Life insurers have been making money on term life insurance for years. Inside industry statistics peg term life payouts at less than 1 percent annually. That means that less than 1 percent of all term life insurance policies ever pay death benefit claims. It’s not that insurers are scamming people or refusing to pay, it’s that most people outlive their term policies.
Life insurance is one of the best ways to ensure that your family has the money that they, even if something tragic were to happen to you. When you’re shopping for coverage, it’s important that you find the best plan possible. This post is going to look at term life insurance, the cost, and ways that you can find even cheaper coverage for your family.
Term Life Has Gotten Cheaper
Term life insurance is inherently a low-premium product. A minimal amount of money needs to go toward funding the death benefit, because a significant portion of the premium calculation resides in the payout ratio or probability. Sure, insurers need to account for the usual mortality costs and risks, but the truth is that most people outlive their term policies. That’s a huge reason why insurers can afford to offer low premiums.
Another factor contributing to low premiums is the fact that the insurer doesn’t need to provide a cash value for the policy. With products like whole life insurance, the insurer must set aside a significant portion of the premium as a reserve to pay for the future death benefit, and that death benefit will be paid if the insured continues to pay premiums until he or she dies.
A third reason why term life has gotten cheaper is because people are living longer. This means that the policies that insurers are issuing today are being targeted at a population with a lower probability of death within the “sweet spot” of the term insurance market – ages 30 to 45.
The New CSO Mortality Tables
When the insurance industry moved from the 1980 CSO mortality tables to the 2001 tables, policies got cheaper, and insurers could lower premiums. While some insurance companies took this opportunity to raise profits, others saw this as a competitive opportunity.
CSO mortality tables are how insurance companies class risk – in other words, it’s how they determine what to charge you based on your risk of death at any given age. When actuaries completed the 2001 model, they found that, in some instances, males outlived females – reversing a long-standing trend showing females outliving males. This was particularly true in the 20-30 age bracket. Smoking had a greater impact on mortality, meaning insurers may have chosen to raise premiums on smokers.
However, mortality tables were extended out to age 120, instead of 100, meaning that term policies could be positively affected. This means, in plain English, that you get to pay less for term insurance because people are generally living longer lives.
Level Premium Funding
Level premium funding also helps lower the cost of term life insurance. With the most basic type of term insurance, annual renewable term life, you pay premiums for one year, and the insurer only charges you one year’s worth of death benefit coverage. On your policy anniversary, the insurer recalculates your risk of death and increases your premium to reflect your older age.
With level premium funding, the insurer collects premiums in excess of the one year cost of insurance and then guarantees death benefit coverage for 10, 20, even 30 years as long as you continue paying premiums for the entire length of the term.
It invests the excess premium, and uses investment interest and the excess premium to hold down the rising cost of insurance. As insurers have gotten better at investing and diversifying out of government debt, they’ve also been able to lower premiums of term policies.
Calculating Your Life Insurance Needs
Before you buy a term insurance policy, it’s important that you determine how much coverage that your family needs. Not having a large enough plan is one of the worst mistakes that you could possibly make for your loved ones. There are a few key categories that you’ll need to add up before you purchase a plan.
The first number that you should look at is your debts and final expenses. The primary purpose of your life insurance plan is to give your family the money that they need to pay off the bills that your family would be responsible for if you passed away. Make sure that your loved ones would have the money to pay off your mortgage, business loans, student loans, and all the other major bills.
The next number that you should add into the equation is your annual income. If you’re one of the main streams of income in your home, then your family would struggle without that paycheck. That’s where your life insurance policy comes in. It gives them the money that they need to replace your salary without having to struggle to pay for any necessary bills.
Getting Cheaper Life Insurance
When you’re shopping for life insurance coverage, it’s important that you find the cheapest option available. As we mentioned, term life insurance is going to be the cheapest choice for coverage. There are a few other ways that you can secure lower rates. Making some changes can save you thousands of dollars on your insurance plan.
Before you apply for life insurance, you should kick your bad habits, like smoking or using chewing tobacco. Both of these are going to give you a higher chance of being diagnosed with severe health problems, like cancer or having a heart attack. Not only are the awful for your health, but they are going to be bad for your wallet as well. If you’re a smoker, or you use chewing tobacco, then you’re going to pay a lot more for your life insurance every month. In fact, you’ll pay at least twice as much for coverage. Kicking those bad habits can save you thousands of dollars every year.
Another way that you can save money is to improve your overall health. The insurance company is going to require that you take a medical exam unless you have chosen to purchase a no medical exam life insurance policy, which will come at a higher premium. The results of the exam are going to play a huge factor in how much you pay every month for your protection. Before you apply for coverage, start getting exercise and stick to a healthy diet. Both of these can help you lose weight, lower your blood pressure, lower your cholesterol, and lower your risk of being diagnosed with help problems. If you’re overweight, then you’re going to pay 50% more for your insurance coverage.
The best way to ensure that you’re getting the lowest rates is to compare dozens and dozens of plans before you pick the one that’s going to work best for you. Every insurance company is different, and all of them are going to give you different rates based on their medical underwriting and rating systems. You could get drastically different rates depending on the company that you choose.
There are hundreds of insurance companies on the market, and all of them are going to have different plans and rates. Instead of wasting your time calling those companies yourself, let one of our independent insurance agents do all of the hard work for you. Unlike traditional insurance agents, we are a group of independent insurance brokers, which means that we don’t work with one single company. Instead, we work with dozens and dozens of highly rated companies across the nation and we can bring all of the best rates directly to you. Working with one of our agents will save you both time and money on your life insurance policy.
With term life insurance rates decreasing over the years, term has become the choice for many families as a cost effective way to buy life insurance and provide protection to spouses and children. Use our instant term life quoter on this page to compare rates and start shopping for term life for your family.
You never know what’s going to happen tomorrow, which means that you shouldn’t wait another day to get the insurance protection that your family deserves. If something tragic were to happen to you, and you didn’t have life insurance coverage, your family would be stuck with a massive amount of debts and other final expenses. Losing someone that you love is never going to be easy, but that’s where your life insurance protection comes in.
If you have any questions about term life insurance or about some of the other options, please contact one of our agents today. We would love to answer those questions and connect you with the best plan possible.