19 November 2013 0 Comments

What’s Happened To Term Life Premiums?

money back to youIn my last entry I promised to tell you why term insurance premiums have been plummeting over the past 50 years.  In the early 1960’s I was sitting at kitchen tables talking to young couples about protecting their families against the financial devastation of early death, most of the term insurance I sold was as a rider on a whole life policy.  That’s because we were taught to push whole life and the price of term as a rider was less than the cost a stand-along term policy.  Still, those term premiums were much more than what is being sold today.  Or were they??

Yes, the premium charged for the best underwriting class has plummeted, so most people applying  today pay much less than they would have many years ago.  But, before I go further, let me make sure you know what I’m talking about when I banter around a term like “best underwriting class.”  Underwriting is the process insurance companies use when they determine the premium they will charge.  The companies have established premiums based upon what category you fit into.  The typical categories are determined by whether or not you use tobacco products, your sex, your medical history and that of your immediate family and any other risk factors such as build, driving record, drug/alcohol abuse and criminal record.  Following is an example of the range of approximate monthly premiums for a 35 year old man for a $500,000 Twenty Year Term Life policy:

Underwriting Class                                         Monthly Premium

Preferred Best Non-Tobacco User                             $23

Preferred Non-Tobacco User                                      $29

Standard Plus Non-Tobacco User                             $38

Standard Non-Tobacco User                                      $46

Preferred Tobacco User                                                $93

Standard Tobacco User                                               $124

The criteria to qualify for each of these categories varies from company to company and not all companies will use each of these categories at every age. Higher premiums than these will be charged for specific medical conditions and it is possible that you will not qualify for term at any price.

Are these premiums less than what was charged years ago?  If you fall into a class of Standard Non-Tobacco User or better they probably are less.  This is because there was a time when no extra charge was accessed based on an applicant’s use of tobacco.  That meant tobacco users were getting a bargain and the non-smokers were paying more than their fair share.  If you are a tobacco user you are probably paying more than in the past because the non-tobacco user premiums are not subsidizing your increased risk.  If you are a Preferred Best or Preferred Non-Tobacco User your premiums are lower than they were several years ago when all classes were lumped together.

You have a chance to pay less and to get the best rates available from strong companies if your agent knows the market place and is willing to search for the best deal for you.

Coming up…do you have a tax time bomb in your portfolio?

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