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.
To emphasize that this situation is very real, please click here to read an important article written by Jane Bryant Quinn, syndicated columnist for the Washington Post. When you are done with her article, please click your back button to return to this point, to continue with the rest of this article.
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 the company 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 surpise 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.
At the TERM4SALE web site, only fully guaranteed level term plans are compared.
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 os "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.
You Lose Your Guarantee
A company can avoid the reserve and price increases which Triple-X requires by simply removing the guarantee in its policy. Therefore, if a company wants to continue selling 20 year level term policies at today's very competitive prices, it can do so by simply removing the price guarantee (warranty) which it currently gives you. If it removes the warranty, the Triple-X regulation does not apply and the company can continue to sell at today's prices.
I have asked the nation's 50 Insurance Commissioners to explain this very simple but enormous contradiction. If life companies are selling 10, 15, 20 and 30 year term policies too cheap, then why would you allow them to continue doing that after Triple-X?
As I have explained to Insurance Commissioners, almost all life insurance companies have designed their current crop of level term products to quickly comply with Triple-X by having the initial premium guarantee removed or reduced. Future policies will still be available at today's prices, it's just that you the consumer will lose your price warranty.
Virtually all insurance regulators have refused to respond to the contradiction that I have drawn to their attention. The few who have responded seem very unconcerned by your loss of this important price warranty, a warranty/guarantee which most of today's companies give you. Incidentally, companies unwilling to give that guarantee have a hard time explaining why. Most multi-company agents, such as those who purchase and use the Compulife term comparison program, recommend that consumers buy fully guaranteed level term policies.
Some regulators have suggested that life companies will be required to disclose the non-guarantee product to consumers; but what does that mean? Will state regulators require life companies to tell you that they are lying to you? Once again, the argument is that these level term policies are too cheap, that companies will go out of business. If the solution is to permit companies to sell the very same policies without a price warranty, where the company can come back later and surprise you with a price hike, isn't the government really letting life companies lie to you about their true intentions?
Why Would Regulators Do This?
The life insurance industry is not regulated by the federal government, it is regulated by each state. Most states have an Insurance Commissioner in charge of that regulation. Most Insurance Commissioners are appointed by each state's governor.
Where do governors go to find individuals knowledgeable about the insurance industry? Many appoint people who have worked in the insurance industry. While that can be asset, it's also a big liability. Most Insurance Commissioner appointments are relatively short, only for a few years. Because of this, Insurance Commissioners know that they will eventually be looking for work elsewhere. Who would hire a former Insurance Commissioner? That's right, the same insurance companies that they are now regulating will provide the best opportunities for future employment. Therefore, no forward thinking Insurance Commissioner, considering his or her self-interest and future employment with the insurance industry, wants to do anything to upset that insurance industry.
This conflict of interest is further complicated by the National Association of Insurance Commissioners. The NAIC is an association whose members are the nation's individual Insurance Commissioners. Elected state senators and representatives are not part of the NAIC.
The NAIC is in the business, among other things, of crafting legislation that they want all states to adopt. The idea of these NAIC "model regulations" is to maintain uniformity between each individual state's insurance laws. The NAIC would argue that this helps smaller states with fewer resources, to take advantage of the efforts of larger states with greater resources. It also makes it easier for companies to do business from state to state if laws are all the same.
The problem is that the NAIC has become much too powerful. It is finding more and more ways to force states to adopt its model regulations whether those states want those regulations or not. The problem with all this is the question of political accountability.
The NAIC is an organization attempting to act in a nationwide lawmaking manner, without ANY accountability to federally elected politicians. Worse, the people that the NAIC is accountable to are largely appointed, not elected, state officials. Given that those appointed officials have such close ties to the insurance companies, it is easy to see why they have difficulty acting independently, in order to protect the people that they were appointed to protect: you the consumer.
The Proof Is In the Pudding
The allegations I have just made are serious; very serious. However, what other conclusion can someone draw when one considers an NAIC model regulation like Triple-X?
There is nothing in the Triple-X regulation which benefits you the consumer. Supporters of the regulation argue that there is, that you will be protected against life insurance company failures because the regulation will require life companies to maintain higher reserves.
But that's a fairy tale because most life insurance companies will respond to Triple-X by selling non-guaranteed level term policies, policies at the same premiums as today. If premiums don't go up, how is it that the life insurance industry will end up being financially stronger? That's impossible.
But won't knowledgeable and informed consumers buy the guaranteed premium policies? No they won't. Those saying that you have that option are failing to tell you just how much more money those guarantees will cost you.
For example, a 50 year old male non-smoker, in very good health (preferred plus), can buy $250,000 of 20 year term for as little as $525. Today, without Triple-X, that's the price of a fully guaranteed policy available in most states except New York. After Triple-X, the same premium will still be available but not guaranteed for 20 years.
By contrast, a consumer in New York state, where a form of Triple-X has already been adopted, would have to pay $752.50 for a similar product with the same 20 year guarantee.
It is my view that most people will not pay an extra $227.50 per year (an extra 43%) for the guarantee. This is particularly true when most companies will be arguing that they have no intention of raising the prices on these cheaper, non-guaranteed policies.
And after Triple-X, non-guaranteed policies are going to get even cheaper.
Once life companies no longer have to worry about guaranteeing prices, they will be less concerned with charging too little. After all, if they can raise your premiums later, why not price those premiums very low and be even more competitive? Therefore, the difference that now exists between $525 and $752.50 will widen even further.
Also keep in mind who gets the extra money that you would have to pay for the guaranteed product. If it turns out that the $525 premium did not have to go up, then you would have paid an extra $227.50 per year, for a total of 20 years, for a guarantee that you never needed.
Remember, the actual cost to a life company, to pay death benefits, does not change depending on the type of guarantee that you buy. Statistically, a certain number of people will die during the level term period. The fact that a policy premium is guaranteed does not impact the cost of claims to the life company.
So Who Benefits?
Who ends up with all the extra money a consumer would pay for a guaranteed Triple-X policy? The life insurance company gets that extra money. If you bought the guaranteed New York policy, and paid an extra $227.50 for 20 years, and you assume that the excess premium would have earned 5% interest, then the company ends up with an extra $7,898.63. None of that extra money would be refundable to you if it turned out that the guarantee was never needed. $7,898.63 extra profit is not a bad deal for a life company on a $752.50 premium.
If you do what I think most people will do, you will see the guarantee as being far too expensive and you will end up buying the cheaper non-guaranteed policy. Even if you do that, the company still benefits because they no longer have to give you a guarantee that they once did.
Either way you look at it, Triple-X is a pro-company, anti-consumer regulation.
How can state regulators, who are supposed to protect you, push for the implementation of such a bad law? The answer is that these regulators are operating not with your interest in mind, but with the interest of the life companies in mind.
If you need even more proof of this, consider that the ACLI has endorsed Triple-X. The ACLI describes itself as:
"a trade association representing 493 legal reserve life insurance companies conducting business in the United States"
The ACLI explains its mission at its web-site:
"to provide a unified association to advance the interests of the life insurance industry"
The ACLI acts for companies; not for consumers.
If Triple-X was bad for life companies, why would the ACLI be endorsing it?
What Should You As A Consumer Do?
You should be angry if your state regulator is considering passage of Triple-X without addressing the loophole in the regulation. You should also be angry if your state regulator is not actively fighting against other states adopting the regulation. Even if your state does not adopt Triple-X, the adoption of Triple-X by other states can impact the term insurance sold in your state.
The reason is that states passing Triple-X will make it extra-territorial. This means that ALL policies the company sells, not just the ones in the state passing the law, must conform to Triple-X. The only way a company could avoid this is to withdraw from that state. Simply put, if enough states pass Triple-X for January 1st, it won't matter what your state does. You will still be hurt.
Therefore, I recommend that you consider writing to your state's governor to ask why they would allow their Insurance Commissioner to participate in the passage of such an anti-consumer law. Regardless of whether your state actually passes it, as a member of the NAIC, your state has effectively endorsed this regulation through its participation in that organization. Why would your state even be a member of an organization which creates such anti-consumer laws as the NAIC is endorsing?
Most important, you need to act now to take advantage of the competitive level term policies available today. These are competitively priced policies which fully guarantee their level premium for the initial level term.
If you buy one of these policies today, the policy cannot later be amended to change its guarantee. Triple-X grandfathers all older policies sold before Triple-X implementation.
Incidentally, New Yorkers can ignore this advice because you've already been hit by your state's version of Triple-X. Your only alternative to the high priced guaranteed policies in New York, is to go to a nearby state to buy guaranteed level term, or to buy the non-guaranteed policies currently sold in your state. If you do decide to take a vacation out of New York this year, the amount that you will save, between a guaranteed New York policy, and a non-New York guaranteed policy, purchased in another state, may help you pay much of the cost of your vacation.
Get the Longest Guarantee You Need
Before Triple-X hits you need to buy a level term policy whose level term period (and its guarantee) cover you for the balance of the time period that you will need term insurance.
Most life insurance buyers do not need lifetime "whole life" type insurance. The reason is simple: Most of us buy life insurance to address the financial loss to our dependents if we die.
What is that financial loss? For most it is the loss of a breadwinner's income. If you earn $30,000 per year, money which your family depends on to live, then that paycheck will be gone if you die. However, this problem does not last for your whole life (which is why most people do not need whole life).
Most people plan to retire at age 65. At that point you stop working. At that point you stop earning a pay check. Where will your paycheck come from if you stop working? Your paycheck, if you retire, will come from sources such as pensions and retirement savings. If you have planned your retirement properly, then that income (or most of it) should continue to go to your spouse if you die. Therefore, if you and your spouse can live on that money together, don't you think one of your can? Incidentally, retired people rarely have dependent children.
If the surviving spouse has the income that they need, why would you need life insurance after you retire? Most do not although there are other reasons for life insurance that I will not be addressing here. Suffice it to say, most consumers need term insurance and level term is the best kind to buy.
Therefore, the longest period of time that you would need to buy life insurance is to the point that you retire. If you are age 45 (like me) and you need term insurance to age 65 (like I do), then it would be a good idea to buy a 20 year term policy with a full 20 year premium guarantee (like I recently did). By doing so, I have just purchased what should be the last term policy that I will ever need to buy. Therefore, Triple-X will not affect me, because I have purchased the last term policy I intend to own.
If I was 35, I would buy a 30 year term policy. If I was 50 I would have bought a 15 year term policy; whatever it takes to get you to the point you stop working.
In the case of my young adult children, I have acted, and I am still acting, to buy level term policies which guarantee future premiums for 40 years. While I would normally not insure such children (they are still dependent and do not contribute to our family's finances), I know that Triple-X will eliminate their ability to get today's guarantees, at today's prices. Knowing that they will need insurance in the future, I am guaranteeing their right to have fully guaranteed level term by buying it now, before I can't buy it at today's competitive prices. I urge all such young adults to do the same.
Note: TERM4SALE does not quote these 40 year policies because the premium are not actually level for 40 years. In the case of the policies I am referring to, the policies can switch (guaranteed) to 30 year policies after year 10. The agents in your area, who subscribe to and use Compulife's term comparison software, have access to that information in that software. They can provide you with that information if you call them.
As the TERM4SALE insurance comparison will explain and recommend, you can call Compulife at (800) 798-3488. We will be happy to provide you with the names of three Compulife subscribers in your area, who use our comparison program. We recommend that you read your comparison results carefully, to understand why you need talk to more than one life insurance agent.