Enough positive variables are in play for LIMRA analysts to project record-level life insurance premium through 2024.

Specifically, December 2020 changes to the Internal Revenue Service tax code criteria that cash value life insurance policies must meet to retain tax-advantaged status.

“While persistent inflation in 2023 will likely impact middle-income consumers’ demand for life insurance, particularly whole life and term products, the changes made to [the tax code] will likely continue to boost sales of accumulation products,” explained John Carroll, senior vice president, LIMRA and LOMA.

Variable universal life and indexed universal life are two products who benefit from the IRS change, he added, by allowing consumers to expand the cash value. “There are many ways consumers can use their cash value,” Carroll said.

Fueled by the COVID-19 pandemic, life insurance premium hit record highs in 2021. That strong growth continued in the first half of 2022, then tailed off, according to LIMRA’s U.S. Retail Individual Life Insurance Sales Summary for Fourth Quarter 2022.

Life insurance premium totaled $15.3 billion in 2022, roughly level with 2021.

“Life insurance sales slowed in the second half of the year as consumers’ worries about inflation and the economy increased and concerns about COVID-19 declined,” Carroll said.

Inflation a Downer

Economic projections suggest inflation will remain high through this year, Carroll said. Total new annualized premium fell 13% in fourth quarter 2022, LIMRA reported. All product lines experienced declines in the fourth quarter. Policy sales fell 10% in both the quarter and the year.

“Inflation and economic uncertainty have an outsized impact on middle-income consumers,” noted Carroll. “Our research shows 1 in 10 middle-income consumers said they have put off buying or said they would put off buying needed insurance due to worsening economic conditions. Not surprisingly this impacted whole life and term sales in 2022.”

Whole life new premium dropped 19% in the fourth quarter of 2022, compared with results from the prior year. Fourth quarter of 2021 WL premium experienced the strongest quarterly premium growth for WL in 30 years. Overall, WL premium totaled $5.8 billion in 2022. While 5% lower than in 2021, it remains above pre-pandemic sales results. WL premium represented 38% of the individual life insurance market in 2022.

Term new premium growth fell 5% in the fourth quarter, year-over-year. In 2022, term new premium was $2.8 billion, 5% lower than the 2021 results. Term premium held a 19% market share in 2022.

For the second consecutive quarter, variable universal life new premium declined. VUL new premium fell 13% in the fourth quarter 2022, compared with the prior year’s growth of 65%. VUL premium totaled $1.8 billion in 2022, an 8% hike from 2021. VUL new premium represented 11% of the life insurance market in 2022.

Compared with the 29% premium growth for indexed universal life (IUL) in the fourth quarter 2021, IUL new premium fell 5% in the fourth quarter 2022. For the year, IUL new premium totaled $3.9 billion, up 13% over 2021 results. IUL held 25% of the total individual life insurance market in 2022.

Fixed universal life new annualized premium dropped for the third consecutive quarter, down 31% in the fourth quarter, compared with prior year. In 2022, fixed UL new premium totaled $1.1 billion, a decline of 17% for the year. Fixed UL market share was 7% in 2022.

Applications Up

According to MIB Group, year-over-year life insurance application activity grew in January, up 8.6%, and February 2023, up 3%. The last time applications had positive growth was in November 2021. Meanwhile, 41% of American adults say they need or need more life insurance.

“While today’s inflation and economic concerns may delay people from taking action immediately, the memory of the pandemic will remain and we believe as the industry innovates products and services both consumers and distribution will respond,” Carroll said.

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