The last thing insurance customers need in this economic environment are higher rates, but that’s exactly what we’re seeing with term insurance these days. Tighter credit markets are one reason why, but not the only one.

What is term insurance? It’s a fixed-timeframe form of insurance that covers you for a period of time you select (for example, 10 or 20 years) and pays benefits only if you die during the time you're covered. Unlike whole life insurance, term insurance doesn’t accumulate any cash value, which means if you do not die within the time you're covered, your estate does not collect any money from the policy when it ends. However, most life insurance companies offer the ability to convert your term life policy to a permanent policy under certain circumstances.

Term insurers have raised rates on policies by between 5-and-15% in 2009, a trend that began back in January as insurance companies battle low returns on the investment side and higher costs of capital and reinsurance issues on the protection side. It’s not just a handful of insurance companies, either as term rates have spiked pretty much across the board. ING (Stock Quote: ING) has raised term insurance rates by about 5% in 2009, and Prudentia Insurance (Stock Quote: PRU) raised its rates by an average of 4%, effective May 1. reports that approximately 75% of the insurers that use the online insurer to market its products have either raised prices or announced they intended to raise prices on term insurance.

Here’s a letter to customers from American National, announcing that it’s raising term prices effective July 1, 2009:

The challenging global economic conditions have affected all financial institutions, including insurance and reinsurance companies. These conditions continue to have a ripple effect on certain products and pricing structures, and accordingly American National will be releasing a repriced ANICO Select Term effective July 1, 2009.

The repricing will affect the base policy for ANICO Select and the Disability Waiver of Premium. The optional Return of Premium Rider will continue to be available at its current pricing.

Term insurance is usually cheaper than whole life insurance, as it doesn’t include an investment component and doesn’t pay off unless the policyholder passes away during a fixed time period. Other factors have driven term prices down, as well. With increased competition, particularly in online term insurance sales, and steady improvements in policy-holder mortality rates, prices for term insurance has been relatively lower in the past 10 years. Then there’s the increased pressure from reinsurance companies, who are being increasingly vigilant about insurance companies getting tougher with customers who smoke, or who suffer increased health problems due to manageable issues like obesity.

With tougher standards and a harsher credit climate, lower term prices are harder to come by. According to the independent Insurance Agents & Brokers of America, less than 10% of term insurance customers will get the lowest coverage rates.

So what’s your best move as term life customer?

First, thoroughly research the landscape. Start by checking for the best deals on You’ll likely notice that insurance price hikes aren’t exactly uniform -- some prices are higher for certain age groups and some might be higher based on issues like the policy’s term and/or the coverage amount.

In general, the older you are, the more expensive the term policy. Higher rates may also apply if you’re in a high-risk occupation or if you’re a smoker. Weight is a big issue, too, these days. If your weight-to-height ratio leaves you in the obese category, you’re probably paying more for term life insurance.

One cost-saving option is to get a rate quote for more than one term policy coverage amount. Sometimes you have to find the soft spot in coverage costs and with prices in flux, there are lower cost “gaps” out there in the marketplace. Also, if you have received an offer for a lower term rate, fill the application out now. Insurance companies will usually honor an offer already on the table.

But if you’re in good health, don’t smoke and look around for the best deal, you can still get a 20-year, $500,000 term life insurance policy for under $25-to-$50 per month.

But don’t wait too long. Who knows if rates won’t keep going up?

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