Life insurance becomes a better bargain

Think about college tuition, health care and your electric bill, and it's easy to assume that prices only move in two directions: up and way up.

But you might not have noticed that one important financial product is significantly cheaper these days: term life insurance. Industry experts estimate that term premiums have fallen 40 percent or more in the past decade alone.

"This is great news," said Gary Schatsky, a financial planner in New York. "You're buying the same thing you bought yesterday at a lower price. It doesn't get any better than that."

Part of the credit goes to longevity. With people living longer, insurers expect fewer claims in a given period and have been able to reduce premiums, industry officials said.

Competition also has trimmed prices.

Term insurance, which covers you for a specific period, is simple to understand and consumers can easily shop for the lowest prices online.

If you need life insurance, this is a good time to shop for it. But the key word is need. Not everyone needs life insurance. You buy insurance so if you die, those depending on you won't take a financial hit.

Children, for instance, don't need life insurance. Young singles with no dependents don't need insurance. They're better off socking away money in a 401(k) and making sure they have health and disability insurance.

Breadwinners with young children clearly need life insurance. Even a stay-at-home parent would need a policy if his or her death meant that the family would have to hire a caregiver for the children.

There are basically two types of life insurance: permanent and term.

A permanent policy is meant to be held for a lifetime and to cover costs that aren't likely to disappear over time. Families use permanent insurance to pay the taxes on multimillion-dollar estates or to fund special-needs trusts for children who will need financial support their entire lives.

But for most people, term fits the bill. Term is the simplest and cheapest. It provides a safety net to cover needs that will fade away over time. You might need a policy, say, that will cover family expenses until your youngest child graduates from college.

Term insurance doesn't have lots of bells and whistles, like permanent insurance. You die, and the term policy pays a lump sum to your beneficiary.

And term is where the big savings have come.

"It's now possible for people to buy [term] insurance at a lower cost today than they could just 10 years ago, even though they're 10 years older," said Elizabeth Caswell, an assistant vice president with The Hartford Financial Services Group in Connecticut.

Once you've determined you need insurance, the next question is: how much?

You hear all sorts of rules of thumb: Some experts suggest 10 times annual earnings; others say 20. That's a big difference. Follow the first rule, and you could be buying half the coverage you need. Go with the second, and you might be buying double the amount necessary.

Forget rules of thumb. Look at your situation. This is where a trusted adviser can be a big help in sorting out the financial impact of your death on your family.

"What do you want to cover in the case you pass away early?" said Timothy Maurer, a Lutherville, Md., financial planner.

Many people want insurance to cover the balance on the mortgage and pay future college bills for kids, Maurer said. After the mortgage and college are taken care of, then how much annual income will your family need? Will your spouse be bringing home a paycheck or not? Will the family need to hire full-time child care?

Do you have life insurance through your employer? Some planners don't count this coverage when determining insurance needs; others do if it's likely that workers would have similar coverage even if they switched jobs.

Don't forget that some expenses will go up with inflation over time, Maurer said. On the other hand, the amount of coverage you need to buy can be reduced once you consider that some of the insurance proceeds will be invested until the family needs the money.

Most experts recommend guaranteed level-term insurance where the premium remains the same during the life of the policy.

Make sure the policy guarantees level premiums, said Byron Udell, president of AccuQuote, an online insurance brokerage. Some insurers sell level term insurance, but the premiums remain the same for a certain number of years and then can be readjusted, he said.

Most level-term policies run 10 to 30 years, with the 20-year policy the most popular. If it turns out you don't need the policy for that long, you can drop it, Maurer says.

"It's simple, with term you don't have to call anybody, you stop paying your premiums," he says.

Another option is annual renewable term, where premiums start off lower than level term but jump up every year.

Fewer insurers are offering this option these days. Premiums for level term policies are competitive, and consumers like the idea of locking in premiums, experts say.

Besides AccuQuote, there are plenty of Web sites to compare term insurance prices, including Term4Sale.com, Insurance.com and Einsure.com. Even if you search online, you'll need to work with an insurance agent to buy the policy, Udell said.

By doing some homework in advance, though, you will be a savvier consumer.

Eileen Ambrose is a columnist for The Baltimore Sun, a Tribune Co. newspaper.

Copyright © 2015, Los Angeles Times
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