The U.S. life insurance industry is changing. As Valmark Financial Group Chairman, Larry Rybka, said in a recent Wall Street Journal interview, “In 33 years, I have never seen more changes come more quickly to the life insurance products we sell.”
As it is with so many other aspects of life and business these days, the COVID-19 economy is shaping new guidelines and effecting new attitudes in life insurance. Today, due to interest rates being at an all-time low, the industry finds itself turning away business opportunities it would have sanctioned only months earlier. And life insurance carriers have no expectation that rates will change in the near future.
With low and negative interest rates in play, some insurers also are declining to issue higher-risk policies, such as life insurance for people ages 70 and older who are in poor health. Select types of policies, for example, 30-year term life policies, have been suspended by many insurers while other insurance providers are limiting policy size for universal-life products.
Leslie Scism, author of the article, “Some Americans Are Being Turned Away Trying to Buy Life Insurance,” which was published May 11, 2020, wrote, “…when they (life insurers) price policies, they make assumptions about how much interest income they will earn investing these premiums years into the future. The less they earn, the more they may need to collect in premium or fees to turn a profit.”
Many Types of Life Insurance Products Are Still Very Available
Larry Rybka praised the Wall Street Journal article and its author, saying they had done a “wonderful job of taking this very complex subject, putting a human face on it and connecting the impact of lower interest rates to the products consumers buy.”
But Rybka also pointed out, “One item that did not make the final story was that an important sub-set of life insurance products remain open for consumers, largely without change or limits: these are variable life products.
“With variable life products,” he explained, “insurance companies are not under pressure to commit to bonds and mortgages to make their guarantees; that is because these products are also filed as securities, and give the policyholder the choice of where to invest cash value. The cash value (any combination of equity or bond funds called sub-accounts) fluctuates with the value of the securities. This product type is offered by most companies and is typically purchased by more affluent clients.”
Our Changing World: Looking Ahead
Historically, life insurance has been a core strategy for protecting and securing families and companies. Undoubtedly, the post-pandemic environment will continue to bring changes, at least in the near term to the industry and the products it offers. But as Steve Broadbent, Partner & Managing Director at Fulcrum Partners points out, “Over 70 million Americans are either uninsured or underinsured according to a recent study conducted by AALU and a life insurance industry working group. Life insurance should be at the core of any financial plan to protect families and businesses. The purchase of life insurance can seem like a daunting task to many; therefore, the development of a trusted relationship with a financial planner is an important step early in the process.”
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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.
Securities offered through Lion Street Financial, LLC (LSF) and Valmark Securities, Inc. (VSI), each a member of FINRA and SIPC. Investment advisory services offered through CapAcuity, LLC; Lion Street Advisors, LLC (LSF) and Valmark Advisers, Inc. (VAI), each an SEC registered investment advisor. Please refer to your investment advisory agreement and the Form ADV disclosures provided to you for more information. VAI/VSI, LSF and BDO Alliance USA are non-affiliated entities and separate entities from Fulcrum Partners and CapAcuity, LLC. Unless otherwise noted, VAI/VSI, LSF and BDO Alliance USA are not affiliated, associated, authorized, endorsed by, or in any way officially connected with any other company, agency or government agency identified or referenced in this document.