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Life Insurance Premiums Expected to Decline by 4 Percent in 2007, Says the Insurance Information Institute
Rates Fall to Lowest Level Ever
“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.