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In an otherwise forgettable conversation last year, a friend told Tammy Arana that she was missing out in an area few people talk about these days: life insurance. Arana, 35, already had two policies, but with two middle-school kids and a mortgage, it wasn't enough. When Arana said she was paying $125 a month for $350,000 of coverage, her friend told her she could do better.
After going to a financial planner her friend suggested, Arana, a Hollywood, Fla., firefighter, discovered she could spend two-thirds less and more than double her coverage. Total savings: $19,000 over 20 years. "If I drop dead tomorrow, I know my family is going to be taken care of," she says.
It's not easy thinking about our mortality. Even harder to contemplate is what life would be like for our loved ones after our premature expiration. Indeed, nearly a third of all adults in this country have no life insurance, and even among those who do have policies, two out of five think they don't have enough, according to market-research firm Limra International.
But the morbid-minded may be in for some big savings these days. Thanks to everything from increased competition to lower mortality rates, insurers have been quietly lowering prices for so-called term-life policies at an unprecedented rate. For many thirtysomethings, an annual premium as low as $500 can now lock in $1 million in coverage for the next two decades. Even folks in their 40s and 50s can still get good rates if they're in good health.
Here's the catch, though: Don't expect your typical insurance agent to go out of his way to trumpet the prices to newcomers or remind current policyholders to check for the new discounts. According to the Insurance Information Institute, the number of term-life policies sold has inched up just 4.5% in the past 10 years. Commissions are so low "it's uneconomical for agents to even make the calls for term life," explains David Woods, the president of the Life and Health Insurance Foundation for Education, an organization funded by the insurance industry.
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Term life differs from whole life insurance because it has no savings component -- if you haven't died by the end of the term, you don't get any money back. Even so, it's a favorite among financial planners because it's the cheapest, most efficient protection out there. It's typically bought to cover debts in case of death or to replace income for the family. Many parents like to buy it for a period that would take care of their kids through college. Whatever the reason, term life is an enormous business, with $16 trillion in coverage, nearly half of all life insurance in force.
Rates are falling for a simple reason: We're living longer now, so we don't need to pay as much for protection against dying. Before 2001, the insurance industry set people's premiums based on fairly simple mortality tables, which reflected little more than that women live longer than men and nonsmokers longer than smokers.
With newly revised tables, insurers can now better estimate risk by taking into account everything from cholesterol levels to family health history. Sophisticated underwriting tools also allow insurance companies to better match rates with risks, says Paul Graham, the chief actuary of the American Council of Life Insurers. The Web has also driven rates down, with dozens of sites delivering real-time quotes in a matter of clicks.
In all, rates have fallen about 14% from five years ago and 33% from a decade ago. It's a difference that hits the bottom line quickly: A healthy 30-year-old male, for example, who purchased a 30-year, $1 million policy in 1997, would be paying about $1,035 per year in premiums. That same person, now 40, can get a new 20-year policy for $630.
So, if term life is such a good deal, why aren't more people rushing to buy new policies? Some people, of course, don't want to think about life insurance, or they're hesitant to shell out the money -- no matter how good the deals. But experts say there's another problem: Life insurance, as an old saying goes, is sold, not bought. In other words, many people won't bother or even know about it unless someone sits down and explains it all. That's where the insurance agents come in -- or at least they used to.
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How much life insurance is right?The answer is: It depends. If you're single with no dependents, you probably don't need it. But if you're married with kids, it's a necessity.
The number of career agents who focus exclusively on selling life insurance has been on a fast decline for decades, down nearly 20% since 1998. "The old kitchen table sale doesn't exist anymore," says Dave Evans, the senior vice president of the Independent Insurance Agents & Brokers of America. The independent agents were left to pick up the slack, but they focus on selling a wide range of more lucrative products, from homeowners insurance to business lines.
Still, there are many ways to shop around. If you're in good health, an individual policy will likely be a better deal than group policies, like those offered by employers or alumni associations, where folks with high risk tend to bring costs up for everyone. Quotes are available at Web sites such as Insure.com and AccuQuote.com, where you can find rates in minutes. There are even sites that cater to smokers or cancer survivors looking for life insurance. And don't assume a higher-priced policy from a big-name insurance company is better than a less expensive one from an equally rated lesser-known outfit.
This article was written and reported by Megan Barnett for SmartMoney.
Published April 30, 2007
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