Are My Options?
Apply for new replacement policy. Most people need less life insurance in their later years when they have fewer working years ahead of them, less owed on their mortgage, and kids grown and on their own. If you need $100,000 or more, a term policy will again be the most affordable.
Convert your term policy to a universal life policy. Most term life insurance policies provide options to convert all or a portion of the policy to permanent life insurance. Your risk class is the same as when you originally qualified for your policy. If you’ve subsequently come down with any issues including cancer or heart disease, it has no bearing! This can be an extremely valuable feature of your term life insurance policy, and one often overlooked, partially because it’s not explained well, and the insurance carrier won’t bring it to your attention! There is an age deadline for this conversion, so call the insurance company or your agent and ask about your “conversion period age deadline.”
Cancel your policy. You have the ability to cancel term life insurance at any time…before or after you’ve hit the end of the “term” with no penalties. This won’t automatically happen when you hit the end of term if you’re using “auto pay”…you’ll need to do so in writing. Your insurance carrier will provide instructions.
Is My Existing Insurer Going to Give Me My Best Deal on a New Policy Since I’m an Existing Customer?
No…when you reapply life insurance, you’re rate is based on your current health and lifestyle risk factors. It’s a heavily regulated industry, so every applicant must be assessed without bias.
If you’re past age 50, be prepared for a longer underwriting period. Your risk is higher simply based on our current age, as well as the number of years you are asking to be covered. Medical records will be reviewed, so there’s going to me more to gather, including any specialists you’ve seen.
The age group of 50-80 is where an independent life insurance agent can really help. Ask how many companies they’ll be shopping on your behalf. There are around 15 A-rated life insurers specializing in this age bracket, however, if you’ve had any health issues, your agent can further help by matching you carriers best for your specific health consideration, whether it be prostate cancer, heart stents, diabetes, or anything else.
It doesn’t have to be a serious issue….for example, 10 different carriers will charge 10 different rates just for your cholesterol or blood pressure numbers. Some are strict, some are liberal. Some will give you the same price if successfully taking a medication as those who take no medications at all!
If your term life insurance policy is almost up then speak with a life insurance broker before signing the renewal letter with your current carrier. A life insurance broker can go over your options with your current policy and compare rates to make sure you don’t pay more than you have to.
Andrew W. Bradley @Andrewwbradley
Photo credit: alsis35 (now at ipernity) via Foter.com / CC BY-NClife