Level term life insurance is more affordable than ever, according to a survey conducted by Insure.com on November 12, 2007. The company requested quotes from 25 insurers with high (“Superior” and “Excellent”) ratings from A.M. Best Company, a leading provider of ratings, news, and financial data for the insurance industry. The survey revealed that level term life insurance rates had fallen to historic lows, with qualified consumers being charged an annual rate as low as $108 for a 10-year policy with a $250,000 death benefit.
“Qualified consumers” are those in good health, including having a good ratio of height to weight. A man six feet tall, for example, would need to weigh 206 pounds or less to qualify for the best rates. At just 10 pounds more, he would pay as much as 30 percent above the lowest price. Other health factors, such as blood pressure and cholesterol levels, can disqualify a consumer from the minimum rates.
Two major forces are driving down term life insurance prices. One is competition. Many new insurance companies have sprung up on the Internet. Although they lack the financial strength to show up in the survey, their aggressive discounting is forcing even the big, established companies to lower their rates.
The other major reason that term life insurance prices are falling is that people are living longer than ever, according to the National Center for Health Statistics, part of the U.S. Department of Health and Human Services. In a 2007 report, the center reports that in 2004-the most recent year for which statistics are complete-there were 50,673 fewer deaths than the year before. It was the largest single-year drop in raw death counts since 1938. When adjusted for age, the death rate dropped 3.8 percent, from 832.7 deaths per 100,000 people to just 800.8 deaths per 100,000 people, the lowest level in the history of the country. This is not a one-year blip. Mortality rates have been dropping since the 1950s.
The increased longevity on customers means three things to insurance companies: 1) fewer death benefits to pay out, 2) more premiums to take in, and 3) more time to earn money with the funds on hand. The combination of lower costs and higher revenue creates a windfall for insurers. Some of this money is recorded as profit and some is used to lower rates.
The Insure.com survey looked at ten-, twenty-, and thirty-year level term life insurance policies for three of the most popular death benefits, $250,000; $500,000; and $1 million. Prices are given for men and women aged 30 to 70, in 5-year increments.
As for low life insurance quotes you can see how age is the most important deciding factor. The lowest rates are for the youngest people-30 and 35 years old-because they are deemed the least likely to die during the policy term. At those ages, men and women qualify for the same annual rates for a $250,000 policy: $108 for a 10-year policy and $153 for a 20-year policy. Those who are 30 can get a 30-year policy for $228 a year, while 35-year-olds must pay $250 a year.
Prices for $250,000 policies jump up at 40. Women pay 17, 25, and 30 percent more for 10-, 20-, and 30-year policies at age 40. Men pay the same as women at age 40 for 10- and 20-year policies, but they pay 26 percent more for 30-year policies. The dollar amounts are $130 and $203 a year for 10- and 20-year policies, respectively. Because of increased dangers from breast and cervical cancer, women pay $355 a year for a 30-year policy, while men pay only $335 a year.
Women pay more than men only for a short time. By 45, men are paying more than women for some policy terms, and they continue to pay more at every age. Men and women pay the same for a 10-year, $250,000 policy at age 45: $183 a year. Women pay $318 and $428 a year for 20- and 30-year policies. Men pay $340 and $520 a year.
Men and women are charged the same annual rate for 10-year, $250,000 policy at age 50: $263. Because of increased danger from heart disease, men pay much more than women do for 20- and 30-year terms: $510 and $768 a year. The lowest annual rates for women are $370 and $585.
Beginning at 55, men are charged more than women are for every term. For a $250,000 policy, for example, men are charged annual rate of $403, $773, and $1,550 for 10-year, 20-year, and 30-year policies, respectively. Women qualify for annual rates of $345, $580, and $1,080 for policies with the same terms. The largest discrepancy between men and women occurs at age 70. A 10-year, $250,000 term life policy costs women $1,080 a year. The lowest annual rate for men is exactly double: $2,160.
As the value of a policy increases, so do the premiums, of course. However, the premiums do not go up proportionally with the death benefit: The premiums for a $1 million policy are not four times larger than the premiums for a $250,000 policy. The reason is that while the death benefit of a $1 million policy is larger, the costs of acquiring, processing, and maintaining the policy are virtually the same as for a policies of a lesser amount. Since very few death benefits are actually paid, the size of the death benefit is not the determining factor for the policy price. For example a 30-year-old man will pay $230 for a 10-year, $1million policy. That is only 2.12 times as much as he would pay for a $250,000 policy ($108), even though the policy is four times as large. A 30-year-old man would pay $710 a year for a 30-year policy, or about three times as much as for a quarter million dollar policy.
The consumer gets more for his or her money with a larger death benefit, but the amount of insurance a person buys should depend on how much income the family would need in the even of the premature death the insured. More insurance is better-if it is affordable-because a death benefit paid twenty or thirty years from now will not go as far as it would today. Even though the cost of insurance may continue to decline in the future, it is better to lock in today’s rates for 20 or 30 years than to take out a new policy later.