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Term Life Insurance Plans Are Rising In Cost

By Mike Heuer


Recent reports show the cost of term life insurance plans are going up, but only by a small amount.

The cost of term life policies had gone down drastically since the mid 1990s due to many factors, according to the Insurance Information Institute. Among those factors are increased life spans, which mean more people tend to outlive the terms for which life insurance is provided. And the Internet became a prime marketing tool that reduced marketing costs while making the term life insurance marketplace more competitive.

As a result, most life insurers reduced the rates on their term life policies, which reached their lowest price point in decades by about the mid 2000s, according to the Insurance Information Institute. Stock prices also rose a great deal before the crash began in late 2008, and many life insurers reduced the rates on their plans to draw more business. Much of the profit life insurance companies generate is through investments, and the robust stock market of the 2000s made it easier for life insurers to supplement their profits through sound investing.

Unfortunately, some of the biggest life insurance, such as AIG, eventually chose poor investments tied to bundled mortgage securities. And those investments bankrupted many firms, such as taxpayer-rescued AIG, and resulted in steep losses for other insurers. As the market correction in the U.S. housing market took hold, many life insurers found themselves losing a great deal of money. While the market since has stabilized, many life insurers are taking a more conservative approach to investing and have begun raising rates on term life insurance and other policies in recent years.

Rate increases typically are small, averaging between 5 percent and 10 percent, according to the Insurance Information Institute. But if the trend continues, term life rates will keep rising. That makes it wise to look into buying level term life insurance and similar policies.

The most basic type of term life insurance is a level term life insurance plan, which provides life insurance coverage for a specific period of time. Level term life plans are good for providing financial protection for a specified number of years and ensure rates and protection levels will not change.

Sometimes, a decreasing term life policy might be the best option, such as when buying a home and paying down the mortgage over time. A decreasing term life insurance plan is an ideal option for such a situation due to the gradually reduced death benefit and corresponding monthly premium payment. As a home mortgage is paid off, the need for a higher death benefit to keep it in family hands is not needed as the final years of the mortgage approach. And a decreasing term life plan with a decreasing death benefit and cost can help provide the proper level of protection without the policyholder paying more than necessary.

There are many options for term life policies, it can be easy to use the Internet to research the various types offered by life insurers and choose the correct one for a given situation.