When You Bet Your Life

Have you checked your term life insurance lately? Rates fell dramatically in the 1990s. Policies you bought several years ago may be available now for less.

Unfortunately, most people don't really shop for their insurance. They talk to an agent who tells them that he or she has trolled for the lowest rates. But how low is "low"? Odds are, you have no idea. In Los Angeles, a healthy, 45-year-old man might pay anywhere from $365 to $490 a year for $500,000 worth of term coverage with premiums guaranteed for 10 years. A 20-year policy might cost $635 to $865 a year--all depending on which insurer (and which agent) he uses.

To find out how good a deal you've got, take a look at www.term4sale.com. Enter your ZIP code, age and general health status, and you'll get a long list of policies at varying prices. A quick comparison with what you're paying now will tip you on whether to get some new bids.

It should be even more profitable to shop for new term coverage in a couple of years. Starting in 2003, states will begin adopting a new mortality table for insurers to use. Currently, policies are shaped by mortality data published in 1980. The new, 2001 table updates that data and reflects the improvement in life expectancy. On average, the longer people live, the less they should pay for insurance at any age.

Douglas Doll, consulting actuary at Tillinghast in Atlanta, sees profits improving for life insurers when the new table takes effect. The term market is so competitive that at least part of those profits will be returned to consumers in the form of lower premiums.

Besides looking at price, you have to decide how long you want the policy to last.

One-year renewable term guarantees you coverage up to a certain age (typically 75, but often longer), regardless of health. Premiums rise annually.

Level-term policies typically guarantee a fixed premium for 10 to 30 years. It often costs more than one-year term in the policy's early years but less in the later years. Over the entire period, it's usually cheaper--hence, a better buy.

You have two things to weigh when buying level-premium term (as most people do).

First, there's often a difference between the term and the guarantee. A 20-year policy, for example, may guarantee level premiums for the first 10 years but reserve the right to raise them in the last 10 years. Insurers don't plan to raise rates, but they could. (To get a guaranteed rate during the entire term, you have to pay more.)

Second, consider what happens when the term is up.

If you still need insurance, you'll have to look for new coverage. Don't just re-up with your current insurer; shop around again. You'll find varying prices, depending on your age and health.

If you're really ill, you can still get coverage through your current level-term company, but at an enormous cost. So here's your fallback position: buy term that can be converted to lifetime cash-value coverage without a medical exam. If you're sick, a smaller cash-value policy may be an affordable way to go. This works best when you buy from low-load companies, such as Ameritas (ameritasdirect.com; 800-552-3553) or TIAA-CREF (tiaa-cref.org; 800-223-1200).

What's the best term for you?

Glenn Daily, a fee-only life-insurance adviser in New York, prefers 10-year policies, even for people who'll need the coverage for 20 years or more. The annual cost of two 10-year policies should be less than you'd pay for a single 20-year policy. The odds are that your health will not decline within the 10-year period. Even with a mild medical problem, this strategy should save you money.

Bob Barney of Term4sale disagrees. "If you'll need insurance for 20 or 30 years, buy 20- or 30-year term," he says. It costs more, but it's worth it in case you face health problems sooner than you think. When medical risk matters most, this is the way to go. If premiums drop, you can shop again.