Who Gets the Life Insurance Premium Increase Notice?

On October 22, InsuranceNewsNet reported a gap that few policyholders know about. In most of the largest states, a life insurer can raise the premium on an existing policy without sending a copy of the life insurance premium increase notice to the agent who sold or services it. California is one of those states. The National Association of Insurance and Financial Advisors (NAIFA) wants that to change, and the reasons matter for any South Bay household that has carried a policy for years.

What the October 22 report found

InsuranceNewsNet asked regulators in the 10 most populous states, home to about 184.8 million people, if insurers must tell the agent of record before a premium goes up on a policy already in force. New York, Texas, Pennsylvania, Illinois, Ohio, Michigan and North Carolina have no such law. Georgia did not respond. The California Insurance Code does not require it either, although owners of individual life policies here can name a person to receive lapse notices.

Florida comes closest. Insurers there must send the agent a copy of a lapse notice at least 21 days before the lapse takes effect, but only for policies in force at least one year that cover someone age 64 or older, and several exemptions apply.

On September 16, NAIFA adopted a formal position asking states to require that any notice of a premium or expense charge increase go to the writing or servicing agent at the same moment it goes to the client. NAIFA CEO Kevin Mayeux told InsuranceNewsNet the issue is likely too narrow for a model law from the National Association of Insurance Commissioners, so the group plans to press state commissioners and legislators directly. Practices vary by company: MetLife said it routinely sends the servicing agent an advance copy.

How a $56 increase cost a Chicago family its coverage

The report pointed to a case first covered by CBS News Chicago in June. A Chicago policyholder, age 82, had paid into a $100,000 Transamerica policy for about 25 years. In March the monthly premium rose by $56. Her automatic payment stayed at the old amount, leaving a $112 shortfall after two months, and a letter postmarked April 25 said the policy had lapsed. The family said it never saw a notice of the increase.

The Illinois Department of Insurance said regular mail is acceptable notice under state law. Once CBS News Chicago contacted the company, Transamerica allowed reinstatement, but only after a $1,581 payment, which the family made in protest. Transamerica declined to discuss the details of the case.

A letter went unnoticed, an automatic payment stayed the same, and nobody else was told. That chain is why NAIFA wants agents copied.

Where California stands on a life insurance premium increase notice

California offers stronger lapse protection than many states, even without an agent notice rule. Under Insurance Code section 10113.71, individual life policies carry a grace period of at least 60 days after a premium is due. If a premium goes unpaid, the insurer must mail a notice by first class mail within 30 days, and a termination for nonpayment does not take effect unless notice went out at least 30 days before the termination date.

Section 10113.72 adds a second safeguard. Before a policy is issued, the applicant must be offered the chance to name at least one other person to receive lapse and termination notices, and the insurer must remind the owner every year of the right to change or add that designee.

Those rules help after a payment is missed. They do not put a second person in the loop when the premium first goes up, which is exactly the moment the Chicago case turned on. For families in Morgan Hill, San Jose, Fremont and Gilroy, the practical safety net is the policy owner, the named designee and an agent who is paying attention.

Steps worth taking this fall

List every policy in the family. Older relatives often hold coverage bought decades ago. Our guide to finding a loved one’s policy explains the free NAIC locator.
Confirm the lapse designee. Call the insurer and ask who is on file. An adult child or another trusted person in the Bay Area is a common choice.
Match the automatic payment to the current bill. Compare the latest annual statement with the amount actually leaving the bank account each month.
Update the mailing address and phone number after any move, including a move into assisted living or in with family.
Treat any increase letter as a reason to call. Premiums on many existing policies can change, so no future amount should be assumed.
Know the agent of record by name. Our earlier post on trust in life insurers covers why a reachable local agent matters, and the Atlantic Coast Life sales halt shows why the carrier’s financial strength deserves a periodic check as well.

Common questions

Can an insurer raise the premium on a policy already in force?

Some policies allow it within limits written into the contract, while others lock the premium for a set period. The policy contract and the annual statement show which terms apply, and an agent can read them alongside the owner.

What happens in California if a payment comes up short?

Individual life policies have a grace period of at least 60 days, and the insurer must mail a notice to the owner and any named designee within 30 days of the missed premium. Coverage stays in force during the grace period.

Will the agent hear about an increase automatically?

Not under current California law. Some insurers copy the servicing agent as a matter of practice, but the surest approach is for the owner to forward any increase letter to the agent right away.

Sources

Families in Morgan Hill, San Jose, Fremont and across the South Bay who want a second look at an older policy, or a new quote, can request a quotation or get to know Reese. So, who’s your agent? If you don’t have one, we’d be happy to help.

Photo: Autumn vineyard in Morgan Hill by huxx8888, CC0, via Wikimedia Commons. General education, not personalized financial or legal advice.