It’s always a good idea to have the right amount of life insurance. But with changes in mortality, technology, and other factors, life insurance rates are cheaper than they ever have been.
How Life Insurance Rates Are Determined
Actuaries consider several factors when determining the different rates life insurance companies offer, but the top three include:
- Mortality rates: This is based on life expectancy tables for both genders and different health conditions. For example, people who are obese or have high blood pressure typically have a higher mortality rate than people who are generally healthy.
- Investments: Instead of holding onto all of the premiums it receives in a savings account, life insurance companies invest that money to get a better return.
- Expenses: Just as any other company, insurance companies have a lot of expenses that come with doing business. For example, employee salaries, real estate costs, underwriting costs, death benefit payouts and more.
There have been positive changes to each of these factors over time, and insurers seem to have started to pass those savings onto their customers.
Lower Mortality Rates
The average life expectancy in the U.S. was 78.6 years in 2016, according to the National Center for Health Statistics. That’s two more years than it was in 2000, according to the Centers for Disease Control.
Because people are living longer than they used to, that means more people are outliving their life insurance policies. As a result, insurance companies aren’t paying out as much as have in the past, thereby lowering their biggest expense.
Improvements in the health care industry have also lowered the risk of death for people with certain conditions. For example, diabetes is much more manageable, making it possible for insurers to offer policies to people with the disease.
Lastly, insurance companies have improved the accuracy of their underwriting, allowing them to better understand risks associated with certain medical conditions.
Improved Investment Returns
In the past, insurance companies have been conservative with their investing, opting for a portfolio of government bonds and high-grade corporate bonds.
But as interest rates have tanked in the decade since the financial crisis, insurers have been forced to change their investment strategies to include investments with higher returns like infrastructure, private credit, and real estate.
With these higher returns, insurance companies can further drive down their rates to appeal to new customers.
Insurers also have more money to invest now than they used to. In January 2017, 46 states adopted a new framework for reserve ratios. That’s the amount of money insurance companies need to hold in reserve to pay out there claims.
The new framework allows insurers more flexibility in determining how much to hold in reserve, especially for term life insurance policies. Again, because the insurance companies can potentially invest more of this money rather than keeping it in reserve, it can afford to charge lower rates to customers.
As technology improves, so does efficiency. With the technology available today, insurance companies are not only able to speed up the underwriting process but they can also better spot insurance fraud.
As with the other factors we’ve covered, lower costs means that insurance companies can offer lower rates as they try to gain new customers.
What This Means For You
If you’ve held off on buying life insurance for budget reasons, now is the time to start looking at getting coverage.
Of course, it’s possible that rates can get even lower than they are now. But you can always replace your current policy with a new one if that’s the case. In other words, there’s no need to wait.
Here are three things you can do right now to make sure you and your loved ones get the protection you need.
1. Determine how much you need
A good rule of thumb is to get a death benefit worth 10 times your annual salary. But depending on your dependents’ needs, you may want to get more or less. Consider all of the costs your loved ones would need or want to be covered if you were to die and base your coverage amount on that.
2. Determine what type of coverage you need
For most people, term life insurance is the best option because it’s cheap. But depending on your health and your long-term needs, you may want to opt for a permanent insurance policy instead.
Consider both term and permanent insurance before making a decision.
3. Shop around for quotes
No one life insurance company offers the lowest rates for every type of person. So, it’s important that you compare quotes from at least three to five insurance companies to make sure you’re getting the lowest rate for your needs.
Consider contacting our team of licensed life insurance agents to help you compare quotes and get the right type of policy. They can also answer any questions you have during the process and provide step-by-step guidance toward the perfect policy for your needs.