Term Life Insurance Prices Drop by Half

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With economic inflation, most prices tend to go up, not down. But there are always exceptions, including term life insurance. It now costs 50 percent less than it did 10 years ago.

RENEE MONTAGNE, host:

Inflation, even fairly moderate inflation, means that over time the prices of most things will go up. There are always exceptions - life insurance for example. In the past ten years, the cost of term life - the most popular kind of life insurance - has fallen by 50 percent. Here's NPR's Jack Speer.

JACK SPEER: Not long ago, 68-year-old John McCrate(ph) would've had a difficult time finding reasonably priced life insurance. His age would've been a factor -he's older than the traditional life insurance customer. McCrate owns his own business, a management consulting firm in New Canaan, Connecticut. He and others in the firm felt he needed to be covered.

Mr. JOHN MCCRATE (Own of Management Consulting Firm in Connecticut): We looked at where we were and where we were heading. And I realized, that if anything would happen to me, that the obligations of my firm might fault my family.

SPEER: McCrate figured he needed about $3 million worth of life insurance, and was surprised to learn he could afford it. David Woods is with Bass Mutual, and sold McCrate his policy.

Mr. DAVID WOODS (Bass Mutual, Sold McCrate His Policy): The younger people are surprised at how inexpensive it is. The older people are just surprised they can get it all, and that they can afford to get it. I would say that there's a growing awareness on the part of consumers, but it certainly is not widespread.

SPEER: Term life insurance, like McCrate bought, pays a fixed sum when a policyholder dies. It's generally less expensive than other kinds of life insurance, and it's seen the most dramatic price declines in recent years. There are a number of reasons why term insurance rates have been falling. Woods says one of them is obvious: people are living longer.

Mr. WOODS: Two 65-year-olds - husband and wife, for example - there's a better than even chance that one of them will still be alive at the age of 92.

SPEER: When people live longer, they pay into the overall insurance pool for a longer period. The company meanwhile pays out fewer claims than anticipated and has more money to invest. All those things have allowed life insurers to reduce premiums. Kevin Ahearn(ph) follows the insurance industry for Standard and Poor's.

Mr. KEVIN AHEARN (Follow Insurance Industry for Standard and Poor's): At the end of the day if there's a recognition that the probability of death during a period of five, 10, 15, 20 years, which is normally what the term period covers, that clearly can drive down the costs.

SPEER: The death rate for those in the 25 to 44-year-old age group - the biggest buyers of term life - fell 10 percent over the last decade. There are a number of reasons why people are living longer. There are advances in medical technology, early diagnosis of disease, and more effective medical treatment.

And then there's the technology that has nothing to do with your doctor - the airbags in your car, for instance. The Internet too, has played a role in pushing down insurance premiums. Neil Doherty is a professor at the Wharton Business School.

Professor Neil Doherty (Wharton Business School): It's become much easier to shop for insurance these days. You can go online and typically get a number of quotations and then comparison shop.

SPEER: And because consumers can now compare insurance rates online, Dockerty says many insurance companies have had to lower their rates. As to how long life insurance rates will continue to come down, analysts say there's no simple answer. The prediction from the industry is life insurance rates will fall by another four percent next year.

Don't be too quick to rush out and spend all that money you're saving, though. The cost of health insurance will likely keep going up in coming years.

Jack Speer, NPR News, Washington.

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