There are numerous reasons that life insurance rates have been declining over the past couple of decades. These reasons include Insurer’s cutting down their expenses, investing their balance sheet in a far superior method, and increased competition in the marketplace. But one fundamental change has been driving significant consumer savings in the life insurance space – Increased longevity of Americans.
The increased lifespans are saving consumers of every level appreciable amounts of money. From clients seeking out $1 Million Dollar term policies to those shopping for $100,000 guaranteed issue options. These savings are across the board.
Americans Are Living Longer
According to the CDC and National Center for Health Statistics, Americans are living longer. Since 1900, American life expectancy has grown from about 47 years of age to about 78 years of age today. This is the case for both sexes and across all ethnic backgrounds.
Recent Leveling Off Of American Lifespans
In the past five years, the average life expectancy of US citizens, both men and women seem to have leveled off and gone down just a bit. In 2014 the average American could expect to live till about 78.9 years, from their date of birth. However, in 2015 and again in 2016 these life expectancies have gone down slightly. As of about 2016 the average American could expect to live until about 78.6. Whether this trivial lower amount is statistically meaningful is open to some debate. What is not open to debate is the fact that average lifespan, seems, at least for a short term to stop growing.
Why Are Americans Living Longer?
There is no one reason that Americans are living longer, rather hundreds of reasons. Some of them include the decline of smoking, decreased mortality at childbirth, higher vaccination rates, and increased sanitation. There are also indications that increased wealth has allowed many in our country to live an extended life.
Reasons That Life Insurance Rates Are Decreasing
There are a number of reasons that life insurers are lowering their yearly premiums.
Insurance Companies Are More Efficient
Insurance companies have become much more efficient at cutting down their costs and bureaucracy. Another reason is the typical balance sheet of many insurers is probably more efficient. These two corporate reasons probably have one of the largest influences on life rates allowing carriers to streamline their operations.
Competition Is Higher Than Ever
Another important reason that stands out is simply competition. Before the days of the internet, if someone wanted to get five different life insurance quotes– that may have involved contacting five insurance agents. Today, consumers go online and can receive life insurance quotes from dozens of insurers from just one company. The quantity of information that consumers have at their fingertips has led to increased competition with the insurance carriers themselves. Not wanting to be outdone the carriers often find themselves in a battle for a given premium rate classification.
Actuaries Are Calculating The Trends
All three of these ‘corporate’ components have assisted in lowering life insurance rates. There is, however, one actuarial reason that insurers are able to offer more coverage for less… Your lifespan. If you are more likely to live longer – than you are less likely to file a death claim and hence this can have a huge resonance on term life insurance pricing. Life Insurance is definitely more affordable as Americans live longer.
An actuary is a person that computes and calculates insurance and annuity premiums. They compile and use historical morbidity and mortality tables to consider and define the chances of you passing during your term of insurance. When underwriters consider you as a life insurance candidate they consult these tables. If their computation shows you have a lower chance of passing then they can offer you a lower priced product. In other words – when the average American lives longer – this can mean that you have a chance of saving money when buying term insurance.
Historical Term Life Insurance Pricing
According to a Compulife survey –the average cost of a thirty year $500,000 preferred term life insurance policy has decreased from about $1,100 in 19977 to about $780 in 2007 and now sits at about $743 today. Therefore a 30-year term life insurance policy costs almost 33% less than just 21 years ago. The majority of that price reduction seems to have occurred in the first decade of the new millennium. As lifespan expectancy has leveled off the rates of term insurance seem to have as well.
In another example, we look at term life insurance pricing for a 10-year term policy for men in the preferred health class. There we also find that life insurance rates have come down dramatically in the past twenty years. Using information from the same study compared with today’s pricing available from Digital BGA, we can see that in 1997 a ten-year term policy could be purchased for about $450 per year. In 2007 that price has decreased to $275 and today that price has leveled off and sits at about the $300 per year. This pricing also shows a decrease of about 33%.
Both of these pricing considerations are for men in the preferred health class, but similar things are happening for people in other health classifications and women as well. In other words, most people are paying less for life insurance today than twenty and thirty years ago.
It would seem that a direct correlation between American lifespans and consumers paying less for life insurance has been well established.
There Has Never Been A Better Time To Purchase Term Insurance
As you can see based off the historical pricing, term insurance is at the lowest price in its history. The average American can buy more insurance at a lower price point than ever before. Another big change in life insurance underwriting is who is able to get term insurance. Decades ago life insurance companies could simply refuse to offer life insurance to many slightly less healthy individuals – this has changed for the better. Insurance companies are now able to offer life insurance policies for consumers that have a variety of health issues such as Asthma, Sleep Apnea, and even Diabetes.
The speed at which policies are being issued has progressed for the positive. More and more insurance policies are being issued without requiring medical exams and some can now be issued in just a few days. Combined with the lower costs, term life insurance has certainly changed in the digital age. There really is no better time to consider a term policy for your protection.
What To Do With The Life Insurance Savings
Now that you are able to save real money on your term insurance, the question of what to do with your savings needs to be addressed. There are of course lots of great things to do with our added savings, but here are three great financial considerations.
The first and obvious choice is to use the money in some sort of savings accounts, such as your Roth IRA, or 401K, or in some sort of short-term savings account. All of these are positive considerations and deserve your consideration.
Another great option is to consider buying potentially a larger face value of term insurance. In other words, rather than buying a $600,000 20 year policy, consider a $700,000 20 year policy. This additional coverage amount could be quite useful sometime down the road. Many financial planners suggest ten times earnings as a base rate for life insurance calculations.
The last great option would be to consider lengthening out the term contract. Going back to our $600,000 20 year policy, consider instead buying a $600,000 but with a 30-year term length. This has the direct benefit of protecting your family for a longer period of time. Ten extra years could end up being very significant.
Why Term Life Insurance Is Still A Good Idea
Some, life insurance naysayers will claim that the odds of term insurance actually paying out are so low that it is reason to believe that either term insurance is not needed or that it is some sort of scam and hence a reason to purchase a whole life insurance product instead. To this, you should ask – Why is it that you are purchasing term insurance to begin with? If you are truly purchasing the product to use as a short-term solution to solve a potentially disastrous problem, then why would you want to file a claim? Isn’t the point of insurance to protect what you cannot afford to protect?
Now Is the Time To Buy Affordable Life Insurance
To conclude – life insurance rates have gone down for several reasons in the past thirty years. One of the main reasons seems to be the increased longevity of both men and women in our society. Life insurance is truly more affordable now than ever before. This increased lifespan has reduced insurers costs and lowered term life rates across the board.