Now is an ideal time for consumers to buy or increase their life insurance, an Insurance Information Institute report suggests.
Rates for term life insurance are likely to drop by 1% in 2008, while there will be little change in rates for permanent life policies, predicts Steven Weisbart, vice president and chief economist for I.I.I., New York.
“We foresee a continued downward trend in life insurance premiums, which began a little more than 10 years ago,” said Weisbart.
The 1% term rates drop in 2008 would be mild when weighed against the 4% average per year seen since 2000, he notes — and especially if compared to the average 15% drop each year reported between 1994 and 1999.
The long-term decline in premiums is fading because some factors that drove rates down a decade or so ago have now stabilized, Weisbart observes. One was the growing use of the Internet, which made it easier for consumers to compare rates of a number of life insurance carriers conveniently and quickly. Reinsurance rates, which declined sharply in the recent past, also have become steadier.
Still, term policy premiums are generally less than half of what they were in the mid-1990s, Weisbart notes. For a 40-year-old nonsmoking male, a $500,000, 20-year level term life insurance policy in 2008 would cost about $725 if he qualified as a standard risk and $350 if he meets the more stringent preferred-risk requirement, he estimates. The rate for a 40-year-old female nonsmoker would be about $600 for a standard risk and $300 for a preferred risk.
Weisbart projects that premium rates for traditional whole life, universal life and variable universal life insurance will stay about the same in 2008 as in 2007.
The premiums for these products are affected by life insurers’ expected investment returns as well as by the same trends that affect term rates, Weisbart notes.
“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,” he says.
In 1996 the death rate for the 25-44 age group was 177.8 per 100,000. By 2004 it had dropped to 161.8, according to preliminary National Vital Statistics Reports data from the Centers for Disease Control, Atlanta. That is nearly a 10% drop in the death rate for those in their prime life insurance buying years, Weisbart noted.
Life insurers have also profited from the generally favorable investment and interest rate situation of recent years, which they have passed along to consumers.
Other reasons rates are dropping: Mergers, acquisitions and technological advances have helped life insurers operate more efficiently, he said. For instance, home and field office costs dropped from 10.1% of total premiums in 1995 to 9% in 2005, according to I.I.I. calculations based on data from the American Council of Life Insurers, Washington.
Better prices mean that consumers can increase the amount of life insurance they carry on their lives, if need be, I.I.I. observes. And it appears that many do need to do so, the data suggests.
In 2004, the average adult with life insurance between the ages of 25 and 34 had only $145,000 in coverage, and the average adult aged 35-44 had only $323,000 of life insurance, notes I.I.I., citing data from LIMRA International, Hartford, Conn.