February 21, 2007

 

 

GETTING GOING

 

 

 

 

Ever Cheaper: Getting a Deal
On Your Term Life Insurance

By KAREN DAMATO
February 21, 2007; Page D1

A key 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 coverage.

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 karen.damato@wsj.com6

 

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