Life (Insurance) Is Cheap -- but Maybe Not for Long

The cost of term life insurance has never been cheaper. On that, industry experts agree.

Over the past decade the price of term life insurance, the plain vanilla type that offers coverage only for a set number of years with no investment features, has plummeted. Premium prices have fallen by 60% or more because of greater efficiency through computers, Americans' increased longevity (which makes them less risky to cover) and intense competition fueled by Internet price comparisons.

Now some industry experts are suggesting that premium rates have finally bottomed out and are on the way up -- and that consumers who are thinking of buying should act now.

But others say this simply isn't so. If anything, rates are more likely to decline in the future.

And of course, no one knows how New York Attorney General Eliot Spitzer's latest financial services crusade against the insurance industry will play out. Spitzer has charged the giant insurance brokerage Marsh & McLennan (MMC Quote) with bid rigging in the property/casualty insurance arena. However, he has also recently requested information from several major life and health insurers as well.

The rate debate is framed by two major independent brokerages and competitors, known for their online rate shopping comparisons. In one corner is AccuQuote (www.accuquote.com) and in the other, Quotesmith.com (QUOT Quote).

"There's no way around the fact, rates are going up," says Byron Udell, CEO of AccuQuote, a large independent brokerage in Wheeling, Ill. "They are getting tighter as we speak."

He attributes the rate increases to the lackluster investment markets where insurers make money by investing premiums, and to growing cost pressures from reinsurance companies.

Insurance companies rely heavily on reinsurers, which for a price agree to carry a portion of the risk that insurance companies take on. This arrangement spreads risk among companies. However, in recent years the number of reinsurers has declined sharply, say some industry experts, leading to decreased competition and higher reinsurance pricing.

Udell says it's still possible to obtain very low-term rates. For example, a 40-year-old man in excellent health can still buy a $500,000 policy with a 20-year level premium for less than $400 annually, he says, the lowest price in 10 years. A decade ago, the same policy would have cost $995.

Some insurers are raising their premiums, while others achieve the same effect by tightening restrictions on their lowest-priced premium policies. Until recently, he says, insurers might deny their best rates to customers whose parents died of heart disease before age 60.