Life Insurance Ownership Is at a 50-Year Low, But Now's the Time to Buy

Buy Life InsuranceLIMRA, the insurance research firm, recently released a survey with a couple of startling statistics. Namely, individual life insurance ownership is at its lowest point in 50 years, even though 40% of survey respondents said they'd immediately have trouble meeting their basic living expenses if a primary wage earner in their households passed away.

All told, the study found that close to a third of households have no life insurance coverage. To be fair, not everyone needs life insurance. If you're single and no one is relying on your income, you don't need it. If you're married, but you don't have kids, and your spouse could survive on his or her income alone, you don't need it.

But if you have kids, or anyone else who depends on your ability to bring home a paycheck each month, you need life insurance.

"Pretty Dramatic" Price Cuts

Interestingly enough, this low point in coverage coincides with a time when the cost of term life insurance policies -- the cheaper option, and the one that is generally sufficient for most people -- is at an all-time low.

"Insurers have been lowering rates for at least 15 years on term life insurance. In 1994, the lowest rate in the country for a 40-year-old male who wanted a $500,000, 20-year-level term policy was about $995 a year. Today, that same 40-year-old, in perfect health, could buy the same policy for well under $400 a year. So that's pretty dramatic," says Byron Udell, founder and CEO of accuquote.com.

These prices are influenced by a lot of factors -- interest rates, changes in life expectancy -- but Udell thinks they're slightly more likely to go back up at this point then they are to continue to fall, particularly if interest rates stay low (which limits an insurance company's ability to earn money on premiums).

Either way, if you've been putting off purchasing a term life policy, now's the time to buy. Here's what you need to know:

• Where to buy. It used to be fairly easy to find a life insurance agent, but they are fewer and farther between these days, says Udell, largely because prices -- and thus commissions -- are so low. These days, your best bet is the Internet, where you can search for and compare policies on sites like Udell's or Insure.com. Compare your options not only by price, but by the company's rating, which tells you how financially secure it is.

• What to look for in a policy.
Term life insurance is generally sold in 10-, 20- and 30-year policies. If your kids are teenagers, and you just want coverage until they graduate, you're probably fine with 10 years. If they're younger, or your spouse is dependent on your income as well, you want a 20- or even 30-year policy. If you truly want coverage until you die -- and not just in case of an early or sudden death -- then you probably want a permanent policy. But keep in mind that the premiums can be up to four times more expensive.

When in doubt, go longer, says Udell, because while the premiums will be more expensive on a 20-year policy than on a 10-year policy, you can always stop paying when you don't need it anymore. If, on the other hand, you get a 10 year and decide you really needed a 20 year, you may have trouble getting another affordable policy if your health has declined by the time those 10 years are up.

"You can sometimes convert a 10-year to a universal or whole policy, but it will be a permanent premium," notes Udell. "You won't have to qualify medically, but let's say a 40-year-old bought a $500,000 10-year term policy for $230 a year. Ten years later, when he's approaching age 50, assuming prices are the same as they are today, he'd be looking at $4500 a year to convert it to a term policy with level premiums." If you do go short, make sure your policy has that option to convert -- some don't, and some require you to do so within the first five years.

• How much coverage you need. In general, it's more than you think. There are a lot of rules of thumb floating and formulas floating around -- many say you can just multiply your income by seven or eight -- but I don't like any of them. I think it's better to actually take a look at your current income, and figure out how much of it your dependents would need to replace if you died. Be sure to take into consideration factors such as how long they'd need to replace your income, inflation, how they would invest the death benefit, and whether you want the policy to cover extras like paying off the mortgage, college, or an inheritance. You don't have to do this on paper. Insure.com has a good calculator, as does Udell's site.

• How healthy you are. These policies are underwritten, which means you'll need a medical exam. The results of that make a big difference, a few hundred to even a thousand dollars a year at the current term-policy rates. But if your health changes in any way -- particularly if you've stopped smoking -- be sure to call up your insurer and ask to be re-underwritten, says Udell.

"Smoking alone causes your rate to quadruple," he explains. "If you stop for one year, you'll get the standard non-smoker rate, which is around $750 a year right now. If you stop for three years, you might be eligible for the preferred rate, which is in the $400 range."

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dgs755

I am a Life insurance agent and proud of it. I have the ability to deliver a large sum of cash to a family at the worst moment of their life. People buy life insurance for one main reason, and it is because they love someone.

September 29 2010 at 9:06 PM Report abuse rate up rate down Reply
sadams3464

It amazes me that there is so much misinformation, disinformation and plain silliness when it comes to the truth about life insurance. Think about what would happen to a family and their financial well being with the pre-mature death of a bread winner. Their income stops doesn't it? Instead of creating financial hardship for a family a life insurance policy would replace the income lost and the estate that would have been if the person who died had lived. An example of cost of a permanent life insurance policy that would last a lifetime would be a person in their early 40's who would pay about $200 a month for $250,000 in coverage that would be paid out in a lump sum at death, or payments over time if that option were selected. It also builds cash in the policy tax defered. So, on the whole a life insurance policy is a vital part of a comprehensive and well thought out financial program.

September 29 2010 at 6:22 PM Report abuse rate up rate down Reply
suprg1969

Oh yeah almost forgot to mention. Never ever buy anything from an insurance company who advertises on TV or has big advertisements in places like sports arenas. You are highly likely if you do to end up with an insurer who is a bad faith insurer. Bad faith means they don't pay or wrongly deny claims. That's right the lizard won't pay your claim, the cave man ain't paying you, you are not in good hands and may-ham is not paying you either. Denying your claim so easy a cave man can do it. I recently talked to over two dozen property adjusters and they all told me that insurance companies like geico, allstate, 21st century auto insurance, state farm have all gotten 10 times worse than their usual selves at not only denying payment but trying to low ball pay outs and cheat their insureds. The story from some adjusters as to what insurers are doing is frightening. Take the guy who lost his leg in a motorcycle accident and after two plus years of fighting with AIG/New Hampshire indemnity they paid him only half of what he was owed. On top of that they said after sending out the check that if he was still disabled next month they would start paying him the rest of his money at $100 per month. Well since he had a policy for $300k from them and they only paid out $150k how long would it take for him to get the other $150k at only $100 per month. On top of that did AIG expect his leg to grow back next month or something when they told him if next month you still are disabled. This is a true story. AIG got a free pass so far from that right your worthless govt. AIG you see controlled the govt's pension fund for Congress and more and do you think for one minute they are going to put AIG out if its misery and lose all their money. Biggest scam of the century. Look up the real reason AIG went under on Wikipedia. Their CEO ratted them out for the claims fraud they had going on. They would have pizza parties and destroy any incriminating documents that supported the position they should have paid an insureds claim instead of deny it. They put claims settlement checks in the corporate safe instead of sending them out, for as much as a year or more from final settlement date. If you think this type of crap goes on only at AIG, then you are a fool my friends. Allstate, State Farm and more all do similar fraudulent claims practices every day. I have first hand experience of their low down policies in their claims department's.

September 22 2010 at 4:58 AM Report abuse rate up rate down Reply
suprg1969

Better watch out. What the article fails to mention is that almost all insurance companies like 21st Century Auto Insurance/AIG/AllState/Progressive/The HartFord/USAA/Geico/Progressive/Nationwide/StateFarm/Farmers Group these being some of the worst offenders don't pay claims. These and dozens of more insurers are all bad faith insurance companies who would rather deny, defend and low ball claims payments while you the insured suffer and go broke. There is a major investigation by New York into some of the largest insurers going on right now. The claims are that life insurers have not been paying life insurance claims, big surprise. They instead have been telling lies and making people take small payments over time and putting their money into risky investment acct that are not safe or FDIC insured as they claim them to be. The FDIC is also investigating multiple insurers for these actions. Like I said before you can't and shouldn't ever trust your insurance company as all the industry has become is non paying companies who value their profits over their obligations of their insureds all day long. The industry has been running one of the largest ponzi schemes I have ever seen in my opinion. They take in premiums and then lose most of the premiums in bad investments they make and over leveraging themselves so they must take in more and more new policies to keep up with the claims they owe. Another scam they run is don't pay claims and then over time to many people like myself take them to court and the judge gets a hold of them and hits their company with millions in damages for breach of contract and bad faith The insurers get further and further behind as large judgements pile up on them it drains their cash flow. Just look at AllState as a prime example of not paying claims and having massive fraud and punitive damage awards levied against it.

September 22 2010 at 4:39 AM Report abuse rate up rate down Reply
graplace

Just remember one thing above all else: If you have no dependents, you DON'T need life insurance. You'll just be wasting your money.

September 21 2010 at 11:58 PM Report abuse +1 rate up rate down Reply
beemerboxer

Insurance is indeed a necessary thing in our lives if we wish to secure the future of family in the event of death or accident. The sad thing is that it costs a lot of money to buy it, especially as Insurance companies have not realised that there is a recession out there and wiggle their prices up whenever they can. Married to an insurance professional, I am told each week about unemployed people who jettison insurance premiums before much else. With such hard times, insurance for those who know its value is very hard to afford and when unemployed, very hard to keep.

September 21 2010 at 3:45 PM Report abuse rate up rate down Reply