How Triple-X Affects You and Your Beneficiaries
By Bob Barney
President of CompuLife Software, Inc.,
Provider of insurance-related products to the Insurance Industry

On January 1, 2000, most states adopted a new insurance regulation called Triple-X (The Valuing Life Insurance Model Regulation), whose impact will affect your ability to get the best value from Guaranteed Term Life Insurance. Prices will remain artificially low, but at the cost of losing the guarantee. This will ultimately cost you, the consumer, hundreds of dollars in increased premium costs annually.

For information about selecting Term Life insurance and how to safeguard your investment from erosion by Triple-X, click here.

There Is Still Time to Get the Longest Guarantee You Need at Pre-Triple-X Prices.

Even though Triple-X is now law, there are still some opportunities to buy a level term policy whose level term period (and its guarantee) covers you for the balance of the time period that you will need term insurance. The reason is that some insurance companies and states are still working to bring their businesses in compliance with the new law. Therefore, if you act today, you may still be able to purchase Term Life Insurance at last year's lower premiums.

What is Triple-X?

In order to understand the changes that have taken place in the insurance industry and how they apply to you, here is some background information, as well as some recommendations for selecting the appropriate insurance policies.

Most of Today's Policies are Guaranteed.

Before Triple-X, most competitive level term products sold to consumers provided full and complete guarantees that the initial level premiums could not be raised during the initial level period.

In simple terms, most companies give you a price warranty that essentially guaranteed they would not and could not later bushwhack you with an unexpected price hike.

The price warranty (premium guarantee) is very, very important.

For example, suppose you buy a 20-year level term policy instead of a 10-year level term. When you buy the 20-year policy, you will be giving the life insurance company more money (at older ages a lot more money) in the first 10 years. You do that so that you can keep your premiums level after the 10th year. Premiums for the 20-year policy continue unchanged from years 11 to 20, whereas the 10-year level term policy premium will go up substantially in year 11. That's the difference between buying 20-year level term and 10 year level term.

To review, the extra money you pay for a 20-year policy, over and above the cost of the 10-year policy, is used to keep your premium low in the second 10-year period.

NOTE: If the company does not guarantee (warranty) the price of your 20-year term for the full 20 years, it means that the company may later raise your price unexpectedly and without warning.

I believe that that is completely unfair. You provide extra dollars to the company, and at the very point that you depend on the company to keep your price at the same level, it goes up.

Before Triple-X, most of the term life insurance market's competitive plans were fully guaranteed. A surprise price hike could not happen with a fully guaranteed policy.

Triple-X Legislation - Hard to Swallow!

Over 10 years ago a small, but influential group of life insurance companies, together with a handful of life insurance regulators, began crying wolf. They argued that the level term plans being sold to the public at that time were being sold at prices that were far too cheap. They said these policies would bankrupt them.

Incidentally, since that time there have been no life company failures due to term insurance being sold cheaply. Further, today's term prices are much more competitive than they were 10 years ago. In most cases prices have been cut in half (or more).

In my view the question is not "Why is term so cheap today?", the question is "Why was term so expensive before?" If you have ever visited a large life company's home office, as I have, and have had a chance to see the splendor of those buildings, you might get the impression that life company profits have been very high, much higher than they need to be. Increased competition has brought term prices down.

Regulators and companies, who remember and liked the old days of higher prices and bigger profits, have argued that some life companies were using a loophole in the Standard Valuation Law. The Standard Valuation Law is the law states use to make sure companies keep enough money on hand to pay death claims now and in the future.

The argument was that the loophole in the Standard Valuation Law allowed companies to charge too little for level term, and would result in some companies going out of business.

To close this supposed loophole, these companies and regulators came up with the Triple-X concept - which of course is now fact. Incidentally, one of the core purposes of Triple-X is to require insurance companies to maintain larger reserves for level term policies. On the surface, this is plaudable. Realistically, however, this would require life insurance companies to pass the costs to consumers in increased premiums. Ultimately, however, this could come back to haunt the life insurance companies through decreased policy sales.

However, Triple-X contains its own loophole that ultimately does little to protect consumers' interests. How is this possible? Read on.

You Lose Your Guarantee.

A life insurance company can avoid the reserve and price increases that Triple-X requires by simply removing the guarantee. Therefore, if a company wants to continue selling 20-year level term policies at what might appear to be competitive prices, it can do so by simply removing the price guarantee (warranty) it gives you. If it removes the warranty, the Triple-X regulation does not apply and the company can continue to sell at the lower prices. But remember what I explained about the significance to you of the guarantee.

The key question, of course is, if life insurance companies claim that selling 10, 15, 20 and 30 year term policies too cheaply hurts their business, then why would they continue doing so under Triple-X? Obviously, because by removing the guarantee from policies, they benefit - you lose.

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