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Insurance price war, low rates spell savings

Updated: May 3, 2013 12:14PM



In the six months since the terrorist attacks, Americans have stepped up their purchase of life insurance policies--and the amount of coverage in existing policies. Perhaps it's a reflection of our own renewed sense of mortality.

The Medical Information Bureau, which tracks these statistics, says that new applications for life insurance increased 8.6 percent last October and November.

And Accuquote.com, an online insurance broker in Northbrook, reported that average face amounts on applications rose to $460,000--20 percent over the company's 52-week average before Sept. 11.

"That is a tremendous increase for us," says Accuquote President Byron Udell.

An insurance checkup While the renewed interest in life insurance policies is good news for insurance brokers, it's also good news for consumers. That's because there has been a continuing price war in the life insurance industry, especially for term life policies that are easily quoted and compared online, competition has driven annual premiums down.

And new types of policies, such as guaranteed-level term policies (unchanging annual premium), can lock in fixed future payments for 20 or even 30 years. So if you're willing to do your homework, and if you're in good health and a non-smoker, you might find some real life insurance bargains.

There are many reasons not to cash in an existing policy. But it may be worth looking around for some additional, inexpensive coverage if needed. Many policies sold five or more years ago based the future expectations of proceeds on interest rates that were much higher than today's rates.

Now that rates on many policies are touching the minimum guaranteed levels--and may stay low for several years--those older illustrations may be grossly unreliable. Always remember that insurance companies' "projections" or "illustrations" are never guaranteed! If your policy promised that by paying a fixed premium for 20 years, you'd be "fully paid up" and you would not be required to pay additional premiums, it's time to get a new illustration based on today's low interest rates.

Ask your agent for an "in-force ledger" statement to see what your policy looks like now. And ask for a new projection based on minimum guaranteed interest crediting rates continuing on into the future. You may be surprised to learn that your cash buildup won't cover premiums after you reach age 65 or 70.

I'm sure you have plans to live longer than that! In that case, you'll have to pay more premiums for more years than you anticipated.

Or else you'll be faced with cutting your coverage or buying new insurance at an age where it could be very expensive. I recently spoke with a couple that had been buying cash-value life insurance for years.

They pay nearly $1,000 a year for $250,000 in coverage and a promise that they're building cash which they can borrow in the future. I told them to check with their agent about those cash projections. And I walked them over to my computer, where we logged on to Accuquote.com.

We found that this 39-year-old father of three, non-smoker in good health, could buy an additional $250,000 of term life insurance, with guaranteed level payments of just under $300 a year. He was astounded.

Don't debate--detect! Most people will pass up this opportunity to re-evaluate their life insurance coverage because they don't want to sit through the painful process with their agent. (And I say this with respect for all honest and helpful life insurance agents, including my own.)

But now your computer gives you the resources to check prices and policies against each other, and make some decisions about what's really needed for your future.

So instead of debating which type of policy is best for you and your family, take the time to do some comparisons on both price and features of new and existing policies. After all, if you're making an expensive life insurance mistake, by the time it becomes apparent it will be too late to fix.

And that's The Savage Truth.

Terry Savage is a registered investment adviser and is on the board of directors of McDonald's Corp. and Pennzoil-Quaker State Co. Send questions via e-mail to savage@suntimes.com. She appears weekly on WMAQ-Channel 5's 4:30 p.m. newscast.



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