WEDNESDAY, JULY 6, 2016
If you have turned on the news recently it’s impossible to miss the fact that the US is, and has been, experiencing a period of extremely low interest rates. It’s great news if you’re buying a home–not so great news for your securities portfolio. Many analysts are predicting that interest rates will remain low well into the future. Aside from affecting your retirement, low interest rates are affecting life insurance underwriting decisions too.
Life insurance companies make a profit by investing their customer’s premiums into debt securities, (bonds, etc). The decline in interest rates on these debt instruments has impacted life insurance companies’ positions in maintaining a strong bottom line. Reduced investment income has forced the carrier to look at alternative means to improve their bottom line. Carriers focusing on their bottom line affect consumer’s ability to obtain life insurance at competitive rates.
To “trim the fat” carriers have doubled down on their underwriting guidelines. The increase in stringent underwriting means fewer claims and/or a higher premium on individual risks. The combination of fewer losses and higher premiums improves the insurance carrier’s bottom line. Stringent underwriting helps life insurance companies stay profitable during this period of low interest rates.
In previous years applicants applying for life insurance may have gotten the benefit of the doubt on particular medical issues. Moving forward there is little to no room for and applicant who is “a few pounds over the weight limit” or has “a blood pressure reading that is a few points to high.” Carriers are sticking to the book and are offering no wiggle room for consumers. As long as interest rates remain low consumer can expect to face strict underlying guidelines for life insurance. The best way to avoid surprises is to plan ahead with your insurance agent on what your options are.
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