Bargain prices for term life ending soon
By Paul Bannister • Bankrate.com

Buy term life insurance now, because it's going to get more expensive, and soon, say experts.

In fact, some companies have already implemented rate increases disguised in the form of tighter guidelines that make it harder for people to get the best, cheapest rates. More constraints will follow.

There is good news: You can still save money on a term life policy, which is for a guaranteed amount at a fixed rate and for a specific period, because the market is at historic low rates, but the window of opportunity is slamming shut.

Once a hard sell, life insurance became more popular a decade ago, when rates dropped dramatically. In 2003, four of every 10 Americans owned an individually purchased life insurance policy, and millions more enjoyed group coverage.

About 35 percent of the insured own universal life policies, closely followed by the 27 percent who have whole life contracts, but in the past decade term policy sales have nearly doubled, to claim a 22 percent share of the market.

When we all started living longer, the insurance industry handed out more rewards in the form of still-lower rates and the cheapest policies ever.

A year ago, things looked rosy. New studies showed that from 1978 to 2003, life expectancies had risen sharply, making policies cheaper yet.

"Healthier lifestyles and medical advances mean almost everyone is living longer," says Bob Barney, president of Compulife Software, a Kentucky corporation which monitors insurance rates. "A man aged 40 in 2003 can expect to live to age 78, five years longer than a similar 40-year-old would have expected 25 years ago."

State insurance commissioners and regulators, the officials who set the rules for insurance companies, recently revised life expectancy projections upwards for the vital mortality tables that help shape corporate profitability projections.

They knew that longer-living policyholders mean insurers can hold slimmer financial reserves for payouts and use cash from premium payments longer, thereby making more profits.

The companies benefit, and the customers in turn pay lower premiums, as competition means insurers pass on some of their savings.

But in 2004, things changed. Legislation approved by state regulators in 2000 began to bite, under an obscure regulation called Triple X, which called for insurers to set aside larger cash reserves to cover term-life claims.

Reinsurers who cover primary insurers' risks ultimately call the shots. Some insurers had met Triple X obligations by reinsuring overseas, but the foreign reinsurers raised rates as the dollar slumped, hiking costs for U.S. consumers.

And that wasn't all.

"Improved life-expectancy levels did send rates lower, but interest rate changes and corporate mergers have tightened the markets for the biggest, most influential insurers, and that means rates are going up," says Byron Udell, founder and CEO of online insurer AccuQuote.

"The reinsurance market recently went from 16 players to just seven," he explains. "This is at a time when the rates are the lowest they have ever been, when the big players who make the difference are as lean and efficient as they have ever been, and when there are no margins left to absorb extra costs.

"There is no fat in the industry, but there are great pressures on profitability, so something has to give."

Companies have few choices. To stay profitable, they can cut already pared-to-the-bone costs, or they can raise prices.

"They almost can't cut costs much further," says Udell, "and the first company to bite the bullet and raise its rates, First Colony, saw its ranking slip from fourth to 10th place. Customers simply went to other A-plus rated companies that were beating First Colony rates by 10 percent or so."

That carrier has fought its way back, but paid a price for being first to raise rates. Other insurers took note, and adopted different tactics.

They have been disguising their rate hikes, but they are nonetheless raising prices, says Udell, who adds that so far only term life policies are affected.

"Half the companies have not made their move yet and adjusted to the higher reinsurance rates they have to pay, but some companies, like Trans America, Empire General and AIG, the No. 1 writer of life policies, have already quietly changed the guidelines their underwriters follow, so that the customer pays more," he says.

Where once a 6-foot man could weigh up to 230 lbs. and get the best rates, now many companies won't allow a 6-footer to qualify for those rates unless he weighs 210 lbs. or less.

Not long ago you would have been disqualified from most-favored status only if your parent had died of heart disease before age 60. Then, it became a disqualifier for the highest ranking if your parent even had heart disease. Next you lost the best rate merely because a relative had it, and more recently, if a relative merely had a cardiovascular ailment such as high blood pressure.

"It has gotten to the stage you could be an Olympic decathlon champion, but if your father's doctor suggested some preventive medication for a possible heart ailment for him when he was 59, it can reflect on your desirability as a candidate for life insurance's best rates," says Udell.

Here are some other tightening guidelines:

Driving record. Previously, two moving violations on your record within the past three years could bump you down from preferred status to ordinary rates, because fast drivers have higher mortality rates. Now, it takes only one violation before some companies refuse to offer you the best rates.

Family history. Some carriers are concerned mostly with cancer, others with heart disease. Some factor in onset of a disease in your family if it is before age 60, others consider it only if it was the cause of death.

Cholesterol. Recent medical findings suggest that low cholesterol is even more important than carriers once thought. Net result: higher rates if your cholesterol count is higher and reduced numbers on what constitutes low and high.

Blood pressure. Previously, if the medication you were taking was controlling your blood pressure problems, insurers would give you preferred status. Under tighter, more stringent rules, that's no longer the case. Just taking the medication puts you on a black list.

"You can get around these barriers," says AccuQuote's Udell. "It simply means viewing a larger menu of products. It used to be that an agent for, say, XYZ Mutual, sat across your kitchen table for two hours and outlined one product: XYZ's. You didn't hear of other companies' offers unless you invited another agent into your kitchen for another mind-numbing sales pitch.

"Now, because so much of rival companies' information is available online, you can compare a whole range of companies and their products without even seeing an agent."

A company like Udell's, which deals with a number of competing insurers and handles about 15,000 new policies a year, knows what unwritten guidelines are out there, he says. One company might allow you to smoke two cigars a month, another might insist on no smoking at all.

"They are guidelines, not hard and fast rules," he says. "What one company allows in height and weight can be considerably different than what another company will allow, and the landscape is always changing."

The rates have changed, too. In 1994, a 40-year-old, nonsmoking man seeking a $500,000 policy might pay $975 a year; today, he will pay $375 to $400.

For now, rates have fallen because of competition, improved life expectancies, better deals insurers have cut with examiners, blood-work analysts and others, and due to the availability of information about rates on the Internet that any consumer can compare.

But don't think the company offering the cheapest rates in the highest class (Preferred Plus) is best. That company might have very tough qualifying conditions, and you might have to settle for the second place (Preferred) class at rates that can be typically 15 percent to 25 percent higher than a competitor's rates.

Go to such sites as AccuQuote, Insure.com or CompuLife, where hundreds of different products are compared, and get several quotes at a claimed typical savings of up to 70 percent.

You'll most likely have to fill in more detailed information before you apply for a policy, and companies will seek to verify your information with a physical examination and other questions, but the service is free and no one company is promoted.

Bob Barney of CompuLife advises, "If you need insurance, buy it now. You're as young as you ever will be, and the price won't be lower. If you check the premium again in a year or two, you can convert. Just make sure you have insurance, and then keep shopping around to make sure you have a good deal."

Always buy insurance based on your needs. "Don't wait for a better bargain, just get yourself covered. Do your homework, use an agent or go online to look for yourself," advises Grant Hemphill, a member of the American Academy of Actuaries and producer of the Van Elsen Report, a publication for corporate officers and actuaries. "The new actuarial tables are out there, but some companies will not adopt them until they are forced to do so in 2007 or 2008. Don't wait!"

Paul Bannister is a freelance writer based in Oregon.

-- Posted: July 28, 2004