Updated: May 3, 2013 12:14PM
Originally published: July 15, 2004
If you’re planning to buy more life insurance, do it now! After years of declining prices, the cost of life insurance is on the rise, but those price increases may not be immediately apparent. One way to raise prices is for insurers to become more selective about who gets the “preferred-plus” designation, and the lowest prices. If you fail to qualify for the top tier of least-risky clients, you could pay as much as 25 percent more for your life insurance. Lately, more people are finding out they don’t make the grade to get the lowest prices.
For the past 15 years, life insurance rates plunged, especially on simple term insurance. A big part of that decline reflected competition. The industry always had a saying that life insurance is “sold.” That meant that insurance agents were around to convince people to buy their products. Anyone who sat through a life insurance presentation wasn’t eager to go through that process a second time, just to see if another agent had a lower price.
Term life prices plunged
The Internet changed everything, making it possible for buyers to compare prices. And in the past 10 years, prices of term insurance have fallen about 60 percent. There were other technical reasons for lower prices. We’re living longer -- less chance of dying young -- and so insurance companies didn’t have to charge as much. And the entire industry has become more efficient at everything from taking blood samples to researching your medical history. Cutting costs leads to lower prices.
For example, in 1994 a 40-year-old male in the best risk class paid $995 for a $500,000 20-year level premium term life policy. Today that same 40-year-old would pay only $390 for the policy.
Inexpensive term insurance has been a great deal. But it may not be around much longer, according to Byron Udell, president and CEO of Accuquote.com. He says, “Rates have hit bottom. There’s no question. About half the carriers have already begun to increase prices. The good news is there’s still time for people to get in on the lowest rates in history, before the remaining companies file for higher rates over the coming months.”
But Udell says he isn’t necessarily happy about the current situation. Many “healthy” customers are applying for policies, only to find out after underwriting is completed that they don’t qualify for the lowest prices under new, more stringent underwriting standards. Udell says that puts brokers like his company in the “awful position” of having to explain why clients must pay more.
Here are some of the new, stricter standards insurers are applying to new customers.
* Cholesterol. Until recently, applicants could generally receive the best rate class if they had 220 maximum cholesterol and a 5.0 ratio of good-to-bad cholesterol. Now, many companies have tightened those standards to 210 and a 4.5 ratio.
* Blood pressure. Until now, you’d get the top “preferred plus” risk rating if your blood pressure levels were better than 140 over 90. Now that threshold has dropped to 135 over 85. If you’re even one point over the limit, even though your doctor says you’re perfectly healthy, you won’t get the top rating. And most companies now require you hit those targets without taking blood pressure medicine.
* Driving record. Until recently, you could qualify for the lowest risk, “preferred plus” category if you had no more than two moving violations in the last three years. Now, several carriers require that you have no more than one ticket in the last three years.
* Family history. Insurance companies always asked you questions about your parents’ health and longevity. Now they’re considering the health history of your siblings. They’re particularly looking for instances of cancer or heart disease. And they’re no longer asking at what age your parents died, and the cause of death. Now they want to know at what age your parents and/or sibling had the onset of disease.
Tightening likely to continue
This trend toward tighter underwriting standards is likely to continue as the reinsurance companies that ultimately accept most of this risk have now consolidated and are raising prices in the “wholesale” market.
It’s always a good idea to make sure you have enough insurance to take care of your family or to be held in an insurance trust to pay estate taxes. But rising prices give you an extra reason not to postpone this important purchase. And that’s The Savage Truth.
Terry Savage is a registered investment adviser, and appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast. Distributed by Creators Syndicate.