We have a simple policy here when it comes to insurance – we only ever recommend policies that are fully guaranteed. And since we only focus on premium and benefit amount, we only recommend policies that have both guaranteed premiums and guaranteed benefits.
In fact, I have a very simple way of describing non-guaranteed insurance policies. There’s one thing that IS guaranteed with these policies – at some point the policy will not perform as expected.
Having been in a variety of roles in the life insurance industry since the mid ’80’s, I’ve seen a number of cycles of policies not being guaranteed, brokers and consumers feeling comfortable, and then10-20 years later these policies backfiring. And we’re seeing some of this stuff now. The concern with non-guaranteed policies isn’t tomorrow. No, it’s 10, 20, or 30 years down the road when you’re much older. That’s when the policies may not perform when you’re too old to do much about it.
I’m reminded of this again as we just received an email from Industrial Alliance. They’re a great company, but they have a critical illness policy that allows them to adjust premiums in 10 years. And guess what – they just announced that at that 10 year anniversary, premiums for those policy owners are going to see a 10% premium increase. And since a little bit of sugar helps the medicine go down, they point out that even then your premiums are still lower than comparable products today. Maybe so – but are they lower than comparable guaranteed products from 10 years ago? I guess it doesn’t matter now though – policy owners who purchase policies that are not fully guaranteed should expect to see price increases in the future.
Here’s the text of the email from the insurance company:First premium adjustment for 1st generation Transition Evolution critical illness contracts
(issued between February 23, 2004 and July 7, 2005) The company has a responsibility to adjust the pricing of its critical illness insurance products to the current economic environment. The long-term guaranteed values of these products are directly affected by interest rates, which have remained historically low for several years now. Transition Evolution contracts state that the initial premium is guaranteed for the first ten years and can be adjusted on the 10th anniversary of the contract. 2014 marks the first premium adjustment year for these first-generation contracts. The company is faced with a need to apply a 10% increase to the premiums for the next 5 years. The next required valuation of the premium will take place on the 15th anniversary of the contract and based on this new increased premium. It should be noted that, despite this increase, the premium your clients are paying is significantly lower than the cost of an identical coverage on the market today. Note also that the current pricing for new Transition Evolution sales is not affected by this adjustment. Clients affected will receive a lettter. You will soon receive a list of your clients with Transition Evolution coverage who are affected by this adjustment. Thank you in advance for reassuring your clients that the coverage they have chosen remains the most cost-effective solution to ensure their financial security in the event of critical illness.