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Why 2026 Is the Year to Lock In Life Insurance Rates: Market Shifts, Tax Changes & New Underwriting Trends

Introduction: 2026 Is a Turning Point for Life Insurance

Across Arizona and California, families, homeowners, and professionals are feeling the impact of rising costs, shifting markets, and new financial regulations. In 2026, life insurance has become one of the most searched financial topics — and for good reason.

Rates are changing. Underwriting rules are tightening. Tax laws are shifting. And carriers are adjusting pricing models based on updated mortality tables and economic forecasts.

For families in Phoenix, Tucson, Superior, Casa Grande, Los Angeles, the Bay Area, Yuba City, and Orange County, these changes create a unique window of opportunity: 2026 is one of the best years in the last decade to lock in life insurance rates before additional increases hit.

This guide breaks down what’s changing, why it matters, and how to protect your family’s financial future before the next round of adjustments.

Why Life Insurance Rates Are Changing in 2026

1. Updated Mortality & Longevity Data

Insurance carriers periodically update mortality tables. In 2026, new data shows:

• Longer life expectancy in some demographics

• Higher health-risk trends in others

• Increased chronic illness rates in certain regions

These shifts cause carriers to adjust pricing — sometimes up, sometimes down — but historically, rate increases follow new mortality table releases.

2. Economic & Market Volatility

Inflation, interest rate fluctuations, and investment performance all influence life insurance pricing. Carriers rely on long-term investment returns to keep premiums stable. When markets shift, premiums often follow.

3. New Tax & Regulatory Changes

2026 introduces:

• Adjustments to estate tax thresholds

• New IRS reporting rules

• Updated suitability and disclosure requirements

These changes affect how policies are structured and priced.

4. Underwriting Tightening Across the Industry

Carriers are becoming more selective due to:

• Higher claims volume

• Increased healthcare costs

• Post-pandemic risk modeling

This means getting approved today may be easier than getting approved next year.

Why Locking In Rates Now Matters for AZ & CA Families

Life insurance pricing is based on:

• Age

• Health

• Lifestyle

• Risk class

Every year you wait, premiums rise — even without industry-wide increases.

Local Impact: Arizona

In Phoenix, Tucson, Superior, and Casa Grande, families are experiencing:

• Higher cost of living

• Increased homeownership

• Growing multigenerational households

Life insurance is becoming a core part of financial planning.

Local Impact: California

In Los Angeles, the Bay Area, Yuba City, and Orange County, residents face:

• Higher estate values

• Higher income taxes

• Larger financial responsibilities

Life insurance is being used for:

• Income replacement

• Mortgage protection

• Estate planning

• Business continuity

Locking in 2026 rates protects your family from future increases and ensures long-term affordability.

What’s New in 2026 Underwriting?

1. More Digital Underwriting

Carriers now use:

• Prescription databases

• Electronic health records

• Predictive analytics

This speeds up approvals but also means less wiggle room for borderline health conditions.

2. Stricter Guidelines for Certain Conditions

Conditions seeing tighter underwriting:

• Diabetes

• High blood pressure

• Sleep apnea

• Obesity

• Nicotine use

3. More No-Exam Options

Good news: 2026 has more simplified-issue and accelerated underwriting options than ever before.

This benefits:

• Busy professionals

• Parents

• Seniors

• Small business owners

Who Benefits Most From Locking In Rates in 2026?

1. Homeowners

Especially in:

• Phoenix

• Casa Grande

• Los Angeles

• Orange County

Mortgage protection is a top priority.

2. Young Families

Life insurance is most affordable in your 20s–40s.

3. Business Owners

Particularly in:

• Tucson

• Bay Area

• Yuba City

Uses include:

• Key person coverage

• Buy-sell agreements

• Business continuity planning

4. Seniors Planning for Final Expenses

Even if you already have coverage, adding a small policy can help with:

• Funeral costs

• Medical bills

• Legacy planning

Pros & Cons of Locking In Life Insurance in 2026

Pros

• Lock in lower rates before future increases

• Avoid stricter underwriting rules

• Protect your family during economic uncertainty

• More no-exam options available

• Stronger tax-advantaged planning opportunities

• Peace of mind for Arizona & California families

Cons

• Premiums are an ongoing commitment

• Waiting may limit your options

• Health changes can impact eligibility

• Some policies require medical exams

FAQs (2026 Edition)

1. Are life insurance rates going up in 2026?

Many carriers are adjusting rates due to new mortality tables and economic conditions.

2. Is now a good time to get life insurance?

Yes — 2026 offers a unique window before additional underwriting tightening and pricing changes.

3. Do I need a medical exam?

Not always. Many policies offer no-exam or simplified-issue options.

4. What if I already have life insurance?

You may still benefit from reviewing your coverage or adding supplemental protection.

5. How much coverage do families typically need?

Many aim for 10–15× annual income, but needs vary.

6. Can seniors still qualify?

Yes — especially for final expense or simplified-issue policies.

7. Are rates different in AZ vs. CA?

Rates vary by state, age, and health, but both states are seeing similar industry trends.

8. How long does approval take?

Anywhere from same-day to a few weeks depending on the policy.

9. Does life insurance help with estate planning?

Absolutely — especially in high-value markets like Los Angeles and the Bay Area.

10. Can I get coverage if I have health issues?

Yes — options exist, but earlier is always better.

Term Life Insurance in Phoenix & Tucson: Affordable Protection for Arizona Families

Families across Phoenix, Tucson, and surrounding Arizona communities are searching for affordable, reliable ways to protect their loved ones. With rising living costs, growing families, and long-term financial planning becoming more important than ever, term life insurance remains one of the most cost-effective ways to secure your family’s financial future.

At ASJ Insurance and Financial Services Inc, we help Arizona residents compare top-rated term life insurance options, understand their coverage needs, and choose policies that fit their budget — without pressure, confusion, or hidden surprises.

Whether you live in Phoenix, Scottsdale, Mesa, Chandler, Gilbert, Glendale, Peoria, Surprise, Goodyear, Buckeye, Tucson, Oro Valley, Marana, Sahuarita, or Vail, our team is here to help you protect what matters most.

Why Term Life Insurance Matters for Arizona Families

Term life insurance provides maximum coverage at the lowest cost, making it ideal for:

• Growing families

• Homeowners with a mortgage

• Parents with young children

• Business owners

• Anyone wanting affordable financial protection

With term lengths ranging from 10 to 30 years, you can lock in low rates while ensuring your family is protected during the years they need it most.

Benefits of Term Life Insurance

1. Affordable Monthly Premiums

Term life insurance offers the highest coverage for the lowest cost — perfect for families on a budget.

2. Simple, Straightforward Coverage

No complicated investment components. Just pure protection.

3. Flexible Term Lengths

Choose 10, 15, 20, 25, or 30 years based on your financial goals.

4. Ideal for Mortgage Protection

Many Phoenix and Tucson homeowners use term life insurance to ensure their mortgage is covered if something unexpected happens.

5. Peace of Mind for Your Loved Ones

Your family receives a tax-free payout to cover:

• Mortgage payments

• Living expenses

• Childcare

• College tuition

• Final expenses

Local Insight: Why Phoenix & Tucson Residents Are Buying More Life Insurance

Arizona families are facing:

• Rising housing costs

• Growing childcare expenses

• Increasing medical costs

• Higher financial responsibilities

Term life insurance provides a low-cost safety net that protects your family’s financial future — even if life takes an unexpected turn.

Who Needs Term Life Insurance in Arizona?

Phoenix Metro

• Young families in Mesa, Chandler, Gilbert

• Homeowners in Goodyear, Surprise, Peoria

• Professionals in Scottsdale & Tempe

Tucson Metro

• Families in Oro Valley & Marana

• First-time homeowners in Vail & Sahuarita

• University employees & medical professionals

If someone depends on your income, you need term life insurance.

Pros & Cons of Term Life Insurance

Pros

• Lowest-cost life insurance option

• High coverage amounts

• Easy to understand

• Flexible term lengths

• Ideal for families and homeowners

Cons

• Coverage ends when the term ends

• No cash value component

• Renewal rates may increase later in life

Frequently Asked Questions (FAQ)

1. How much term life insurance do I need?

Most Arizona families choose coverage equal to 10–15 times their annual income, plus mortgage balance and debts.

2. How long should my term be?

Choose a term that covers your major financial responsibilities — often 20–30 years for families with young children.

3. Is term life insurance expensive?

No. It’s the most affordable type of life insurance, especially for healthy adults.

4. Can I get coverage if I have health conditions?

Yes. Many carriers offer flexible underwriting options.

5. How fast can I get approved?

Some policies offer same-week approval, depending on your health and coverage amount.

Why Arizona Families Choose ASJ Insurance and Financial Services Inc

• Local Arizona expertise

• Access to top-rated national carriers

• Personalized coverage recommendations

• Transparent, no-pressure guidance

• Fast quotes and easy applications

We help you compare options, understand your coverage, and choose a policy that protects your family without straining your budget.

Why Peoria & Glendale Trust ASJ Insurance for Life Insurance

Life in the West Valley: Securing Your Family’s Future

Peoria and Glendale, Arizona, are vibrant communities known for their sunny skies, growing families, and bustling local economies. You are raising a family near the State Farm Stadium in Glendale. You are enjoying retirement in a Peoria active adult community. Or, you are building your career. Protecting your loved ones is always a top priority.

While we often focus on immediate needs, planning for the unexpected is a cornerstone of responsible financial management. This is where Term Life Insurance from ASJ Insurance & Financial Services Inc. becomes invaluable. It is not about if something happens, but ensuring your family is secure when it does.

Understanding Term Life Insurance: Simple, Affordable Protection

Term life insurance is straightforward: it provides coverage for a specific period, or “term” (e.g., 10, 20, or 30 years). If you pass away during this term, your beneficiaries get a tax-free payout. It’s often the most affordable way to get significant coverage, making it ideal for:

  • Young Families: To replace income and cover expenses like mortgages and childcare. Cover college tuition for your children attending schools in the Peoria Unified School District or Glendale Union High School District.
  • New Homeowners: Ensure your family can stay in their home. This applies whether it’s in Arrowhead Ranch (Glendale) or Vistancia (Peoria). This is important if something happens to the primary breadwinner.
  • Business Owners: To protect your business from financial disruption.
  • Debt Coverage: To cover outstanding debts like car loans, credit card balances, or personal loans.

Why Peoria & Glendale Residents Choose ASJ Insurance & Financial Services

Navigating the world of life insurance can be complex. Here’s why families across the West Valley trust ASJ Insurance & Financial Services:

  1. Local Knowledge, Personalized Service: We are not a distant call center. We understand the specific needs and concerns of Peoria and Glendale residents. Our local presence means we are here to give tailored advice face-to-face or virtually, whenever you need us.
  2. Access to Top Carriers: As an independent agency, we partner with a wide range of A-rated insurance companies. This means we can shop around for you. We compare multiple quotes to find the best coverage. We guarantee you get the most competitive price. You obtain “Smart Options” for your protection.
  3. Comprehensive Financial Planning: Life insurance is just one piece of the puzzle. We offer a holistic approach to your financial well-being. Our aim is to help you integrate life insurance with retirement planning. All of these services are offered under one roof.
  4. No-Obligation Consultation: We believe in educating our clients. We will help you understand your options. We will explain the benefits. We will help you in determining the right amount of coverage without any pressure.

Term Life Insurance FAQs for Peoria & Glendale Residents

Q: How much Term Life Insurance do I need?

A: This depends on your income. It also depends on your debts (like your mortgage in Glendale or Peoria). The number of dependents and your future financial goals (like college savings) are also considered. We’ll help you calculate an appropriate amount during your consultation.

Q: Is Term Life Insurance expensive?

A: Often, it’s far more affordable than people expect, especially if you’re young and healthy. A 20-year term policy with substantial coverage could cost less than your daily coffee.

Q: What happens if I outlive my term policy?

A: When the term ends, your coverage stops. You can choose to renew (at a higher premium), convert it to a permanent policy, or let it expire if your financial situation has changed and you no longer need coverage (e.g., your children are grown, mortgage is paid off).

Q: Can I get Term Life Insurance if I have a pre-existing condition?

A: Yes, in many cases! While it can affect your rates, many carriers are accommodating. We specialize in finding solutions for individuals with various health backgrounds.

The Essential Guide to Life Insurance for Young Families

Introduction: Life is full of unexpected twists and turns, especially for young families. Between raising children, building careers, and planning for the future, it’s easy to overlook the importance of life insurance. However, having a robust life insurance plan can provide the peace of mind and financial security your family needs. In this post, we’ll explore why life insurance is crucial for young families and how to choose the right policy.

Why Life Insurance Matters: Life insurance is a safety net for your family. It ensures that they are financially protected if something happens to you. This can help cover expenses such as mortgage payments, childcare costs, and daily living expenses.

Choosing the Right Policy:

  • Term Life Insurance: Ideal for young families on a budget. It provides coverage for a specified period and is generally more affordable.
  • Whole Life Insurance: Offers lifelong coverage and a cash value component that can be used as an investment tool.

Factors to Consider:

  • Coverage Amount: Consider your family’s financial needs, including outstanding debts and future expenses like college tuition.
  • Premiums: Ensure the policy fits within your budget without compromising other essential expenses.
  • Riders and Add-ons: Look for additional benefits such as disability riders, which can provide extra protection.

Conclusion: Life insurance is a crucial part of financial planning for young families. It provides a safety net that ensures your loved ones are taken care of, no matter what life throws your way. Start exploring your options today and give your family the security they deserve.

At ASJ Insurance & Financial Services Inc., we offer one on one no obligation consultation to create a plan that will work for you now and that can be modified in future with changing needs. Reach out to get started.

Term Life Insurance: Your Financial Safety Net Explained

Term life insurance is a fundamental type of life insurance designed to provide financial protection for your loved ones for a specific period, or “term.” It’s a simple, affordable, and effective way to ensure your family’s financial security if you were to pass away unexpectedly during the policy’s term.

How Does Term Life Insurance Work?

  1. Choose a Term: Select the length of coverage you need, typically ranging from 10 to 30 years. This term aligns with your specific financial obligations, such as paying off a mortgage, covering your children’s education, or providing for your spouse’s income needs.
  2. Set a Coverage Amount: Determine the amount of death benefit your family would require to maintain their lifestyle and cover expenses like funeral costs, outstanding debts, and daily living costs.
  3. Pay Premiums: Pay regular premiums to keep your policy active. These premiums remain level throughout the policy term, making it easy to budget for your life insurance coverage.
  4. Death Benefit: If you pass away during the policy term, your beneficiaries will receive a tax-free lump sum payment equal to the coverage amount you selected. They can use this money to cover their immediate and future financial needs.

Advantages of Term Life Insurance:

  • Affordability: Term life insurance is the most cost-effective way to get substantial life insurance coverage. Premiums are significantly lower compared to permanent life insurance options.
  • Simplicity: Term policies are straightforward and easy to understand, with no complex investment components or cash value accumulation.
  • Flexibility: You can choose the coverage amount and term that best suit your needs and budget.
  • Financial Security: Provides your loved ones with a financial safety net, ensuring they can maintain their lifestyle and cover essential expenses in your absence.

Disadvantages of Term Life Insurance:

  • Temporary Coverage: The policy only provides coverage for a specific term. If you outlive the term, your coverage ends, and you’ll need to apply for a new policy if you still want life insurance.
  • No Cash Value: Unlike some permanent life insurance policies, term life insurance doesn’t build cash value that you can borrow against or withdraw.

Is Term Life Insurance Right for You?

Term life insurance is an excellent choice if you:

  • Need temporary coverage: You want to protect your family during specific financial obligations, such as a mortgage or childcare expenses.
  • Prioritize affordability: You’re looking for the most cost-effective way to get a substantial amount of life insurance coverage.
  • Prefer simplicity: You want a straightforward policy with no complex investment components.

Conclusion

Term life insurance is a crucial tool for protecting your family’s financial future. Its affordability, simplicity, and flexibility make it a popular choice for many individuals and families seeking peace of mind knowing their loved ones are financially secure. Consult with a financial advisor to determine the right coverage amount and term to meet your specific needs and budget.

Index Universal Life Insurance Policy

What Is An Index Universal Life Insurance Policy?

An index universal life insurance policy is a type of permanent life insurance that combines the benefits of traditional universal life insurance with the potential for cash value growth based on the performance of a stock market index, such as the S&P 500. This unique policy allows policyholders to allocate a portion of their premium payments into an indexed account, which is linked to the performance of the chosen stock market index.

Unlike traditional universal life insurance policies, where cash value growth is based on a fixed interest rate set by the insurance company, an index universal life policy offers the opportunity for higher returns through participation in market gains. However, it also comes with a level of risk as returns are subject to market fluctuations.

Policyholders have the flexibility to adjust their premium payments and death benefit amounts over time, making it a customizable option for individuals looking for both protection and investment potential. It’s important to consult with a financial advisor or insurance agent to determine if an index universal life insurance policy is suitable for your financial goals and risk tolerance.

How Does An Index Universal Life Insurance Policy Work?

Index universal life insurance policies work by combining the benefits of a traditional universal life insurance policy with the potential for growth based on the performance of a selected stock market index. Policyholders have the opportunity to allocate their premium payments into either a fixed interest account or an indexed account.

The indexed account allows policyholders to link their cash value growth to the performance of a stock market index, such as the S&P 500. If the index performs well, the cash value of the policy has the potential to grow at a higher rate compared to a traditional fixed interest account. However, if the index underperforms, there is often a floor in place to protect against significant losses.

One key feature of an index universal life insurance policy is that it offers flexibility in terms of premium payments and death benefit options. Policyholders can adjust their premiums and death benefit levels over time to accommodate changes in their financial situation or goals.

Overall, an index universal life insurance policy provides both protection for loved ones in case of death and potential for cash value growth based on market performance.

Benefits Of An Index Universal Life Insurance Policy

An index universal life insurance policy offers a number of benefits that make it an attractive option for individuals looking to protect their loved ones financially. One key benefit is the flexibility it provides in terms of premium payments. Policyholders have the ability to adjust their premiums based on their financial situation, making it easier to maintain coverage during times of financial strain.

Additionally, index universal life insurance policies offer the potential for cash value growth through the policy’s cash value account, which is tied to a stock market index. This means that policyholders have the opportunity to earn higher returns compared to traditional universal life insurance policies, which typically offer fixed interest rates.

Another benefit of an index universal life insurance policy is the death benefit protection it provides for beneficiaries. In the event of the policyholder’s death, beneficiaries receive a tax-free death benefit that can help cover expenses such as funeral costs, outstanding debts, and ongoing living expenses.

Overall, an index universal life insurance policy offers a combination of flexibility, potential for cash value growth, and death benefit protection that can provide peace of mind for policyholders and their loved ones.

Drawbacks Of An Index Universal Life Insurance Policy

While index universal life insurance policies offer the potential for cash value growth based on market indexes, there are several drawbacks to consider before purchasing this type of policy. One major drawback is the complexity of these policies. Understanding how the cash value accumulation works and how it is affected by market fluctuations can be challenging for policyholders, especially those who are not well-versed in financial markets.

Another drawback is the limited upside potential compared to other investment options. While index universal life insurance policies offer the opportunity for gains linked to market performance, there are often caps or limits on how much the cash value can grow. This means that policyholders may not fully benefit from strong market returns.

Additionally, these policies can be expensive compared to traditional permanent life insurance options. The cost of insurance and administrative fees associated with index universal life policies can eat into potential returns and reduce the overall value of the policy over time.

Overall, while index universal life insurance policies offer some unique benefits, it is important for individuals to carefully weigh these drawbacks before deciding if this type of policy is right for their financial goals.

Comparing Index Universal Life Insurance To Other Types Of Life Insurance

When considering life insurance options, it’s important to understand the differences between index universal life insurance (IUL) and other types of policies. One key distinction is that IUL offers the potential for cash value growth based on the performance of a stock market index, such as the S&P 500. This means that policyholders have the opportunity to benefit from market gains while also being protected from market losses.

In contrast, whole life insurance provides a guaranteed death benefit and cash value growth at a fixed rate determined by the insurance company. While this offers stability and predictability, it may not provide as much potential for growth as an IUL policy.

Term life insurance, on the other hand, provides coverage for a specific period of time and does not accumulate cash value. While term policies are typically more affordable than permanent life insurance options like IUL or whole life, they do not offer the same long-term benefits.

Ultimately, choosing the right type of life insurance depends on your individual needs and financial goals. It’s important to carefully consider your options and consult with a financial advisor to determine which policy best fits your circumstances.

Factors To Consider Before Purchasing An Index Universal Life Insurance Policy

Before purchasing an index universal life insurance policy, there are several important factors to consider. One key consideration is understanding the complexity of these policies and how they differ from other types of life insurance. Index universal life insurance policies offer a mix of investment and insurance components, so it is crucial to have a good grasp of how these work together.

Another factor to consider is your risk tolerance and investment goals. Index universal life policies tie the cash value growth to an index such as the S&P 500, which means there is potential for higher returns but also risks involved. It is important to assess whether you are comfortable with these risks and if the potential rewards align with your financial objectives.

Additionally, it is essential to evaluate the fees and charges associated with an index universal life policy. These policies can come with various fees for administration, cost of insurance, and potentially surrender charges if you want to withdraw funds early. Understanding these costs upfront can help you make an informed decision about whether this type of policy is right for you.

Overall, taking the time to carefully consider these factors before purchasing an index universal life insurance policy can help ensure that you choose a policy that meets your financial needs and goals.

Common Misconceptions About Index Universal Life Insurance

One common misconception about index universal life insurance is that it is too risky. Many people believe that because this type of policy ties the cash value growth to an index, such as the S&P 500, it is subject to market volatility and could result in significant losses. However, it’s important to note that index universal life insurance policies typically come with a floor, which means that even if the market performs poorly, the policyholder’s cash value will not decrease below a certain level.

Another misconception is that index universal life insurance is only suitable for wealthy individuals. While it’s true that this type of policy can be beneficial for high-net-worth individuals looking for tax-advantaged ways to grow their wealth, it can also be a valuable tool for middle-income earners who want to supplement their retirement savings or provide financial protection for their loved ones.

Overall, it’s important for individuals considering index universal life insurance to educate themselves on how these policies work and consult with a financial advisor to determine if this type of coverage aligns with their financial goals and risk tolerance

Fact or Fiction: Uncovering Auto Insurance Myths

Like a teenager eager to try a new video game, playing before reading the rules, many drivers buy insurance without really understanding what they’re buying. In the rush to feel “covered,” they can skip the details. That can lead to frustration. Following are five insurance myths heard by some of the more than 13,000 claims people at Progressive, one of the country’s largest auto insurance companies:

Myth: I bought “full coverage” so everything’s paid for.
Reality: There is no such thing as “full coverage.” In most states, only liability insurance is mandatory. There are a lot of other coverage options out there, so select what you need and can afford based on your personal situation.

Myth: I need three estimates before my wrecked vehicle can be repaired.
Reality: Not necessarily. Very few insurers actually require this, although some might. If you decide to use a shop that’s in an insurance company’s “network” of pre-approved shops you may just have to get an estimate from that shop.

Myth: My insurance premium always increases if I’m involved in an accident.
Reality: It depends. Your rate can increase, decrease or stay the same. The information about your accident is combined with other information about you, your car and your driving history to determine your rate.

Myth: If I lend my car to someone and he/she crashes it, I’m covered.
Reality: Not so fast. If you or your friend don’t have optional physical damage coverages, damage to your vehicle generally won’t be covered.

Myth: If I buy a new car, my auto insurance company automatically knows; and my new car is covered.
Reality: No. Most insurance companies require that you notify them or your agent within a specified number of days. Generally, you have 30 days to add the new vehicle to your policy but some insurance companies only give you 7 days.

“Insurance can be complicated,” says Chuck Crist of Progressive. “It’s not something people deal with every day. So the more informed you are, the better choices you’ll make.”

To learn more, contact us at (623) 243 4000

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Insurance Questions, Lawsuits Arise in Wake of Target’s Data Breach

Insurance Questions, Lawsuits Arise in Wake of Target’s Data Breach

Social Security Errors That Can Cost You Thousands

Social Security Errors That Can Cost You Thousands

CBS MoneyWatchBy Steve Vernon | CBS MoneyWatch – Sun, Sep 16, 2012 9:31 AM EDT

 

Social Security benefits are the bedrock of most Americans’ retirement security. So it’s well worth your time to learn how to get the most from these valuable benefits — and avoid making mistakes in how you collect them.

To help you in this endeavor, I checked with two of the nation’s foremost experts on Social Security: Andy Landis, author of “Social Security: The Inside Story,” and Jon Peterson, who wrote “Social Security for Dummies.” Between Andy, Jon and I, we came up with four common errors that you should avoid and that will help you optimize your Social Security benefits.

Mistake #1: Starting retirement benefits too early

Half of all Americans claim Social Security at age 62, the earliest possible age with the lowest monthly benefit. But most workers can significantly boost their lifetime payout of Social Security income by delaying the start of their monthly benefits. By how long? At least until age 66, and to age 70 if you can wait that long. For many married couples, this strategy will also improve the financial security of widows who, when their husband dies, will step up to the Social Security income their husband was receiving before he died.

I realize that many people lose their jobs and claim Social Security benefits early to make ends meet. But personally, I’d take any job that would pay me an amount equal to my Social Security benefits in order to reap the advantage of delaying my benefits as long as possible. I’d work at Wal-Mart (WMT), Starbucks (SBUX) or any other part-time job that pays enough to replace my Social Security benefits, while giving me enough free time to look for a better-paying position. In the long run, it’s a financially smart move.

Mistake #2: Claiming Social Security now before program changes are made

“Some people think they must hurry to apply now, before Social Security runs out of money or before reforms make them ineligible,” Landis said. “In fact, Social Security is projected to have the money it needs to operate at the current level for over two decades. And nearly all reforms on the table will apply to younger generations, not those currently retiring. So calm down and follow your best plan for claiming Social Security benefits.”

Mistake #3: Not coordinating benefits for spouses

“Many people fail to coordinate claiming benefits with their spouse, and they miss opportunities for married couples to optimize their payouts,” Peterson pointed out. These strategies usually entail starting Social Security benefits at different times for the husband and wife, whereas many married couples start their incomes at the same time.

One common strategy is to delay benefits as long as possible for the highest earner — often the husband — for the reasons described above. The wife might then claim benefits at an earlier age to have some retirement income coming in. Whether the optimal age to start the spouse’s benefits is age 62 or age 66 (the official retirement age to collect full benefits) depends on your particular circumstances, such as the age difference and relative career earnings history of each spouse.

Two online services that can help married couples optimize their claiming strategies are www.socialsecuritychoices.com and www.socialsecuritytiming.com.

Mistake #4: Under-reporting of income by self-employed individuals

Many self-employed people under-report their taxable income for Social Security purposes, or use tax deductions to minimize their taxable income, on the assumption that paying any taxes is bad. But “This can hurt if you want Social Security benefits one day — including disability benefits, in the case of unexpected illness or accident,” Peterson said.

I know a number of self-employed people who’ve minimized their Social Security taxes over the years and are now reaching their retirement years with little or no retirement savings and severely reduced Social Security benefits. Now they regret this strategy and will need to keep working indefinitely.

According to one analysis, Social Security taxes are actually a good investment, so don’t automatically think it’s a good idea to avoid paying these taxes.

These are just a few of the mistakes that people routinely make in drawing Social Security. Stay tuned for future posts on how best to use the federal program.

It’s well worth your time to learn all you can about Social Security benefits; it can result in increasing the lifetime payout for both you and your spouse by many thousands of dollars.

http://finance.yahoo.com/news/social-security-errors-that-can-cost-you-thousands.html

What is a hard/soft insurance market?

As we enter another market cycle of a “hard market” I am reminded that we have a large group of clients and industry associates who have not had first hand experience of a market cycle and may need some explanation of what is occurring and why.

Most understand that a hard market is an effort for insurance companies to return to profitability. Higher premiums and elimination of policyholders that have had high losses is the obvious actions underway but these steps are only part of the actions underway.

A period of unprofitability for the industry is not something that happens overnight, and is a result of many factors, NOT just because we underpriced our product. Our lack of profit is not the only symptom of a “soft market” rather it is a result of a series of events put into place by external factors.

The purpose of this article is to explain how and why insurance companies can “run out of product to sell”. Yes, insurance companies can sell out of insurance.

Because insurance is an intangible most people can not understand or conceive how an insurance company can run out of insurance. The reality is, however, that an insurance company is one of the most heavily regulated industries in the world. The “amount” of insurance an insurance company can sell is limited by a myriad of laws.

The same laws regulating what, when and how insurance companies can write are designed to protect the public by making sure the money is available at the time of a claim.

Insurance company accounting requirements specified in law are extremely complex, boring and completely understood only by attorneys, regulators, and insurance industry accountants. Having explained that, I will NOT bore you to tears with technical requirements that you really do not want to know about.

I will, however, oversimplify this explanation so that you can easily see what is currently happening in the insurance market and how that is driving the changes.

VALUE OF MONEY
Logic and common sense tell us that to be profitable an insurance company must collect more premiums than they must pay in claims and expenses, however, that is not necessarily true. The missing factor is investment income. To ensure solvency of the insurance companies state laws require the insurance companies to establish reserves, or monies that have been identified as liabilities of the insurance company. Insurance companies customarily take your premiums at the time you purchase a policy and do not pay claims until sometime in the future with that money. With the right investments the insurance company can supplement their income by investing those premiums in bonds, stocks, and other investments until it is necessary to pay for the claims. Some claims are not paid for several months, or years, and as such provide the insurance company with a great deal of investment income. With this knowledge you can now understand that during times for high yield investments insurance companies can collect less in premium than they pay in claims as long as the investment income will make up the difference. Simply stated, the investment income supplements premiums and in times of high interest and market yield can enable insurance companies to lower their premiums. Indeed, in times of extreme yield insurance companies compete for premium dollars as a means to enable them to further their investment income.

ROLE OF RESERVES
Remember the intense governmental regulation to ensure the solvency of insurance companies? A huge element of insurance company solvency is “reserves” that are mandated by statute.

I will save you the pain of an 18-week course in insurance company accounting practices, and give you a crash course on reserves and how they relate to the current insurance market.

First, you must understand that an insurance company cannot show dollars collected today for premiums as earned income. The insurance company must show a $365. premium collected today as $1 of earned premium and $364. of unearned premium. The following day the insurance company can show an additional 1/365th of the premium or another $1 as being earned. In reality the policyholder can cancel their policy and request the unearned premium be returned to them. Insurance is a prepaid expense of the policyholder until such time as the policy is “used” at the rate of 1/365th per day on an annual policy.

By statute the unearned premiums is a liability of the insurance until it has been “earned” by the insurance company. These monies are called unearned premium reserves.

Another reserve that insurance companies must establish is for claims that they are aware of, but have not yet been paid. Once a claim has been reported to the insurance company they must establish a reserve for that claim. They must estimate how much money they think will be required to pay their liability for this claim. This is just one of the many reserves they must maintain for claims. The logic behind this tactic is that this money is owed to the future recipient of the claim, and as such has been “spent” or “used”. Again…The Insurance Company is holding money owed to others, so this is a liability. This does not, however, prevent the insurance company from investing these sums in the marketplace and making investment income from the fiduciary funds. The interest income goes toward the income of the insurance company.

There is yet another claims reserve that few people know about or truly understand called the “IBNR” reserves or money set aside to pay claims for future claims that have not yet been identified. This is an acronym for “Incurred But Not Reported” claims. An example of a claim of this nature is an injury that has occurred but the injured persons have not been identified – i.e. a vitamin manufacturer that has been producing a contaminated product that has slowly impacted the health of its consumers. The consumers have been injured, but the injury has not been identified yet, and the insurance company has not been informed of the injuries and/or claimants. At the end of every policy the insurance company knows there is the potential for claims yet to be paid which have not been reported to them. By law, the insurance company must establish a “reserve” for these claims, and reflect those as a liability.

In review, there are two major reserves (unearned premium reserves, and claim reserves) which insurance companies must establish. In times of high interest rates and profitable economic investments the income of the insurance company can be greatly supplemented by profits of these fiduciary funds.

DURING PERIODS OF HIGH YEILD INSURANCE COMPANIES CAN SOMETIMES CHARGE LESS IN PREMIUMS THAN THEY PAY IN CLAIMS YET REMAIN PROFITABLE.

This can lead to insurance companies cutting prices knowing that with large investment income they can still be profitable. The competition for access to the policyholders dollar feeds competition and as such prices for insurance can decrease. The market becomes “soft” and underwriting standards are lessened. A feeding frenzy can develop for premium dollars, exacerbating the reduction in premiums. In the quest for immediate availability of premium dollars, some insurance companies will seek risks or types of insurance they write that have not always been profitable. Underwriting standards are lessened and premiums reduced in an effort to attract more premium dollars.

When investment income declines because of market conditions, the insurance company will start to recognize losses, and in an effort to curtail those losses, will re-evaluate what type of risks they want to write.

Here is where the CAPACITY issue becomes the driving factor. Remember the requirements for the insurance company to have adequate reserves? An insurance company is only permitted to write a limited amount of insurance or assume a certain amount of “risk” in relationship with the amount of money they have in reserves.

ROLE OF REINSURANCE
If an insurance company elects to share their exposure of risk they usually purchase reinsurance from another insurance company known as a reinsurer”. The reinsurer will “insure” or assume some of the insurance company’s risk in exchange for some of the insurance premium. By spreading the risk to another insurance company, the regulators will allow the original insurance company “credit” or a reduction in the amount of reserves necessary. Therefore an insurance company can increase their capacity or amount of insurance they can write by purchasing reinsurance from a reinsurance company. The cost of the reinsurance is an expense that impacts the profitability of the original insurance company. However, in the event of large losses, the reinsurance can assure the profitability and/or continued existence of the original insurance company.

Therefore, the cost and availability of reinsurance is a major component in the profitability of most insurance companies. In addition, reinsurance enables insurance companies to transfer risk, reduce reserves, and the ability to write more insurance. In other words the reinsurance will expand the capacity of an insurance company.

When reinsurance becomes more expensive insurance companies must charge higher premiums to make the same level of profitability.

The cost and availability of reinsurance is a major component in the final cost of insurance to the consumer. When reinsurance costs go up, the original insurance company must charge more because this is part of their “cost of doing business”. Another way of viewing this is that reinsurance is part of the “cost of goods” for insurance companies.

The WorldTradeCenter attack in September 2001 is the largest loss for insurers in the history of the industry. No doubt this is exactly the type of event reinsurance was designed to handle. The reinsurance industry will pick up the largest share of the losses and as such the reinsurance industry will take the biggest “hit” in their history. Compound this with the pressure of government to prevent insurance companies from excluding “terrorist acts” from existing and future policies, and you can readily see why the reinsurers become critical to the future certainty and solvency of the industry. Combine the critical need for reinsurance with the uncertainty we are facing for future attacks and you can readily see how reinsurance has become a major component in our current “market condition”. Terrorism of this magnitude is new and the reinsurers are unable to predict future losses from past experience, therefore the “cost” is guesswork at best. Logic follows that if you are forced to “guess” at the future costs you are going to error on the side of making sure you have charged enough. Now you can see “what” and “why” reinsurance has become one of the largest components in the cost of insurance for everyone.

ROLE OF UNDERWRITING
In a “hard market” where insurance companies are limited on the “amount’ of insurance they can write, they turn to their “underwriting” staff, or those people who determine “what” risks the insurance company will write and advise them to reduce or limit the amount of risks they write.

I like to compare this process with shopping on a limited budget. If you have extremely limited dollars to spend for food you make certain you get the most bang for your buck, or carefully shop prior to buying. If you are an insurance company with limits on how much insurance you can write, and are close to reaching those limits you make sure you are writing only the very best risks. A process known as “cherry picking” – taking nothing but the cherries and leaving the pits for others. This is the underwriter’s job. If you are a “risky” policyholder or prospective policyholder in a “hard market” you may find it much more difficult to find an insurance company to sell you a policy. Those insurance companies that take “higher risk” exposures will naturally want to charge a higher premium. This is how “capacity issues” become “availability issues” to the policyholders.

SUMMARY
As you can see, legal requirements for reserves, and the cost of reinsurance compounded with the role of current economics and investment income all impact the availability and cost of insurance. We have gone from a “soft market” to a “hard market”. The length and severity of the hard market is unknown, but at least now you understand “why”.

This article was written by Lanny L. Hair, CIC, ARM, AAI, RPLUExecutive Vice President of the Independent Insurance Agents & Brokers of Arizona.

Copyright 2001 IIAB of Arizona