Lower life insurance pricing from new mortality rates may not translate to better performing Indexed Universal Life (IUL) policies

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It seems that the prices for life insurance products will experience some huge changes next year. There are three pieces of legislation and regulations that will be making financial advisors face a challenging storm including the adoption of the 2017 CSO table, the Principal-Based Reserves deadline, and the implementation of the Tax Cuts& Job Act of 2017. Since the first day of January 2020, any new life insurance policy issued will be forced to rely on the three legislations mentioned above.

What led to the change? 

Life insurance is pretty simple to understand concept for anyone. People pay premiums and in exchange, their family members may receive a certain amount of money after their death. It is a method to ensure the financial protection of your family after you pass away. One of the most popular life insurance options is the indexed universal life insurance also known as IUL insurance. What is different about this type of option is the fact that it provides the opportunity for the cash value of the policy to grow depending on how well are doing the market indexes. 

Up until now, the CSO table used for calculating a policy’s minimum cash value was created in 2001. However, over time, the greater preferred risk mortality and the older age experience have changed which led to the need for a change in the CSO table. Simply put, what led to the change was the fact that mortality rates have become lower which now also reflects in the new tables of CSO. 

Apart from new mortality rates, there will also be a change in the way insurance companies calculate their reserves. From now on, the solution is a principle-based approach compared with the previous conservative formulas which used to be prescribed by state laws. 

Another aspect that will have a huge impact on life insurances starting 1st of January 2020 is the Tax Cut and Jobs Act which can free up income which can be a way to purchase life insurances, especially for entrepreneurs. 

How can this affect Indexed Universal Life policies? 

Along with all these changes, there will also be changes in the use of MEC Testing which can be very unfavorable for IUL policies. Simply put, IUL policyholder will have to carry a lot more death benefits no matter the amount of premium that fuels their policy. Thus, we are talking about greater IUL fees when using the 2017 CSO table than as it was when the 2001 table was in use. 

Should you choose an IUL insurance? 

While some of the life insurance policymakers have complied already to the changes that are soon about to come, others are still waiting until the deadline of 31 December 2019. Whenever looking for the indexed universal life insurance pros and cons (IUL), you can find various myths or half-truths that may leave you in confusion. However, despite the criticism you may find on the Internet about IUL, there are three pros that may convince you that you should go for an IUL insurance:

  • IUL insurance has a guaranteed 0% floor in bad market times
  • IUL insurance has a reset feature every year
  • Volatility can work in the favor of your IUL insurance policy

It is advisable for those who are planning to get an IUL policy to discuss their intention with an insurance expert who can explain how their policy will be affected by the changes that are soon to come.

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