WARNING!
An Important Message for Consumers.

By Bob Barney
President of CumpuLife Software, Inc.

On January 1, 2000 a number of states will adopt a new insurance regulation called Triple-X (The Valuing Life Insurance Model Regulation). This warning/article will explain how and why this regulation will hurt you as a consumer.

This warning is to alert you to the fact that the best time to buy level term insurance is NOW, before this regulation takes effect.

Outspoken Critic of Triple-X.

Since early 1995 I have written over 20 letters to every state's insurance commissioner warning that this regulation will have a serious and negative impact on consumers. While those letters and that campaign have been credited with delaying the implementation of the regulation (previously slated to be adopted January 1, 1996), a significant new lobby by life insurance companies is persuading a number of states to adopt Triple-X for January 1, 2000. The adoption of Triple-X, by even a few states, will lead to a serious change in the quality and/or cost of level term life insurance policies available to U.S. consumers.

Most of Today's Policies are Guaranteed.

Today, most competitive level term products sold to consumers provide full and complete guarantees that the initial level premiums cannot be raised during the initial level period.

In simple terms, most companies give you a price warranty guaranteeing that they won't and can't come back later and bushwhack you with an unexpected price hike.

That price warranty (premium guarantee)
is very very important.

For example, suppose you buy a 20 year level term instead of a 10 year level term. When you buy the 20 year policy, you will be giving the life 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 will continue unchanged from year 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 thecompany can come back later, and raise your price unexpectedly and without warning.

I believe that that would be 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.

In today's term market most competitive term plans are fully guaranteed. A surprise price hike cannot happen with a fully guaranteed policy.

Having noted that, be careful. Please read on.

Defective Term Insurance Policies.

There are life companies selling level term policies which do not guarantee premiums for the initial level period of 10, 20 or 30 years. You need to make sure that the product you buy is fully guaranteed for the initial level period.

In my letters to Insurance Commissioners I have described non-guaranteed policies as defective. This is because they give the company the right to come back later and raise your price even though they have told you that they have no intention of doing so. Such companies, selling such products, are asking you to trust them.

It's not that I don't trust any particular life insurance company, versus any other life insurance company, it's just that I don't trust ANY life insurance company. You shouldn't put your trust in a life company either. No one should be asked to trust any financial institution. Therefore, you need to be careful to find competitive contractual guarantees where and when they are available.

In some cases, particularly in New York state where a form of Triple-X is already in place, there are non-guaranteed policies which may be lower in price. Once again I urge you to be careful when considering such policies. This is particularly true if you are outside New York.  Outside New York, premium savings for non-guaranteed term are just not big enough to be worth considering.

Triple-X (XXX means poison).

Over 10 years ago a small 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 those companies.

Incidentally, since that time there have been no life company failures due to term insurance being sold too cheap. 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 which 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 a regulation called Triple-X.  Incidentally, XXX was intended to mean regulation number 30. Triple-X was supposed to require companies to maintain larger reserves for level term policies and therefore require life companies to charge consumers higher premiums.

However, Triple-X contains its own loophole. This loophole is huge and it will hurt the consumer. The loophole itself proves conclusively that this regulation was and is unnecessary. This loophole will be manipulated by life companies to their benefit.  The loophole will do nothing to protect the interests of the consumer. This loophole proves that life companies, which have supported regulators adopting Triple-X, have been crying wolf all along.

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