Talking to a colleague of mine just recently and he mentioned that there are changes on the horizon for the life insurance industry. It struck me that this would be of benefit to any of you looking to get into this or review your existing policy in the very near future. As they say, timing is everything.
To put it in perspective, there were major changes in 1982 that pretty much divided life insurance into generation one (pre-1982) and generation two (post-1982). In 2017 there will be another major change to the industry – generation three. So why does this matter? Change will likely bring increased pricing with it, even if the other changes are good for the industry and for the consumer.
Of course everything already in place will be grandfathered up to the point of changeover. Insurance companies are obliged to hold to policies already in existence. If you’re happy with your current policy then all is good.
To further explain, there are basically two types of life insurance: permanent and term. Term insurance works if your needs are short term, say while the kids are at home or a mortgage is in place. The premiums are very competitive but at the end of the term the policy collapses and there is no residual money coming your way. A death benefit is only paid out during the term of the policy. Term insurance can be renewed but that usually comes with a premium increase each time.
On the other hand permanent insurance is meant for a longer period and to build up cash value to the policyholder. This is essentially an investment as well as an insurance policy. If it is collapsed at any time a “cash surrender value” is paid out. There are different kinds of permanent insurance like whole life, universal life and variable life. My understanding is that this insurance is the main one to be impacted by the changes.
If all of this is a bit confusing don’t be discouraged. The biggest recommendation I can make is to talk things over with your professional life insurance specialist. I can’t emphasize this enough. There is far more to it than my simple explanation here.
Even though the changes are scheduled for January 1, 2017 you are well advised to get your application for permanent life in as early as possible as it takes time for underwriting to occur. As I understand it, a good deadline to keep in mind is October 1 of this year. Delays beyond this and you could miss the boat. Give the insurance companies time to do their job and lock in at current pricing.
There you go – a public service announcement from your friendly bookkeeping service.
Until next time,