|
Time to lock in rates on life insurance
By Peter
Davidson • Bankrate.com
Now's the time to lock in rates for extended periods
on term insurance policies.
If you have an annual renewable term life insurance
policy -- or if you're thinking about buying one -- you can get
a better buy with a level-premium policy over an extended term,
experts advise.
"Prices on level-premium term insurance have
never been lower," says Valley Stream, N.Y., insurance agent
Steven Spiro, CLU, ChFC, president of Spiro Risk Management Inc.,
and past president of the New York State Independent Insurance Agents
and Brokers Association. "What makes level premium so attractive
is the fact that you lock in the cost for 10, 15, 20, or even 30
years."
For example, a $500,000 level-premium term policy
for a 30-year-old male nonsmoker in good health from a top-rated
company could cost as little as $420 a year for 10 years, says Spiro.
True, the premium for an annual renewable term policy could cost
substantially less, say $300, but the premium probably will climb
steadily and steeply as the insured ages.
"And, compared to permanent life insurance,
low-cost term is the best bet for most wage earners in reasonably
good health and with grown children by the time they retire,"
says James H. Hunt, former insurance commissioner for the state
of Vermont and now the life insurance actuary for the Consumer Federation
of America. "Cash-value policies cost too much and they often
deliver both too little protection and an inadequate return on investment.
What's more, commissions and fees are steep, and they can sharply
reduce investment earnings. And most policies need 15 to 20 years
or more before they develop into a worthwhile investment."
Term insurance is considered "pure" life
insurance. In return for paying the premium, your beneficiaries
collect an amount of money when you die. "Unlike more traditional
whole-life policies, term doesn't build cash value, it's never paid
up, and there's no surrender value," says Spiro. "When
the term of the coverage is up, the policy expires."
"Term insurance is usually recommended if your
family needs financial protection for a specific period of time,"
said Jack Dolan of the America Council of Life Insurers. "It
helps cover needs that will disappear over time. Because premiums
are generally lower than for permanent insurance, it is also recommended
for families that need a large amount of life insurance protection
but are on a limited budget."
There are three types of term life insurance:
Annual-renewable term is purchased
year-by-year. Premiums are low to begin with, but they rise
annually as the insured ages. Coverage is renewed annually but without
proof of good health.
Level-premium term. The
premium remains the same for each year of coverage, whether it's
5, 10, 15, 20, 25, or 30 years, and there's no requirement to establish
good health during that term. Once it's up, however, you may have
to meet certain health criteria to qualify for a favorable rate
on a new policy. Depending on your health and age, you may not be
able to qualify for another term policy at all.
Decreasing term. It
starts with a specified face value which decreases annually until
it reaches zero. It's usually purchased to cover a debt, like a
mortgage, that is reduced over time as it's paid off.
One word of caution, however: Anytime you consider
replacing any life insurance policy, don't do so until you have
the replacement policy signed and in your hands.
Peter Davidson is a freelance
writer based in Florida.
-- Posted: July 28, 2004
|
