MONEY SAVVY WEEKEND : Insurers Warn of Term Life Rate Hikes in 2000; Others Say Claims Unfounded

Insurers, insurance agents and at least one discount brokerage firm are advising clients to buy certain life insurance policies before year-end to avoid skyrocketing prices. But consumer advocates, government regulators and even an industry trade organization say the hype is overblown.

Those issuing the warnings say that new state insurance regulations known as Triple X, scheduled to take effect in California on Jan. 1, may put an end to low-cost term life insurance. They predict the regulations will dramatically raise prices on new 15- to 30-year term policies and on certain universal life coverage, as well as lead to the disappearance of insurance policies that promise fixed premiums for more than five years.

This summer, the Legislature approved a bill that allows the state insurance commissioner to issue the regulations, which require insurance companies to set aside more money as reserves when selling policies with certain long-term guarantees.

Insurance agents have been using Triple X warnings in their sales pitches recently, and discount broker Charles Schwab sent a flier to its customers urging them to consider buying term life insurance before regulations go into effect.

The flier, prepared with the help of allied company Great-West Life & Annuity Insurance Co. of Edgewood, Colo., warns that “the era of low-cost, long-term policies with guaranteed premiums of 15, 20 or 30 years may be drawing to a close.”

Lynnda Sarinske, Schwab’s general manager for insurance and annuities, said insurers are trying to avoid price increases and policy changes, but that the new reserve requirements may force their hand.

“What we’re trying to do is keep our eyes open and make sure no one is surprised by” potential changes, Sarinske said. “Our customers don’t like surprises.”

Others say fallout from the new regulations, which were designed to prevent future insurance company insolvencies, is likely to be minimal.

“Don’t be bamboozled,” said Robert Hunter, director of insurance for Consumer Federation of America and former Texas state insurance commissioner. Overall, prices for term insurance “are falling like a rock, still, because of its competitive market right now. Triple X might slow it [the fall] a little bit, that’s all.”

Jack Dolan, spokesman for the American Council of Life Insurance, said some companies may have to raise their rates or discontinue longer-term insurance guarantees. But Dolan said those effects may be offset by improvements in judging mortality rates, a factor that has helped contribute to price drops in the past. Longer life spans and increased competition have also kept prices down. Indeed, term insurance has been falling in price for decades, particularly in the 1990s.

“We’re getting better all the time at what we do, which is [to] gauge risk,” said Dolan, whose trade group endorsed the regulatory changes. “The life insurance market is incredibly dynamic. Life insurers are always looking for ways to increase business” and lower prices, he said.

California insurance regulators say only certain types of term policies will be affected by Triple X--those that guarantee a policyholder can extend coverage after an initial period but that allow the premium to rise after that period. For example, a common term policy that would be affected is one that guarantees coverage for 20 years but only guarantees the premium for the first five.

Insurance Department Deputy Commissioner Norris Clark said true term insurance--the kind that ends completely with no continued guarantee of insurability--might even be positively impacted by the regulation.

“There’s a little bit more liberal reserving for those types of contracts, so the price might go down a little bit,” Clark said.

If the warnings about Triple X sound familiar, they are. Insurers have been issuing alerts about the regulations--and encouraging consumers to buy insurance immediately to avoid them--since they were first proposed four years ago. In the meantime, term life insurance rates have continued to drop.

These new regulations are based on guidelines issued by the National Assn. of Insurance Commissioners, a group of state regulators, which was concerned that some insurers were pricing policies with long-term guarantees too cheaply and failing to set aside enough money in reserves to cover the guarantees. More than 25 states are expected to adopt the regulations.

Consumers should resist being stampeded into buying life insurance, the consumer group’s Hunter said. Those who need it--generally people who have others who are financially dependent on them--should shop for prices from several insurers and buy from a highly rated company, he said.

“I’m always worried when a salesman tells me time’s running out,” Hunter said. “If you don’t have a reason to buy insurance, then forget about it.”

On the other hand, people who need insurance could use Triple X concerns as the excuse they need to buy a policy now, Dolan said.

“If you need life insurance coverage, there’s never a good reason to wait,” Dolan said.

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Times staff writer Liz Pulliam can be reached at liz.pulliam@latimes.com.

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A Life Insurance Primer

There are two basic types of life insurance--term and cash-value--but there are many variations. Here’s a quick guide:

Cash-value Insurance

Cash-value life insurance is the more expensive type of life insurance and offers coverage for life, with an investment component that enables policyholders to build up a tax-deferred cash value that may be borrowed against or taken as a lump sum if the policy is canceled.

Is it for you? Cash-value life insurance makes the most sense for wealthier people who have already contributed the maximum to their retirement accounts and who anticipate needing lifetime insurance coverage, or for people who want coverage to help with estate planning. Varieties of cash-value insurance include the following:

* Whole life insurance offers a face amount of coverage that can be kept for life--often with a premium that starts out higher than term insurance and doesn’t change through the life of the policyholder. Whole life insurance also has an investment component that builds up cash value.

Is it for you? People who meet the criteria for needing cash-value life coverage and who prefer the security of steady returns may want whole life insurance.

* Universal life insurance, like whole life, charges a premium that covers the death benefit and an amount to be invested. But universal life enables policyholders to vary the amount and timing of their premiums, with the accumulated cash value reflecting the premiums paid and the interest earned on the policy.

Is it for you? Those who meet the criteria for needing cash-value insurance, who prefer a policy where expenses are clearly delineated and who can afford to make large initial payments to ensure the returns are enough to pay future premiums may be candidates for universal life insurance.

* Variable universal life insurance provides death benefits and cash value that vary according to returns earned by stock, bond and cash investments held within the account and managed by the insurance company.

Is it for you? Variable universal serves people who meet the criteria for needing cash-value insurance and who are aggressive investors who want to use the insurance investment to tap stock market returns.

Term Insurance

Term life insurance is the simplest and least expensive type of life insurance and offers coverage for a specified period of time. It does not include a buildup of cash value.

* Level-term insurance, the most common kind of term life insurance, offers a specified amount of insurance that does not vary during the policy period. (There are also decreasing-term and increasing-term policies.)

* Level-premium insurance is a level-term policy that guarantees the premium will remain the same for a given length of time. Some term policies offer the option of converting to a cash-value policy.

Is it for you? Term life insurance works for those who want insurance without any other features. This is the best and cheapest solution for families whose need for insurance is likely to diminish with time, such as after the children get through college or the mortgage is paid off. Families on a budget who need a lot of insurance may not be able to afford enough of any other type of life insurance.