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Term Life Insurance May Be Getting More Expensive

Term life insurance got dirt cheap for a while. In fact, it was a screaming deal for healthy individuals – especially those in high-hazard occupations. But term life insurance premiums are starting to increase, say industry observers.

Term insurance basics

A term life insurance policy pays a death benefit if you die within a certain period of time. It is a temporary policy and not designed to last for your entire life expectancy. It is simply designed to provide your heirs or dependents protection against financial hardship as a result of the insured’s death for a specific period of time.

It does not accumulate cash value. At the end of the term, it generally expires worthless, though you may be able to extend coverage for a higher premium. Some policies will return your premium to you if you survive to the end of the term – the interest on your money is what pays the premium. However, these policies naturally have much higher premiums than ordinary term policies.

Why term insurance got cheap

Term insurance prices fell by about half over the last 20 years, largely as a result of advances in fighting diseases like cancer and heart disease. Life expectancy among adults rose sharply – and many more people were outliving their term policies. If they had permanent policies, insurers were able to let premium money compound that much more before paying out a death benefit.

Additionally, the Internet made it possible for low-cost, low-service life insurance companies to thrive – increasing competition and further driving down prices.

Why are insurance prices going up?

Blame low interest rates. Bonds – the traditional staple of insurance companies’ investment portfolios, are paying next to nothing. Interest rates – the money that borrowers pay lenders to use their money for a while – are at or near record lows. Insurance companies rely on investing your premiums at a profit. But when interest rates are low, there is very little profit to be had.

Meanwhile, insurance company liabilities are fixed: When you die, the insurance company must pay a set amount according to the terms of your contract. They must raise that money somehow. If they cannot raise it by investing it because their outlook for receiving interest payments is poor, then something has to give. In this case, that something is term insurance rates.

If you are considering buying term insurance anyway, now may be a good time to lock in a level term policy for a few years.

However, if you are tempted to buy a 20 or 30-year level term policy, you may do well to consider whole life. If you like the idea of paying ‘level term for life,’ you can have an agent design a universal life policy that will do that for you.

Remember that if you are still a uniformed servicemember, you have $400,000 available in SGLI for $22 per month. This is an excellent deal – especially if you are in your 30s, 40s or older, and if you smoke. Another $100,000 is available for spouses, unless the spouse is also a uniformed servicemember (same-sex couples don’t qualify for this benefit.) You may need more coverage than available under SGLI, though. For those of you with families, SGLI is just a start. Chances are good that your survivors will need more than just the SGLI benefit plus the $100,000 death gratuity to replace the benefits of your income over your working life.

If you are a veteran, you may also have coverage available via the Veterans Group Life Insurance Program. However, since this is not medically underwritten, you may be able to get a better deal by going private.

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