The biggest driving force behind cheaper life insurance is simple; people are living longer. With all the advancements in technology and medicine people have been experiencing longer life spans, thus longer life expectancy. Life insurance companies are passing this new savings onto the consumer. What they aren’t complaining about is some of the old policies that many consumers continue to keep in place and continue to pay. They are profiting off of the consumer paying more than they need to for life insurance.
There was a huge change that took place in the life insurance industry recently. This was driven by a new rule for calculating insurance costs that went into effect January 2009. The Insurance Information Institute says that term life insurance premiums are now 50 percent lower than they were a decade ago.
What Happened In January 2009…
The mortality tables changed. Effective January 2009, all life insurance companies must use the Commissioners 2001 Standard Ordinary Mortality (CSO) table to calculate insurance rates on new policies. This is an update to the Commissioners 1980 Standard Ordinary Mortality (CSO) table that was previously used. Under the new 2001 CSO, the average 65-year-old male is expected to live to age 81, up from 78 under the previous table. Meanwhile, a 65-year-old female is expected to live to age 85 today, compared with 81 under the old table. The average consumer isn’t even aware of this. The life insurance companies aren’t coming out and saying “it’s cheaper to get a new policy today”. It becomes up to the life insurance agents to communicate this to the consumers. With such a high turnover rate in the industry as well as a pretty uniform misunderstanding of life insurance there has been a huge disconnect between the insurance companies and the consumers.
What is the Downside…
With every positive there must be negative right? The biggest downside to this is seen in cash value life insurance. The IRS has rules and restrictions about how much money can go into permanent life insurance policies. This makes the design and funding of permanent and cash value life insurance policies all that much more critical. The typical life insurance agent doesn’t fully understand these concepts properly and could end up doing one of two things: leaving you paying more costs and fees than necessary or leaving you with a tax nightmare that you weren’t prepared for.
Finally… It is easier than ever to save money on your term life insurance policies. With cash value life insurance policies it has become even more important to work with a qualified professional that truly understands the type of policy that you have and the funding that is available. Please make sure you are putting yourself in the best situation. Call your agent today and review your options.
Tim Mobley, Agent