Term Life Insurance Articles
How The Recession Has Affected Average Life Insurance Premiums
2012-01-06
According to the Wall Street Journal, prior to 2009, life insurance premium rates were steadily falling. However, all that changed when the recession hit full force. According to the newspaper, life insurance premiums are on the rise for the first time in years, and individuals who are used to waiting for lower rates may want to buy now to avoid rising insurance costs.
The Wall Street Journal notes that life insurance premium prices have been rising for two primary reasons. First, the recession has hit the credit market hard, so life insurance companies have had a harder time maintaining the cash flow they need to survive. Like most businesses, life insurance companies do not keep a vault filled with the money of previously paid premiums in their central office. Instead, the money they receive is invested or used for daily operations, such as paying employees or heating the company. When they must pay out on a large life insurance policy of several thousand or even several million dollars, life insurance companies have to obtain the cash on credit. However, tighter credit markets have made this harder, which has resulted in rising premiums.
The second reason why the Wall Street Journal noted that life insurance companies are raising their premiums is the fact that, like most businesses, they are not getting the returns they were able to get post-recession. Life insurance is a form of investment for the company. They roll out a policy hoping an insured person will not die before they have earned enough money to make a profit on the policy. However, individuals have been dying sooner than most insurance companies have anticipated as of late, meaning less money for insurance companies.
The recession has also affected the number of people purchasing life insurance policies. While many people try to hold on to their life insurance policies because they want to take care of their families once they are gone, it is financially impossible for some. As more and more layoffs take place, individuals also lose their group policies but are unable to afford to continue them as individual plans.
Although people often think of life insurance as a recession-proof business, this is not always the case. People continue to buy life insurance during a recession, but the factors above can still cause life insurance companies to lose money. For this reason, individuals who need life insurance should not wait around to buy. By purchasing life insurance sooner rather than later, they will likely be able to pay a lower price, which means that they will probably be able to keep paying for life insurance even during the recession that brings about rising insurance costs.
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According to the Wall Street Journal, prior to 2009, life insurance premium rates were steadily falling. However, all that changed when the recession hit full force. According to the newspaper, life insurance premiums are on the rise for the first time in years, and individuals who are used to waiting for lower rates may want to buy now to avoid rising insurance costs.
The Wall Street Journal notes that life insurance premium prices have been rising for two primary reasons. First, the recession has hit the credit market hard, so life insurance companies have had a harder time maintaining the cash flow they need to survive. Like most businesses, life insurance companies do not keep a vault filled with the money of previously paid premiums in their central office. Instead, the money they receive is invested or used for daily operations, such as paying employees or heating the company. When they must pay out on a large life insurance policy of several thousand or even several million dollars, life insurance companies have to obtain the cash on credit. However, tighter credit markets have made this harder, which has resulted in rising premiums.
The second reason why the Wall Street Journal noted that life insurance companies are raising their premiums is the fact that, like most businesses, they are not getting the returns they were able to get post-recession. Life insurance is a form of investment for the company. They roll out a policy hoping an insured person will not die before they have earned enough money to make a profit on the policy. However, individuals have been dying sooner than most insurance companies have anticipated as of late, meaning less money for insurance companies.
The recession has also affected the number of people purchasing life insurance policies. While many people try to hold on to their life insurance policies because they want to take care of their families once they are gone, it is financially impossible for some. As more and more layoffs take place, individuals also lose their group policies but are unable to afford to continue them as individual plans.
Although people often think of life insurance as a recession-proof business, this is not always the case. People continue to buy life insurance during a recession, but the factors above can still cause life insurance companies to lose money. For this reason, individuals who need life insurance should not wait around to buy. By purchasing life insurance sooner rather than later, they will likely be able to pay a lower price, which means that they will probably be able to keep paying for life insurance even during the recession that brings about rising insurance costs.
