Last week, the Wall Street Journal reported on the latest developments in a wave of sudden insurance premium hikes on life insurance policies that have been in force for decades.
As documented by the Journal’s Leslie Scism, “over the past year, several major insurers have notified tens of thousands of people of higher costs to keep their policies in force, with increases ranging from midsingle-digit percentages to more than 200%.” Scism noted that in response to these premium increases, a number of lawsuits have been filed in federal courts against life insurance companies.
I’ve had the privilege of working in the investment advising and financial planning industries for decades. In the past, it was a point of pride for life insurance companies that the premiums illustrated to a consumer at the time the policy was sold to them would stay the same while the policy is in force. This basic promise between insurers and their customers promoted confidence in life insurance products as staples in the financial plans of American families.
Unfortunately, a number of insurance companies are now breaking that basic promise. Reeling from years of low interest rates that have put a pinch in their quarterly profits, many carriers are trying to make up for the drop in interest income by collecting higher premiums from their policy owners. For seniors living on fixed incomes or retirement funds already under stress, these premium hikes may simply be too much to bear.
These insurance companies have been notifying policy holders that they have three options: (1) Pay higher premiums in order to keep their existing death benefit; (2) Maintain the same premiums but sacrifice some of their death benefit on the policy; or (3) Surrender the policy back to the insurance company for its cash value. But if you are one of the American seniors facing an increase in your life insurance premiums, you may have another option that – unfortunately – the insurance companies are not sharing with you.
You may want to consider selling the policy to a third-party investor for immediate cash payment, known as a life settlement transaction. Candidates for life settlements are typically aged 70 or older, with a life insurance policy that has a death benefit of more than $100,000. The sale of your policy can bring you four to seven times more money than the cash surrender value of your policy, not to mention alleviate the burden of having to deal with those rising premiums.
If your life insurance premiums are suddenly increased, be sure to explore ALL of your options – not just the ones offered by the company that sold you the policy and now wants to change the price.