There’s a new extremely disturbing trend going on in the life insurance industry.
The insurance companies are very quietly changing the array of permanent products available for term conversions. While policies are contractually convertible (often up to a given age or number of years), the new conversion options may be very expensive. Some of the insurance companies give the insureds up to 6 years to convert into their competitive policies and thereafter, the policies are still convertible but to a sub-par product.
There is a second way some insurance carriers are limiting term conversions. They are not paying any agent commissions on term conversions. This is a huge gain for the insurance companies, not because they pay so much in commissions, but because insurance agents review policies with their clients and discuss whether the policies are going to be in force as long as needed. Without compensating agents for the work they do, the carriers will certainly limit the number of conversions into the future and successfully pay out fewer claims.
So let’s be clear as to why the insurance companies are making these drastic changes. Right now, they have it really good. Now only about 5% of all term policies are in force on the date of death. That’s amazing. They collect premiums for years and 95% of the term policies are gone before having to pay a claim.
Permanent policies are not a good deal for insurance companies. These policies may be guaranteed through age 80 or 90 or perhaps even to age 121. In a time, when interest rates are low and people are living very long lives, this is an expensive road for the carriers. They are doing what they can now to limit their exposure in paying out future death claims.
The changes being made are made without any advance notice. It is often something the brokers learn about after the fact. The following companies: Genworth, John Hancock, Banner CNA, Lincoln Financial and American General have all made some kind of change in their conversion products. Some have just discouraged conversion at any time by offering inferior products; others have stopped paying commissions beyond a certain year; and still others have selected a year after which the competitive products are no longer available. There is no question that a shift is happening and it will continue to happen in years to come.
As an insurance broker, conversions have become very popular among people in their late 40’s, 50’s and 60’s. My insureds need or just want their coverage to last longer. Some haven’t saved enough for the future. Others want to help their adult children. And more and more, I’m hearing that people who can’t get long term care insurance want their life insurance policies to reimburse their heirs in the event they need long term care and use up their savings.
Converting existing policies is very appealing. Many people got their policies when their health was perfect so they were a preferred or a preferred best issue. Converting a preferred policy 20 year later is far less costly than getting a new permanent policy at 20 years older and in poorer health. When clients convert they get to choose how long they want their coverage to last and they can lock in their competitive premiums.
Or at least they used to be able to do these things. The window is closing fast.
I encourage you to look at your conversion options now. Don’t wait. Learn what your options are. Work with your insurance broker to figure out how best to protect your families.