Providers Raise Average Term Life Insurance Rates

People who have the habit to shop for new term policy every other year may have to reconsider their strategy. Premiums have been going down since the past few years, but insurers are now looking for a turnaround and may raise the average term life insurance rates. Starting from January, an average rise of five to fifteen percent will be seen across the industry.

One reason is reinsurance costs and higher capital linked with the narrow credit market is making it difficult for insurance providers to maintain required cash reserves. Moreover, insurers receive low return on their investments, putting unnecessary stress on them to maintain liquidity.

This means consumers who enjoyed lower premiums in the past years may be stopped in their tracks. They should lock in the premium before they begin their march up the slope. Ted Wheeler, a 51 year old real estate agent from Jacksonville, FL, was rushing to get his application approved for a fresh ten year term policy of $500,000. But unfortunately, as a series of appointments got canceled, the process was delayed by several weeks.

By the time his application was approved it was already late, and he will now be required to pay $860 from $740, which he was quoted at the time of filling the application. A traditional term life is different from universal or whole life, as the benefits are paid only in case of death of the insured person. There is no cash value attached with the coverage, which is why average term life insurance rates are much less than any other insurance plan.

As per chief executive of a reputed insurance company, the industry has almost bottomed out on how low prices can go in life insurance. The company is expected to increase term life rates by five percent this year. The rates are determined on the cost of capital, which is extremely difficult to get and is quite expensive than it was previously.

ROP Policies

Return of premium or ROP term insurance promise to return all the premiums paid by the insured person provided the policy is kept current and the owner outlives the term of the policy. Even though, the average term life insurance rates for plans with ROP rider is much more than regular plans, they are still being increasingly preferred.

Some providers are planning to discontinue with this product. These policies account for five to ten percent of entire sales in insurance industry. Before financial crisis erupted, average term life insurance rates had been going down for almost two decades as the mortality rates had improved and sales through internet.

Beginning of a New Era

Industry experts and economist can’t say for sure whether the increase in price marks the beginning of a new era or is it just a temporary blip. Price rise was also seen in the year 2000, after a new regulation which made it mandatory for insurance providers to maintain large cash reserves for selling long term policies.

Some companies stopped selling thirty year term plans, as new rules came out, while other raised the premium. But within couple of years, rates started to roll back. As per a national online insurance brokerage, nearly three quarters of companies represented by them are planning to increase average term life insurance rates.

Not every company has raised the cost or has raised it unevenly, so it is worth to make a comparison while shopping. In recent years, providers have also tightened underwriting process and taking a harder stance on high blood pressure or obesity, as per industry sources. Some years back, a slightly overweight applicant may be forgiven and enrolled at low rates, but it is no longer the case now. As per a research, merely six to seven percent of applicants are able to qualify for very low rates.

Shift in Buying Habits

Consumers, who got accustomed to years of falling premiums, may have to switch their purchasing habits. Many people change their insurance coverage in every five years, but soon this is going to be a thing of the past.

As the premium rises, people will think several times before they make a switch. Not only the person will be older, but the premiums will be higher due to change in policies, moreover, insurance providers are narrowing down the passage through to enroll people. So anyone who is thinking of moving to another plan must consider all the pros and cons before making the move.

For detailed information and options available in your area, feel free to talk to one of our insurance advisor. They can provide you with all the information you need at your door step along with average term life insurance rates applicable in your local area.