Term Life Insurance Articles
Term Life Insurance Prices Increase After Years Of Reductions
2009-10-14
After years of stable and even declining prices, term life insurance policies are starting to grow increasingly expensive. The industry has been able to charge such low prices for the past few decades in part because advances in medical technologies have enabled the average person to live longer. When insured individuals outlive the length of time for which they have purchased coverage, the policy costs the insurer virtually nothing because they have to make no payout to the policyholder. In contrast, whole life, or permanent policies remain in effect indefinitely, as long as one continues to pay the premiums. Whole life policies also tend to involve an investment component, allowing policyholders to cash out if they choose to do so. People who hold limited term policies never have the option of getting back any of their money, so they pose a lower financial risk for insurance companies.
The recent upswing in term life insurance rates is partly due to the current recession, which has hit the insurance industry particularly hard. Companies have lost money through unsuccessful investments, especially real estate purchases. The credit crunch has made it difficult for businesses in every sphere of the economy to borrow money, so raising rates is one way to bring in additional capital. A shaky stock market has also resulted in insurance companies getting a lower rate of return on their own investments, forcing them to look for other ways to generate income.
Insurance companies need to be sure that they have access to enough money on an ongoing basis to pay off the term life insurance claims for which they are responsible. In January 2000 most states adopted a regulation known as "Triple X" which required that insurance companies have access to a larger amount of capital than they had previously needed in order to meet financial obligations that might arise. This is especially with regard to paying out on term and permanent life insurance policies. In order to meet these new, elevated standards, many companies issued bonds and looked for ways to capitalize their funds through investment strategies that, in retrospect, turned out to be risky and unreliable. As a result, companies are finding themselves short of cash and are forced to raise rates - even on types of insurance that have typically been immune to rate increases.
The rising cost of term life insurance has caused some brokers to encourage clients not to hesitate or procrastinate over purchasing coverage. With increasing prices, it makes sense to buy a policy now, rather than waiting a few months and risk paying more. They are also recommending 10-year rather than 20-year policies, because ongoing price increases make it cost-effective to lock into current rates for a longer period.
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After years of stable and even declining prices, term life insurance policies are starting to grow increasingly expensive. The industry has been able to charge such low prices for the past few decades in part because advances in medical technologies have enabled the average person to live longer. When insured individuals outlive the length of time for which they have purchased coverage, the policy costs the insurer virtually nothing because they have to make no payout to the policyholder. In contrast, whole life, or permanent policies remain in effect indefinitely, as long as one continues to pay the premiums. Whole life policies also tend to involve an investment component, allowing policyholders to cash out if they choose to do so. People who hold limited term policies never have the option of getting back any of their money, so they pose a lower financial risk for insurance companies.
The recent upswing in term life insurance rates is partly due to the current recession, which has hit the insurance industry particularly hard. Companies have lost money through unsuccessful investments, especially real estate purchases. The credit crunch has made it difficult for businesses in every sphere of the economy to borrow money, so raising rates is one way to bring in additional capital. A shaky stock market has also resulted in insurance companies getting a lower rate of return on their own investments, forcing them to look for other ways to generate income.
Insurance companies need to be sure that they have access to enough money on an ongoing basis to pay off the term life insurance claims for which they are responsible. In January 2000 most states adopted a regulation known as "Triple X" which required that insurance companies have access to a larger amount of capital than they had previously needed in order to meet financial obligations that might arise. This is especially with regard to paying out on term and permanent life insurance policies. In order to meet these new, elevated standards, many companies issued bonds and looked for ways to capitalize their funds through investment strategies that, in retrospect, turned out to be risky and unreliable. As a result, companies are finding themselves short of cash and are forced to raise rates - even on types of insurance that have typically been immune to rate increases.
The rising cost of term life insurance has caused some brokers to encourage clients not to hesitate or procrastinate over purchasing coverage. With increasing prices, it makes sense to buy a policy now, rather than waiting a few months and risk paying more. They are also recommending 10-year rather than 20-year policies, because ongoing price increases make it cost-effective to lock into current rates for a longer period.
