UpLoads and Down(No)Loads

A major player in the “No-Load” Life Insurance arena is halting all sales this fall. We have sold relatively few of their policies so it will not impact Algren in any meaningful way, however, I believe this is quite telling and will impact the No-Load space a great deal.

While it is conjecture at the current time, a source disclosed to us that he believes the carrier is halting sales due to the cost of repricing for Principles Based Reserving.

Here is why this is telling. Contrary to popular belief, “No-Load” products are not without costs. Many I have analyzed are more expensive internally over the life of the contract than their Loaded counterparts (the most common loaded products have higher up-front charges that substantially decrease around year 10). The reason they are more expensive is simple, carriers do not sell enough product to maintain the necessary profit margin.

Here is what is most concerning. If the cost of repricing a product line is too great, then what happens to the older blocks as they weigh down profitability. Could these products see Cost of Insurance increases down the line? If what is conjecture today, is the truth, I firmly believe so. Not all carriers that sell them, but certainly some.

Until these products become more mainstream – thereby decreases internal costs per policy – I am still very skeptical on their appropriateness in most scenarios.