This Saturday’s Wall Street Journal reported that life insurance companies are breaking a major “industry taboo” by raising rates on life-insurance policies they sold to consumers years ago. According to the article, insurers have already notified tens of thousands of people they cover to let them know that they plan to exercise a little-used contractual right to raise their policy cost. This move will affect seniors in their 70s and 80s who bought policies they have been paying into as far back as the 1980s—many of whom are now on fixed incomes. Millions of senior citizens are expected to be impacted.
Why you ask? Low interest rates have impacted investment returns which have lowered insurance carrier profits. This is an industry that recorded $177 Billion—that is with a “B”—in profits from investment income alone in 2014, according to the latest federal government report (p. 23). Apparently that’s not enough.
The article quotes Michelle Clements, whose family faces a 15% increase on the policy of an 80 year old family member. “I find it really challenging that the insurance industry has the ability to institute sharp increases such as this and the consumer is left with very little options as to what to do.”
The insurance industry is using contract fine print to squeeze customers? Are we really that surprised?