Home › Guides › Why Your Life Insurance Premium Went Up

Why Your Life Insurance Premium Went Up

The usual causes, and the documents that show which one applies to you

A bill arrives and the number is not the number you have been paying. Sometimes the change is modest and sometimes it is steep enough that the household budget cannot absorb it. There is almost always a specific reason, written into the policy or the billing arrangement, and it can be found. This guide goes through the causes in the order they turn up.

Figure out which kind of policy you hold

Almost everything depends on this, so start here. Term insurance covers a set number of years for a premium that is usually level during that period. Whole life is designed with a premium meant to stay the same for life. Universal life is flexible by design, which means the amount being billed is not fixed by the contract in the same way. Final expense and burial policies are usually small whole life plans.

The schedule pages at the front of the policy say which one you hold and what the premium was promised to do. If those pages are long gone, the insurer can send a copy of the policy and a current statement.

A term policy at the end of its level period

This is the most common cause of a large jump. Term insurance holds a level premium for a stated period. When that period ends, many policies do not simply stop. They continue on a renewable basis, and the cost is recalculated each year based on the insured's attained age, which is what age they have reached rather than the age when the policy was bought. Because the cost of insuring someone rises steadily in later life, the renewal figures climb, and the climb accelerates.

If this is what happened, the letter or bill usually shows a new premium that took effect on a policy anniversary. Ask the insurer for the schedule of future renewal premiums in writing. Seeing several years at once tells you far more than one bill does.

A universal life policy asking for more

Universal life works like an account inside a policy. Premiums go in, charges for the cost of insurance and administration come out, and interest or investment performance is credited to what remains. The charges rise as the insured ages. If the credited rate over the years has been lower than what the original sales illustration assumed, or if payments were skipped or reduced along the way, the account can fall behind what the policy needs to stay in force. The insurer then bills a higher amount, or sends a notice asking for additional funding.

The document to ask for here is an in-force illustration. That is a projection prepared by the insurer using the policy as it stands now, showing what happens at different levels of payment. Ask for one at the current premium and one showing what it would take to carry the policy to a later age. It is the most useful piece of paper in a universal life conversation.

The smaller reasons a bill changes

• Paying monthly rather than annually. Most insurers charge more in total when premiums are spread across the year. A change of payment frequency, sometimes made years earlier, shows up as a higher amount per year.
• A rider that changed. Extra benefits attached to a policy, such as a child rider, accidental death coverage or a waiver of premium benefit, have their own costs and their own end dates. One ending or re-pricing changes the bill.
• A term rider inside a permanent policy. Some whole life policies were sold with a block of term coverage attached, and that portion behaves like term insurance when its period runs out.
• Group coverage through work or an association. Group rates are often set in age bands, so the cost steps up when the insured moves into the next band.

Where people get this wrong

• Paying the higher amount without asking why. The reason is knowable. Call and ask what changed and on what date, and ask for it in writing.
• Assuming a mistake was made. Billing errors happen, but a jump at a policy anniversary is usually the contract doing exactly what it says. Read before disputing.
• Canceling the same week. Once coverage ends it is gone, and anything new is priced on today's age and health. The decision deserves more than one afternoon.
• Paying only part of the bill. A partial payment does not usually hold a policy in force, and it can start a lapse without anyone intending it.
• Not asking what else the policy allows. Many contracts contain other levers, such as reducing the amount of coverage or using accumulated value. Whether any exist in your policy is a question of what is written in it.

Questions people ask