What to do if your life insurance company raised your rates

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If your life insurance rates recently increased, you’re not alone.

Faced with falling profits during the pandemic — largely due to interest rates that dipped to near zero — some insurers began raising rates on customers to make up for the shortfall, according to a recent Wall Street Journal report.

The rate increases ranged anywhere from the mid-single digits to 100% and beyond, according to the WSJ.

In response, a number of policyholders sued. Now, some insurance companies are doing an about-face and are issuing partial refunds to thousands of customers.

For example, the reinsurer for one company — Voya Financial — agreed to a settlement in which it paid back 76% of the extra insurance charges levied between mid-2016 and mid-2021, the WSJ reports.

Why insurers raise rates

Although policyholders are understandably unhappy about paying higher rates, it’s not unheard of for insurance companies to make such changes.

One type of life insurance policy — universal life — “is the big bad wolf” in the recent insurance rate-hike story, says Victor Vega, a licensed insurance agent and founder of Garden Mutual.

Vega says all universal life policies come with flexible premiums that allow the insurer to hike a policyholder’s costs.

“Most customers are improperly sold this product because they are typically never told that the insurance company can and will unexpectedly increase the premium,” he says.

Brad Cummins, principal agent and owner of Insurance Geek, notes that with universal life coverage, the insurer’s claims experience and investment performance can influence the rate a customer pays.

“Suppose the insurer’s claims experience is worse than expected, or their investment performance is lower than anticipated,” Cummins says. “In that case, they may need to raise the cost of insurance to maintain the policy’s financial stability.”

Other factors that can impact the cost of insurance include the insured person’s age, health and risk profile, he adds.

The recent spate of life insurance rate hikes might be tied in part to the COVID-19 pandemic, says Noah White, a licensed insurance agent and founder of Ark Burial Insurance.

“Life insurance companies across the board saw a large increase in death benefit payouts during this time,” he says. “So, they were somewhat bleeding money.”

How to avoid rate hikes

Vega says the key to avoiding a sudden rate hike is to steer clear of purchasing universal life policies.

Instead, he recommends other types of life insurance.

“This type of premium increase that these customers suffered would never have happened if they had purchased term life or whole life insurance,” Vega says.

White also says purchasing a whole life policy is a good way to avoid rate hikes.

“If it is a whole life policy, that rate is fixed and will never increase or fall off the books unless you miss the payment,” he says.

White says dealing only with top-rated insurance companies also might offer a measure of protection from rate hikes.

“In my opinion, you won’t find very many, if any, A-plus-rated carriers doing business this way,” he says.

What to do if an insurer raises your rates

If you already have a universal life policy and have received notice of a rate hike, Vega says one option is to consider withdrawing any cash value that you have available and replacing your old policy with a term life or whole life policy “before the universal life policy lapses.”

Cummins says those who find themselves facing a rate hike can “ask for a death benefit reduction to help lower the cost of the insurance.” Or, they can simply pay the additional premium cost.

Another option is to sell your policy for cash as part of a life settlement, Cummins says. This is the sale of a life insurance policy to a third party known as a life settlement provider. In exchange, you receive an immediate payment.

White says that if you receive a notice of a rate hike, you should take the news as a warning sign to consider moving on to another insurer.

“I recommend to start shopping around,” he says. “Odds are, they will increase it again at some point. Move your business to a reputable carrier and be at ease.”

Sources:

Wall Street Journal. “Life Insurers Boosted Premiums, Now They Are Paying Refunds.” Accessed March 2023.

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Chris Kissell

Contributing Researcher

Chris Kissell is a Denver-based writer and editor with work featured on U.S. News & World Report, MSN Money, Fox Business, Forbes, Yahoo Finance, Money Talks News and more.