With Term Rates Sinking, Should You Trade In Your Policy?
(MONEY Magazine) – Apparently, the art of forecasting insurance rates is as imprecise as any other market call. Term life insurance premiums have been dropping for roughly a decade, and even though many insurance experts thought prices had hit bottom last year, the lowest rates have fallen by as much as 18% thus far in 1998. So what do the experts say now? Well, those brave enough to make a prediction really think falling prices are coming to an end. "If you're waiting for even cheaper rates to re-evaluate your coverage," warns Bob Barney, president of Compulife, a life insurance software firm, "don't wait too long."
Here's why the experts may finally be right: The lowest rates for level-premium term policies have fallen some 50% since 1991, according to Insurance Information, a Cape Cod, Mass.-based rate quote service, largely because insurers are using indicators such as blood tests to classify applicants more efficiently. What's more, the best rates on so-called preferred level-premium policies (reserved for the healthiest individuals) have dropped 35% within the past three years.
So today a 40-year-old nonsmoking male could pay as little as $265 a year for the next 20 years for a $250,000 insurance policy, compared with $405 for the same policy in 1995. Early next year, however, some states may require insurers to keep more cash on hand to back their policies, and, as a result, term insurance rates across the country could climb.
To cut your premium before that happens, swap your old policy for a new one, which you can do easily as long as you're in good health. One convenient way to find the lowest rates for free is via Quotesmith (www.quotesmith.com), an online insurance quote service. If you're not yet online, quote service Insurance Information (800-472-5800) will find you the guaranteed lowest rate for a $50 fee.
But don't cancel your old policy until you have a new one in hand, and don't weaken your coverage in pursuit of the lowest price. Opt for insurers rated excellent or better by the leading analysts, such as A.M. Best or Standard & Poor's. (Quote services should include such ratings.) If you plan to hold a term policy for more than three years, stick with a level-premium one and make sure the payment is guaranteed for the entire term. A company peddling a 20-year level-premium policy, for example, may reserve the right to raise your premium sooner.
Finally, if you now have a policy with a long-term guarantee, don't swap it for a shorter-term policy unless your needs have changed.