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3 Reasons Why Term Life Insurance Has Become Cheaper
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Because term life insurance is temporary, it is usually cheaper than other forms of more permanent life insurance policies. This is most true if the insured person is younger and in good health. There have been developments in the life insurance industry that have made term life even less expensive, as discussed below.
Because term life insurance is temporary, it is usually cheaper than other forms of more permanent life insurance policies. This is most true if the insured person is younger and in good health. There have been developments in the life insurance industry that have made term life even less expensive, as discussed below.
More Accurate Underwriting
Underwriting for insurance is where the insurance company evaluates the person applying for life insurance, to assess their risk. For example, an older person or a one with health problems would be considered riskier for the insurance company than a younger and healthy person. Therefore, if there is more risk assessed, the higher the insurance premium (cost) will be.
Insurance companies now have access to very detailed information about the people applying for insurance. For example, they can ascertain life expectancy not just by age but by the zip code you live in, your exact type of job, your parent’s health histories and so on. This allows them to make much more accurate underwriting for each individual, which has led to the lowering of premiums for many insurance applicants.
Increase In Life Expectantcy
Since term life insurance is temporary, very often the person insured outlives the policy, and the company will only collect money and not pay any money out. This is why term insurance was always a bargain price for younger people. But, with the general increase in life expectancy, even “middle aged” people can now get very low premiums, because so many people live to 70 – 80 plus. So, for a typical 20 year term policy, a 40 year old insured is also likely to outlive the policy, and with the lower risk comes the lower premiums.
Insurance Deregulation
Insurance companies are regulated by the various state governments. A major reason for these regulations is to make sure that the company will have the money available to pay claims. After all, it would be devastating to an insured’s family to find out the life insurance on their deceased loved one was worthless.
One way the government did this was to make the insurance company sit on a big amount of their money. This limited how much profits they could generate from the collected premiums. Lately, regulations have become more relaxed, allowing the companies to invest more of this money. This in turn creates more profit for the insurance company and allows them to lower premiums (which in turn will attract more paying policy holders and gain them even more money to invest).
Online Marketing and Increased Competition
Not too long ago, the main way the insurance companies sold their policies was through insurance agents. This required a personal meeting with prospective insureds. With the advent of online commerce, now you can shop for and buy a term policy totally online – which most people much prefer. This allows many more people to buy policies and in a shorter amount of time. In addition, many insurance companies now sell their policies direct, without any agents, and thus save money on commissions. Plus, the online marketplace has created much more competition between insurance companies. All of these facts put together have led to the lowering of term life premiums.
