Life insurance companies discourage their sales representatives from selling replacement insurance policies if they continually cancel existing insurance in order to sell new contracts.
This practice is known as churning. Because insurance sales commissions can be higher in the first year that coverage is in effect, insurance companies have to pay out more in commissions as the rate of churning goes up.
From the consumer’s perspective, now may be a particularly prudent time to consider replacing a term life insurance policy that was purchased over the past 12 years. That’s because a graphical study on the term4sale web portal shows that some term life insurance rates have continuously dropped by as much as 50% since 1997.
The premium statistics in the analysis below are estimates based on a careful examination of the History of Term Insurance Premiums charts from the terms4sale website. Those charts show the average lowest premiums for 6 major life insurance companies from 1997 to 2007, as compiled by Compulife.
Premium Savings for 10-Year Term Life Insurance
A 40-year-old male non-smoker in exceptional health would have had to pay an annual premium of US$390 back in 1997 for a 10-Year Term Life policy worth $500,000. The annual premium for that same type policy dropped almost in half to $195 by 2007, which over 10 years would add up to a savings of $1,850.
Below are non-smoker rates in 2007 for $500,000 in 10-year term life insurance, with a comparison to rates in 1997.
- Non-Smoker in exceptional health … US$195 annual premium for 10 years (down 50% from $390 in 1997)
- Non-Smoker in excellent health … $270 annual premium (down 40.7% from $455)
- Non-Smoker in good health … $440 annual premium (down 25.4% from $590).
Even smoker 10-year term life rates fell from 1997 to 2007, although for lower percentage amounts and starting from higher base premium dollars.
- Smoker in excellent health … $860 annual premium for 10 years (down 12.2% from $980 in 1997)
- Smoker in good health … $1,160 annual premium (down 6.5% from $1,240).
Lower Premiums for 20-Year Term Life Insurance
The rates in effect in 2007 for 20-year term life policies did not decline as much as did the rates for 10-year term life insurance. However, a consumer who bought a 20-year term life policy in 1997 for an annual premium of $565 has even more reason to consider replacing the existing coverage with a competitive product with a lower premium. The 20-year term life policy bought in 2007 expires in 2017. Those 8 remaining years will cost $1,680 when compared to the 20-year term rate available for 40 year olds in 2007.
The rates below describe non-smoker annual premiums in effect in 2007 for $500,000 in 20-year term life insurance.
- Non-Smoker in exceptional health … US$355 annual premium for 20 years (down 37.2% from $565 in 1997)
- Non-Smoker in excellent health … $470 annual premium (down 26% from $635)
- Non-Smoker in good health … $760 annual premium (down 10.6% from $850).
Unless in excellent health, smokers actually experienced a slight increase in premium rates for 20-year term life insurance in 2007. This price rise trumps any motivation to replace the incumbent 20-year policy for those smokers.
- Smoker in excellent health … $1,380 annual premium for 20 years (down 10.4% from $1,540 in 1997)
- Smoker in good health … $1,800 annual premium (up 0.6% from $1,790).
30-Year Term Life Insurance Also Offer Deals
Another example is a 40 year old who paid an annual premium of $955 for a 30-year term policy in 1997. Given that there are 18 years left under the original 30-year contract, a thrifty consumer would do well to shop around for comparable term life coverage at a lower rate. What is at stake? At least $5,760 in premiums based on the averages used in the Compulife data.
The rates below describe non-smoker annual premiums in effect in 2007 for $500,000 in 30-year term life insurance.
- Non-Smoker in exceptional health … US$635 annual premium for 30 years (down 33.5% from $955 in 1997)
- Non-Smoker in excellent health … $760 annual premium (down 30.9% from $1,100)
- Non-Smoker in good health … $1,180 annual premium (down 17.5% from $1,430).
Smokers were also entitled to 30-year term life premiums in 2007 that were discounted by double-digits from the annual premiums sold in 1997.
- Smoker in excellent health … $2,200 annual premium for 30 years (down 20% from $2,750 in 1997)
- Smoker in good health … $2,800 annual premium (down 19.5% from $3,480).
Lower Term Life Insurance Premium Deals
Some critics that life insurance premiums will have to rise, pointing to the economic downturn and pressure on company profitability. However, people are living longer, which provides a potentially longer stream of premium revenues to insurers.
At a media conference interview with Donald Stewart that the author of this article attended on May 22, Sun Life Financial’s Chief Executive Officer said that Sun Life had adjusted the company’s term life premiums to make those rates more competitive.
Lower mortality rates and increased competition for premium dollars makes it reasonable for consumers to shop around for the highest amount of coverage at the lowest possible premium rates for the longest term available.
Consumers can start the cost savings process by looking at their family’s health history, estimate their life expectancies and then comparing premium prices for term life products that best fits their individual time horizons.