You Snooze, You Loose.

In the last three days, I received notification from several insurance companies (providing Long Term Care, Annuities, life insurance, etc.) who are getting rid of income riders, charging more for coverage, and decreasing the benefits on their new policies.  The reason: extremely low interest rates over the past 3-years in conjunction with the low-rates forecasted for the next few years.

Insurance companies make money through two approaches; 1) by using accurate mortality/morbidity rate charts, and 2) Investing the retention proceeds of the business in a manner to increase its positive cash flow.  Now that interest rates are so low, insurance carriers are having a more difficult time trying to make money—and remaining solvent within the state’s capital ratio requirements for insurance carriers.

Over the years, I’ve seen riders (those are optional features on an insurance policy) provide guaranteed income streams of 5-6% for the life of the policy holder.  If you wish to know what is currently available, please inquire with my office.  Guarantees by insurers are rapidly changing during these economically challenging times and many (if not most) of these riders may not be available to new policy subscribers in the near term future.  Only those people who signed a contract when they were available–and kept it in force–will be the ones to have transferred some measure of risk of the markets to the insurance company(ies).

Getting a promise (aka contract) with an insurance carrier can be an appropriate strategy for some.  Insurance products are not for everyone, and there are still risks associated with them.  But being able to create a flow of income for the rest of your life—without regard for the market—can be a value added feature to have as part of your portfolio.  It’s just that nowadays, it is becoming a challenge to find such rich benefits as were offered in the ‘not so distant’ past.