You need to act quickly the cost of permanent insurance is increasing by up to 20%!
One of the obligations of your life insurance agent is to keep you informed of issues in the industry and how they might affect the life insurance products going forward. Last fall the life insurance industry went through a significant increase in the cost of all new permanent life insurance policies with some prices for the younger ages increasing up to 20%.
Why are the insurance companies doing this? Permanent insurance, unlike term insurance, provides you with life insurance coverage that lasts your entire life. The premium that you pay remains the same for your lifetime providing your family with excellent financial protection for final expenses and many estate planning opportunities. Some companies offer an option to quick pay it over 10 to 20 years. Examples of permanent life insurance would be whole life insurance, universal life insurance, term to 100 insurance and final expense insurance.
These price increases in permanent life insurance are caused by three factors. First, the continued decreasing yields on bonds which are the principal investment choice for life insurance companies. Ten years ago, long term Government of Canada bonds yielded 6.3%; last year they were 3.8% and now they are under 3%.
Second, new requirements have forced life insurance companies to price their assets at market value which causes them to assume current interest rates will continue for the life of the policies which is decades for the policies sold to younger clients. While, it makes no sense to assume current interests will prevail for years that is what they are being forced to do.
Third, the requirement to meet new international standards as a result of the strong price and benefit guarantees included in most permanent life insurance products requires them to put more capital into than they have in the past. The result of this is the same as the decreasing bond yield and prices will have to increase. Manulife Financial has just announced price increases to take effect in mid-October and we expect the others to follow as they did last year.
When the life insurance companies priced their permanent insurance products last fall, they assumed that interest rates would bottom out and start to rise this year but that has not been the case. In fact, they are lower and expected to remain lower forcing the life insurance companies into another round of price increases for their permanent life insurance products.
Given the imminent increase in prices, it would be a advisable to discuss and/or review your insurance needs and determine if permanent insurance makes sense for you. If you have an existing term insurance policy, this is the best time to “convert” all or a portion of your term insurance to permanent insurance if that is something you have been thinking about. You can contact me any time. The longer one waits the fewer choices there will be to avoid the price increases. Current Manulife pricing will be no longer available by mid-October.
