Life insurance is something many people don’t like to think about, but it’s a necessary part of planning for the future. It can be a costly expense as well, but fortunately rates are dropping, making life insurance policies more affordable than in the past. A new framework for determining rates has been adopted by most of the states. It was put into effect on January 1, 2017 and will have a big impact once insurance companies have made the transition.


What is the Principle-based Reserve System?

For many years, the life insurance industry used a standard formula for determining rates. The result is high reserves to pay out for claims. However, there were often more reserves than what would be needed.


The new method is a principle-based system which uses the amount of reserves needed and what is on hand to determine rates for policyholders. Insurance companies in the states which have implemented this system will have three years to roll it out.


Two types of life insurance will see a big impact from the new system. Term insurance will likely drop rates to reduce the reserves they have gathered. The second type is universal life with a secondary guarantee. For this insurance, companies may need to increase their reserves, which could result in higher premiums. On the other hand, some universal life companies may also see a drop in reserves, which means a reduction in rates. Either way, policyholders can feel more confident about the stability of their life insurance plans.


Longer Life Expectancy

Another reason life insurance rates may go down is because life expectancy is going up. In a nutshell, people are living longer. This means they will pay into life insurance for a longer period before the family must file a claim. Since insurance companies have longer to get the funds they need from the premium, they can spread it over a longer time, which means monthly premiums are lower.


While this benefit mainly affects whole life insurance, it can impact term life as well. You may have already noticed that premiums for a 30-year term policy differ from a 10-year policy. The differences in cost may become less noticeable, depending on the age of the person applying.


Getting Affordable Life Insurance

These changes to life insurance rates will affect new policyholders rather than those with a current policy. However, you may be looking to get a policy for your spouse or even a second policy, and the lower rates could benefit you.


Your individual rate will depend on your age and health and certain lifestyle habits. However, a trend towards lower insurance rates will be beneficial for most people who are considering purchasing a policy. If you’ve never felt you could afford a policy, now might be a good time to compare rates and get quotes from some life insurance providers to provide the protection for your family that they will need if something should happen to you.


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