RATE HIKES: IS YOUR ADVISOR SLEEPING ON THE JOB?

Is this the start of a bad trend? September is the official Life Insurance Awareness Month with ambassador Lamar Odom. October is the unofficial jack-up-the-rates month. This also happened last year.

Scope

Premium rates for guaranteed life insurance products, which already have increased by 8%-10% this year [2011], recently have been boosted by up to 12% by some insurers. Another wave of premium hikes is expected to hit next spring [2012].
— Investment Executive, Sep 23, 2011

Life insurance premiums are going up again for permanent plans with level insurance rates which are typically guaranteed for life. The reasons are the same as last year plus a desire to increase ROIs. According to industry watcher, Byren Innes “any publicly traded carrier will jump at a chance to pad its margins”. External factors make ideal scapegoats.

Once again, the instigator is Manulife.  The new rates take effect at 5:01 PM on October 14, 2011.

On average, the level COI [Cost Of Insurance] rate increases are as follows [at Manulife]: 9% on InnoVision; 12% on Security UL; and 7% on Limited Pay UL. The largest increase is among clients aged 35 to 45, with an increase of 20% to 25%.”
— Advisor.ca, Sep 23, 2011

Once again, other companies will likely copy.

Dilemma

At times like these, the behaviour of salespeople is fascinating to watch because of the conflict they face. Commissions are based on the premiums you pay. As rates increase, total commission dollars usually do too.

That's makes smokers lucrative prospects. They know they must pay more than nonsmokers. They know they may not get approved. If they have a genuine need for insurance, they want to buy. Price is less important.

Act Now?

If you're a prospect for new coverage, your advisor is probably pushing you to buy now before the increases. Even if you're considering a company which has not announced rate hikes, do you want to risk paying more next week?

Insurance is considered sold, not bought: more supply than demand. To motivate you to buy, salespeople like enticing strategies which make insurance look like a no-lose, too-good-to-be-true deal. Here are the top five strategies . The problem is that there's no real urgency for you to act. A price hike might be, when coupled with the usual closing techniques.

If you're being sold an appealing strategy when you don’t have a clear need for insurance, higher rates hurt. Your salesperson has motives to push you to buy now.

Wait?

If you are already a client and have no imminent plans to buy more insurance, you may get ignored. It's more lucrative for your advisor to close new sales.

An Exception

What if you are planning to convert term life insurance to permanent coverage? You'll be stuck with the higher rates while your salesperson gets rewarded with more commission dollars. There's no incentive for him or her to spend time with you now.

Here, you benefit by calling your advisor. Just be wary of attempts to top up your coverage unless you need more.

Your Best Course

If you need more permanent life insurance, buying before the newest round of rate hikes will save you money. Also, new products may be worse in less visible ways such as weaker guarantees.

Case study: Coke Classic deviated from the original recipe by replacing expensive pure sugar with cheaper high-fructose corn syrup. You probably can't taste the difference but you're not getting "the real thing". If the population gets super-sized too, that's a nice side benefit. Bigger people can consume even more.

Insurance policies can take a couple of months to get approved. Your premiums are generally based on the date you apply, rather than when you get accepted. You can’t lose by acting now.

Did You Know?

If you're getting proper after-sales service, you'll already know about the upcoming rate hikes, even if they don't affect you. A newsletter or email is quick and cheap to send.

Links

• Three reasons life insurance prices are shooting up (Oct 2010) [podcast 90]
• Why life insurance premiums are rising (Moneyville.ca, Aug 2011)
• Life premiums: on the increase (Investment Executive, Sep 23, 2011)
• UL commissions on the block (Advisor.ca, Sep 23, 2011)
• Universal Life: level cost still rising (Insurance Journal, May 2011)
• Tax planning: The top five insured strategies
• Why after-sales service stinks
• RIP: What happens if your insurance advisor dies? (new)
• image courtesy of Pikajane Poketaku (US)

Podcast 136 (5:41)

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PS Not all rates are increasing but that doesn’t mean any are going down …