Ever Cheaper: Getting a Deal
On Your Term Life Insurance
February 21, 2007; Page D1
financial product -- term life insurance -- continues to get cheaper and
easier to buy.
Prices for coverage have
plummeted, partly because people are living longer. A healthy 40-year-old man
who doesn't smoke can now get a $500,000 term-life policy for as little as
$350 a year for 20 years -- down from $375 two years ago and $674 a decade
ago, according to AccuQuote, an online insurance
broker. In the early 1990s, the same policy cost more than $1,000 a year.
Another important change: Over
time there's been a fundamental change in the nature of term policies. Years
back, the standard product was annual renewable term, on which the premium
rises inexorably each year. Today, the bread-and-butter offering is
level-premium term, with charges that are fixed for, say, 10, 20 or 30 years.
The shift is
significant. If you've held an annual-renewable policy for many years, you
may be able to move to a level-premium policy with an annual charge that is
less than the current cost of your rising-premium plan.
Similarly, if you bought
level-premium term life insurance years ago, you may be able to switch to a
new policy with a lower annual cost -- and possibly also extend the time
period for which the rate is guaranteed.
Easier shopping. The shift to level-premium policies has made
comparing prices easier. A single number -- the steady annual premium --
gives you most of the information you need to compare costs among policies
with the same term. Be sure, though, that the
insurer is guaranteeing, and not just "projecting," to charge that
rate for the specified term.
Stick to companies that get
high ratings for financial strength from firms such as A.M. Best Co. (whose
top rating is A++). Also, be sure not to drop your existing policy before you
get approval for the new one, to make sure you don't get stuck without
The initial premium you are
quoted by an insurance company or broker isn't necessarily the price you'll
be charged once your health is evaluated. (That's typically done at no cost
to you by a medical technician who'll come to your home or office and depart
with specimens of your blood and urine.)
You can increase the odds of
getting a realistic quote by passing along some key numbers -- recent
blood-pressure and cholesterol readings, if you have them, along with your
height and weight. Also, be sure to ask what your premium would be if your
health is deemed one or more grades worse than you initially think.
Term limits. Insurance sellers have always said that term
coverage is just that -- appropriate for people who want life insurance only
for a limited term, such as until your children are grown or you reach
retirement age. The shift to level premiums sharpens the focus on when you'll
terminate your term coverage.
With annual-term policies, you
might hem and haw over the rising charges for a few years before deciding to
bail out. But level-premium plans go from affordable to absolutely
astronomical in a single year -- typically Year 11, Year 21 or Year 31. On one 20-year policy, for instance, the premium in Year
21 skyrockets from $237 to $6,131.
That policy design means you
should act now if you are, say, halfway through a 20-year policy and realize
you'll need coverage for more than the remaining 10 years. Assuming you are
still in good health, shop around as soon as possible for a new 15- or 20- or
30-year plan to replace or augment your current coverage.
If you want to extend your
coverage and you aren't in good health, you might do better to convert your
term policy to a cash-value policy at the same insurer, says New York insurance
adviser Glenn Daily.
Cash-value plans have higher
premiums because they include a savings component along with the death
benefit; many insurers give term holders the right to convert to one of the
company's cash-value plans without a medical exam. To keep that option open, Mr. Daily suggests buying term
policies that are guaranteed convertible for the entire level-premium period.
--Jonathan Clements is on vacation.
Write to Karen Damato at firstname.lastname@example.org
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