Now’s the Time to Buy Life Insurance

Consumers in the market for term life insurance are in for a nice surprise: dirt-cheap premiums.

Increased competition among insurers and longer life spans among consumers have driven life-insurance rates to rock-bottom levels. A typical premium for a 40-year-old man purchasing a 20-year level-premium policy with a face value of $500,000 is between $375 and $400 a year, says Byron Udell, chief executive of AccuQuote1. Ten years ago, the rate was roughly $1,000, he says.

But don't expect these great deals to stick around much longer. Experts agree that premiums are likely to rise in the next three to six months. Why? The costs for reinsurance companies — the companies that insure insurance companies — are climbing, and reinsurers are passing the increases along to the insurers, says Paul Graham, chief actuary for the American Council of Life Insurers. Soon, say experts, consumers will be asked to absorb some of those costs as well.

Some companies will raise their premiums by as much as 10%, while others will tighten their underwriting standards, predicts Bryan Place, principal owner of TermAssistant.com, an online insurance broker.

But for now, deals are so good that even consumers who already have term life insurance might want to consider a replacement policy. In 2000, says Place, a 29-year-old healthy, nonsmoking male would have paid $360 annually for a 20-year level policy with a face value of $450,000. Today, that same 33-year-old could pay just $252 a year, a 30% savings.

Needless to say, if you've been putting off re-evaluating your life-insurance needs based on some impending life change, such as marriage, divorce or the birth of a child, now's the time to do it. If your needs have increased, you might find that a new policy won't cost you any more than your old one, even with significantly more coverage. Our 33-year-old could now buy $700,000 of coverage at the same price as his old premium, says Place.

Even if you're between 45 and 50 years old, an age when term life insurance begins to get more expensive, it might still make sense to shop around for new rates. Over the past few years, many insurance companies have loosened their underwriting standards, making it easier to qualify for the best rates. Tobacco use is a good example. Just a few years ago, someone who smoked an occasional cigar or dipped chewing tobacco every once in while was considered a smoker, and had to pay anywhere from 40% to 60% more for life insurance. Now, companies such as Prudential are no longer penalizing the occasional indulgers, saving them thousands of dollars over the lifetime of their policies, says Place.

What sort of savings are we talking about? Four or five years ago, a 45-year-old male who smoked occasionally would typically pay around $3,740 a year for a 20-year level term policy worth $1 million. Today, that same person might qualify for a "Preferred Nonsmoker" rate and pay only $2,085, says Place. That's more than a 40% savings. And if that 45-year-old didn't want to lower his premium, he could increase his coverage nearly 80% to $1.8 million.

Before You Cancel Your Old Policy

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If you do decide to replace an older policy, don't cancel it before the new one is in force. Horror stories abound of people dropping their existing policy only to discover during their insurance physical that they aren't as healthy as they thought. Unfortunately, that leaves them stuck paying a lot more than they bargained for, or, in the worst-case scenario, getting rejected outright and being left with no coverage at all, warns ACLI's Graham.

In rare cases, people can also be denied coverage because the industry considers them "chronic replacers." You'll get socked with this if you replace three policies in five years, says AccuQuote's Udell. So do your homework and make sure you buy the right policy this time around. We know: Shopping for life insurance isn't a whole lot of fun. But with a little extra pocket change, you can get down to the more serious business of enjoying life.

Source: smartmoney.com - 08-13-2004