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Term Lifers Get a Break

Jennifer Openshaw

In It's a Wonderful Life, Jimmy Stewart's George Bailey gets a cold, in-your-face reminder of what his life was really worth.

How? By seeing what happens to his family and those around him in his absence.

Those scenes, and the pitiful cash-value life policies he offers to save his tail, always make me think about life insurance.

I know that wasn't director Frank Capra's intent. But a few days earlier, I was surprised to learn of the declining costs of the most basic form of life insurance, so-called "term life."

With term life, you pay a premium for a simple, single benefit payment in case you -- well -- mail it in.

So I was inspired to check it out. After all, how often do I get to write about the decreasing cost of a financial product or service? Other than brokerage commissions, hardly ever. But these lower costs make it time to ponder what George Bailey should have done -- and what you should do, too.

In fact, according to industry advocate Insurance Information Institute, term-life premiums have declined some 50% in the past 10 years and are dropping at about 5% per year. In 2007, they are expected to drop another 4%.

Why the decrease? Are we getting less for our money?

No -- a payout is a payout, and aside from a few exceptions such as suicide, a death is still a death. You die, and your beneficiary collects.

Here's why premiums have dropped:

• Longer life span

  People aren't dying as early or as often. Health care advances, better personal care and even all those seat belts and air bags are postponing the inevitable and reducing premature deaths. For 25- to 44-year-olds, the death rate dropped from just under 178 per 100,000 in 1996 to just under 162 in 2004 -- a 10% drop in less than a decade.

• Corporate efficiency

  Automation advancements have made insurance companies more efficient and flexible, and have improved risk assignment and investment management. Corporate-speak translated: fewer premium dollars go to overhead.

• Competition

  The Web has increased transparency, driven prices down and made it easier for customers to price-shop. Term life insurance is simple enough that you can really shop and buy online. Portals such as Insweb and einsurance.com offer dozens of competitive quotes.

Nice to know that rates are dropping, and why. Still, I don't see term-life rates driving the conversation at your next cocktail party.

Click here for the video version of this story from Jennifer Openshaw.

Instead, I propose a coverage checkup with an eye on the lower rates:

• Flesh out coverage.

  Premiums may have gone down, but living costs, especially those of families with children, haven't. Surviving spouses and families need health care, and that certainly isn't getting cheaper. Ditto for college.

  What about dependents' years prior to Social Security and Medicare eligibility? Studies show that while three in four families have life insurance, most don't have enough coverage.

  For $50 a month, and perhaps under $30 a month if a "preferred" risk, a 40-year-old male can now get $500,000 in coverage. Not bad.

• Re-evaluate your policies.

  You thought you were so smart buying that 20-year level term policy, with constant payments through the period. Although the later years are the better deal, you might find still better rates in a new policy.

  And if you're buying a new policy, consider buying shorter terms to take advantage of further reductions.

• Redirect coverage.

  Your life -- and the income you generate -- is important. But perhaps your insurance dollars are better spent on disability or additional health coverage, which are several times more likely to actually be needed. Or maybe you can buy a cheaper policy and plunk the difference into your IRA or 401(k).

Now I know looking at insurance quotes won't be the highlight of your day. But you and your family may breathe easier and enjoy the fruits of a wonderful life -- a small price to pay indeed.