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
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
(www.accuquote.com) and in the other,
"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.
Now some won't assign the best rate if either parent was merely diagnosed with heart disease before age 60. And some companies that used to allow customers with two traffic tickets in the past three years to qualify for the top rate, now say the limit is one ticket in three years.
"They've raised rates by changing the guidelines," says Udell. The decade-low quote might be available, but "to get it, you've got to walk across your backyard pool and back again."
Among the insurance companies that have either raised rates or tightened requirements, says Udell, are the nation's largest life insurers, including:
, West Coast Life, the TransAmerica division of
David Woods, president of the Life and Health Insurance Foundation for Education, or LIFE, a nonprofit insurance education group (www.life-line.org), says some insurers are talking about increasing rates by the end of the year, others are acting now. "If you decide you need insurance and you want term," he warns, "I would get it sooner rather than later."
(The LIFE Foundation, citing a crisis of underinsurance, recently began offering an online calculator at www.life-line.org/humanlifevalue that helps consumers quantify the value of their lives if their income is lost to their dependents.)
But over at Quotesmith.com, CEO Robert Bland last month said in a news release that his company's poll of the top 60 life insurers revealed the price war was heating up and many term policies "have now dropped to all-time lows."
The survey showed that a healthy 40-year-old man could obtain a 20-year fixed term policy for as little as $340 a year.
Bill Thoms, Quotesmith's executive vice president, says the brokerage is sticking with the view that rates among the 66 insurers it calls monthly are not rising on the whole. "We've only had one or two go up," he says. "We've had a dozen go down. I don't think you can say that's a trend up."
Thoms acknowledges that reinsurers are raising the rates they charge insurance companies, but so far most of that hasn't been passed on to consumers in the form of premiums. He notes that when companies have broken from the pack to increase rates, many have had to retreat.
Bob Barney is president of Compulife Software of Tennessee, which supplies daily computer updates on 140 insurers to thousands of brokerages and operates the information-only www.term4sale.com Web site for investors. He sees no rising trend.
"There's been this chatter in the air," he says, "but nothing is happening."
If anything, Barney says, insurers are eager to lower rates. New industry mortality guidelines reflecting increased longevity are set to take effect by 2005 or 2006, and are expected to push rates down.
The debate on pricing could be less about the cost of premiums than a way to generate excitement in a market whose growth rate is slowing.
Leading insurer credit rater A.M. Best Company said this month that its study of insurers found that term life grew by less than 3% in 2003, compared with 19% in 2002. However, term is still the industry leader over permanent types of insurance, representing more than two-fifths of policies issued and in force.
The leading term companies are
, AIG and
Lorraine Gorski, associate editor of
, stated that term insurers continue to be under pressure from an industry 2001 requirement to increase reserves. In addition, reinsurance markets are "hardening."
The leading term insurers, Gorski wrote, continue to be dominated by reinsurance groups or those focused on term life sales, including MetLife's RGA Reinsurance Co., Aegon's Transamerica,
and the Primerica division of
Whether rates are heading up or down shouldn't matter to consumers, says Barney. If you need insurance, don't wait. "You could die tomorrow," he says. "You buy insurance because your paycheck matters to someone who needs your income. Quit sitting on your best intentions."