Rates Fall to Lowest Level Ever
Premiums for individual life insurance—both
term life and “permanent” insurance—will drop, on average, by 4 percent
in 2007, according to the Insurance Information Institute (I.I.I.).
“This continues a generally downward trend in life insurance premiums,
which began several decades ago,” said I.I.I. economist and life
insurance spokesperson Dr. Steven Weisbart. “The 4 percent drop
projected for 2007 is in line with the average 5 percent per year drop
beginning in 2000,” added Dr. Weisbart. “The result is that, in 2006,
premiums are less than half of what they were over a decade ago.”
The
I.I.I. estimates that, for example, the annual premium for a
40-year-old male nonsmoker buying a $500,000 20-year level term life
insurance policy in 2007 will be $615 if he qualifies as a “standard”
risk and $340 if he meets the more stringent requirements of a
“preferred” risk. Rates for women, younger people and for larger
amounts of insurance would be lower.
Premium rates for
traditional whole life, universal life, and variable universal life
insurance are also expected to be lower in 2007. The premiums for these
products—which are designed to pay a death benefit no matter when the
insured person dies—are driven by expected investment returns as well
as by the same forces that affect term rates, Dr. Weisbart said.
“Life
insurance rates are dropping because death rates for the 25-44 age
group—the primary age range for purchasing life insurance—have
decreased significantly over the past 10 years,” Dr. Weisbart pointed
out. In 1996 the death rate per 100,000 for the 25-44 age group was
177.8; by 2004 it had dropped to 161.8 (preliminary data, National
Vital Statistics Reports). That is nearly a 10 percent drop in the
death rate in less than a decade for the prime insurance-buying ages.
“The drop in life insurance rates
couldn’t come at a better time for families with young children,” said
Dr. Weisbart. “It’s important that they have life insurance to protect
the income their dependents rely on.” Most parents with young children
buy term life insurance: A study by LIMRA International (an insurance
marketing research organization owned by over 850 financial services
organizations) showed that, of those who bought life insurance in 2003,
72 percent of married couples and 66 percent of single parents bought
term policies. Each premium dollar for term insurance provides several
times the amount of death benefit available from whole life policies.
With
rates lower than they have ever been, parents should re-assess the
amount of life insurance they carry on their own lives, and many should
consider purchasing more. For example, it takes a $500,000 death
benefit to pay a widow $2,500 a month for 17 years(1). Yet in 2004,
according to LIMRA International, the average adult with life insurance
age 25-34 had only $145,000, and the average adult age 35-44 had only
$323,000 of insurance on his or her life. As the term “average”
implies, many people had smaller amounts of insurance—and one in four
adults have no life insurance at all. Furthermore, even a monthly
income of $2,500 is less than meets the eye since a portion of it of it
is taxable income, and it does not include a retirement program or
other employer-paid benefits that the income earner may have had during
life.
Those in certain nontraditional family situations
also should consider purchasing additional life insurance. The 2000
U.S. Census counted 2.4 million grandparents who say they are
responsible for the basic needs of grandchildren living with them.
About one-third of these grandparents are raising their grandchildren
with no parent present in the home. Nearly one in five of these
grandparents are living in poverty; 71 percent are under age 60. Many
of them are still working, or have gone back to work to support their
family. For the security of the children in their care, these
grandparents should learn how their grandchildren can qualify to
receive Social Security survivor benefits. And, if they can afford it,
they may want to consider individual life insurance as well. For
information on grandparents and Social Security, see
http://www.ssa.gov/kids/parent5.htm .
Whatever your family
situation, if you buy more life insurance, consider buying enough to
replace any existing individual life insurance you have. Buying one
larger policy—rather than keeping the smaller one and starting a second
policy—will further lower your premium rate, since most life insurance
companies charge lower rates for larger amounts of insurance. Typical
amounts that qualify for lower rates are $250,000, $500,000, and
$1,000,000. Be sure to note on the application that you plan to replace
an existing policy, and don’t drop the existing policy until the new
one is in place.
The I.I.I.’s forecast for life insurance
rates in 2007 coincides with an industry-wide campaign to promote
September as Life Insurance Awareness Month. The campaign is being
coordinated by the Life and Health Insurance Foundation for Education
(LIFE); for more information on the campaign, see
http://www.life-line.org/LIAM .
(1)This
example assumes that the investment earnings of the unpaid-out proceeds
exactly match inflation, and that the amount paid out increases each
year to match inflation.
The
Insurance Information Institute is a nonprofit, communications
organization supported by the insurance industry. The mission of the
Insurance Information Institute (I.I.I.) is to improve public
understanding of insurance -- what it does and how it works. For more
than 40 years, the I.I.I. has provided definitive insurance
information. Today, the I.I.I. is recognized by the media, governments,
regulatory organizations, universities and the public as a primary
source of information, analysis and referral concerning insurance. Each
year, the I.I.I. works on more than 3,700 news stories, handles more
than 6,000 requests for information and answers nearly 50,000 questions
from consumers.
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