Buy Insurance Now or Miss Out? Not Necessarily

Touting a price war among insurers selling level-premium term life policies--and grousing about the potential impact of a coming regulation--some insurance agents are claiming that now may be your last chance to lock in a low rate on a long-term life insurance policy.

Regulation Triple-X, a long-awaited rule change required by the National Assn. of Insurance Commissioners, will go into effect in January in some states. California is attempting to meet the January deadline. Agents and experts agree that the rule, which will require some insurers to set aside more money to pay claims, will boost the cost of doing business. But it's unclear whether or not it will cause them to increase their rates.

"I don't know what's going to happen to rates. Agents don't know what is going to happen to rates," says Joseph Belth, editor of the Insurance Forum, an industry newsletter. "But this is being used as a marketing gimmick."

Indeed, a host of insurance agents have been telling clients that this new regulation could make multiple-year, guaranteed-rate term life policies unavailable or significantly more costly. "Buy now or miss out," the pitch goes.

But to understand what the hubbub is about, some background is necessary.

In essence, there are two types of life insurance policies: permanent and term. Permanent policies, which can also be called whole or universal life, generally offer level premiums for as long as you maintain the policy, and they accumulate cash value over time. However, the annual premiums usually are three to four times more expensive than those of a term policy, which covers you only for a set period--usually one year.

Term policies, on the other hand, are cheap--as long as you are young, healthy and unlikely to die in the near future. But the premiums rise as you age: For someone with a young family, who expects to need life insurance for 10 years or more, that's worrisome. The last thing you need is for your policy to become prohibitively expensive when you need it most. So, several years ago, the industry came up with a hybrid product, called a "level-premium" or "guaranteed-premium" term.

Level-premium term policies still provide coverage for a year at a time, but they're guaranteed to be renewable as long as you pay the annual premium. The insurer promises a fixed annual rate by averaging out the premiums over the life of the guaranteed term. In essence, you pay more in the first few years to pay less in the final few years. The period is up to you. Many insurers offer level-premium deals for anything from five to 20 years.

However, regulation Triple-X cropped up because some experts were worried that insurers weren't setting aside enough money to pay future claims on these policies. Being under-reserved would make an insurer ripe for failure. And being insured by a failed company is almost as bad as not being insured at all.

The National Assn. of Insurance Commissioners consequently put out a "model regulation," which required insurers and regulators to more carefully scrutinize reserves set aside to pay future claims. The NAIC cannot force insurers to follow the rule, because insurers are regulated by the states. But most states are expected to adopt the rule in fairly short order. A few, including New York and North Carolina, have already passed laws to implement Triple-X next month.

If the rule ends up causing more insurers to boost their claim reserves, rates are certain to rise. But at this point, it's unclear whether that will happen because no one knows whether the level-premium companies have sufficient reserves, says Belth, the newsletter editor.

What is certain is that rates are comparatively low. Over the last decade, the average cost of these policies has been cut almost in half, agents say. Currently, a 45-year-old man who doesn't smoke could buy a 20-year level-premium policy with a $250,000 death benefit for as little as $540, according to Quotesmith, an insurance agency that represents more than 100 life insurance companies. The rate for a 35-year-old would be about half that.

If you need more insurance than you've got, this is a fairly good time to start shopping around.

Kathy M. Kristof welcomes your comments and suggestions but regrets that she cannot respond individually to letters and phone calls. You may write to her in care of Personal Finance, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail her at kathy.kristof@latimes.com

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Getting Rates Online

Consumers with access to the Internet can check rates and determine life insurance needs without talking to an agent. Many insurance agencies and trade groups have free quotation services on the Web.

If you use these resources but aren't ready to talk to an agent, be careful how much information you provide. Although most work sheets ask for it, your name--or the name of your spouse or children--are not required to get a quote. Likewise, the quotation service doesn't need your street address, but it will need your state of residence to provide an accurate quote. Take all quotes with a grain of salt; until you've applied for a policy and passed any requisite physical exams, the rate is not guaranteed.

Some of the better sites:

* Quotesmith at http://www.quotesmith.com allows you to compare rates of about 140 companies. After you complete a work sheet, which includes the amount of insurance you want, the period for which you want the level premiums (from five to 20 years) and the state where you live, the site will give you a list of companies that offer that policy, their annual premiums and ratings of the companies' financial stability.

* QuickQuote at http://www.quickquote.com provides a similar service but limits its listing to the five or 10 companies with the least expensive rates. The service appears to have a more limited selection of level-premium companies. On a sample series of searches, QuickQuote rates were about $100 more expensive than the least expensive rates offered by Quotesmith.

* An insurance agent's trade group operates the site at http://www.insweb.com, which offers quotes from a number of companies. The site isn't as easy to use for comparison purposes, but it's worth a look.

* Interlinx offers quotes and basic information about life insurance at http://www.budgetlife.com. Though its quotation service is not as good as those offered at other sites, it offers a nice work sheet that can help you determine how much insurance you need. The work sheet is highly simplified, so consider the results an estimate.

* InsuranceQuote Services offers a site at http://www.iquote.com; Key Partners Marketing Group hosts http://www.bloodhound.com and also offers http://www.underwriter.com. These services require you to provide your name and address, and they send you the quote rather than providing one online.

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