Monday, December 10, 2007

Life Insurance - The Cost of Term Life Insurance

The cost of life insurance is lower than ever, according the latest annual survey conducted by Insure.com. Part of the reason is that Americans are living longer than before. In 2003, there were 832.7 deaths per 100,000 people. The next year there were just 800.8 deaths per 100,000 people, a one-year decline of 3.8 percent and the lowest age-adjusted death rate in U.S. history. The size of the change was surprising, but not the direction: Death rates have been declining at a steady rates since the 1950s.

Since there are fewer deaths per 100,000 people, insurance companies end up paying fewer death benefits. This allows the insurance companies additional time to earn money with the premiums they have been paid. With people living longer, insurance companies can cut rates without endangering their ability to pay death benefits or to meet profit goals. The main reason insurance companies are cutting rates, rather than pocketing the money saved on death benefits, is competition. Thanks in part to the Internet, which allows companies to attract customers with very small sales forces, dozens if not hundreds of companies now offer term life insurance. The Internet also makes it easy for consumers to compare prices, keeping pressure on the insurance companies to

To find the lowest rates, Insure.com surveyed 25 leading life insurance companies in the United States. All of the companies included in the study have been rated “Excellent” or “Superior” by A.M. Best Company, an independent, third-party rating service. Companies with lower ratings might offer lower prices for insurance, but would be considered by A.M. Best Company to be less financially secure.

The survey looked at rates for level term life insurance policies covering three of the most popular death benefits: $250,000; $500,000; and $1 million. The terms of the policies were 10 years, 20 years, and 30 years. To find the lowest rates, the survey assumed the insured was in good health and did not use tobacco products. The survey provides prices for people aged 30 to 70, in 5-year increments. Since prices can vary from state to state, based on regulations, taxes, and other factors, the Insure.com used California as its representative state. The survey was conducted on November 12, 2007.

The rates vary for men and women: At most ages, men pay more; at some ages, women pay more; and for a few ages both pay the same. For example, for a policy with a $250,000 death benefit, men and women aged 30 pay the same annual premium for a 10-year, 20-year, and 30-year policy: $108, $153, and $228, respectively. The same is true at age 35, with the annual premiums staying the same for 10- and 20-year policies, but rising to $250 a year for a 30-year policy. At age 40, annual premiums increase for both men and women for 10- and 20-year policies to $130 and $203, respectively. However, a 40-year-old woman will pay $20 a year more than a 40-year-old man will for a 30-year policy: $355 for a woman, compared to $335 for a man. This is due mainly to the risks posed by breast and cervical cancer.

By age 45, however, the roles are reversed, largely because men as a group do not live as long as women do. Men and women still pay the same for a 10-year policy, $183 a year, but men pay more for 20- and 30-year policies, $340 and $520, respectively. Women pay $318 a year for a 20-year policy and $428 year for a 30-year policy. The discrepancy grows with time. By age 55, the last year in the survey that a 30-year policy is offered, women are paying $345, $580, and $1,130 a year for 10-, 20-, and 30-year policies, while men are paying $403, $773, and $1,550 a year.

The cost difference between men and women increases with age. For example, at age 70, a 10-year level term policy will cost women $1,080 year. For men, the cost is double: $2,160 a year.

The gender differences are even more pronounced for policies with a death benefit of $500,000. At age 30, men and women pay the same for 10- and 20-year policies, $155 a year and $245 a year, respectively. However, a 30-year policy costs women $325 year while the same policy costs men $395 a year. The gap grows with the years. Women who are 55 years old pay annual premiums of $630 for a 10-year policy; $1,105 for a 20-year policy; and $2,210 for a 30-year policy. Men aged 55 pay up to 28% more, with annual premiums of $745 for a 10-year policy; $1,490 for a 20-year policy; and $3,050 for a 30-year policy. As with the $250,000 policy, men pay double the amount that women do for 10-year policy at age 70: $4,225 a year for men compared to $2,100 a year for women.

The costs of life insurance escalate with a person’s weight, family history, and tobacco use. For example, to receive the lowest rates, a 6-foot man would need to weigh 206 pounds or less. If he weighs even 10 pounds more than that, his premiums will increase by about 30 percent.

An individual’s own health is just one risk factor. If his or her family has a history of heart disease, the cost of insurance will skyrocket. For example, multiple deaths in the family as a result of heart disease can double the price of a person’s insurance.

The companies in the Insure.com survey stipulate that a person cannot receive the lowest rates if he or she has used tobacco in the last five years. Some companies make an exception for occasional cigar smoking, but with stringent tests. Smokers will pay about three times as much as nonsmokers at age 30 for a $250,000 10-year term policy: $310 for smokers compared to $155 for non-smokers.

With 64 percent of the American population overweight or obese, the vast majority of people will pay more for life insurance than the Insure.com survey figures indicate. If life expectancy continues to increase, life insurance rates should continue to inch down in the years ahead.


A frequent contributor to online and print publications, Bradley Steffens is the author of twenty nonfiction books for children and young adults and coauthor of seven more. His newest book, Ibn al-Haytham: First Scientist, is the first biography to be published in English about the medieval Arab scholar known in the West as Alhazen.

1 comment:

Hadley said...

There are several reasons that term life insurance rates have continued to decline over the last few years.

Among the reasons for declining rates include: Life insurance companies are more competitive for your business, people are living longer on average so fewer claims are being paid, and it is easier for consumers to compare rates from multiple insurers online without using an agent to get quotes.

All of these reasons have added to the downward trend of lower rates for term life insurance.

In fact, consumers can now shop and compare life insurance quotes online in a matter of minutes, rather than call an agent to visit for a quote comparison.