It seems some insurance shoppers are looking to lock in long-term life insurance rates while they’re low. And some in the industry say that’s a smart move.
The insurance Web site TermLife-Insurance.com, which guides consumers as they search for policies to fit their individual needs, is reporting an increase both in the number of requests for life insurance quotes and in applications for life insurance policies.
This news comes as something of a surprise, because the nation’s economy, overall, was weaker than expected in the fourth quarter of 2012. And as we all know, a weak economy means people aren’t generally out there looking to buy things. So if that was the case, why was life insurance immune to the “blah” economy?
Consider this: A lot of the quotes the insurance Web site gave out were for 30-year term life insurance policies. Rates are at an all-time low at the moment, and it seems people want to lock in all-time low rates while they can. Even young Americans are recognizing the importance of a life insurance policy. They’re investigating ways to protect their families by safeguarding their financial security in the event of the unexpected. Shoppers are using online research to learn about rates they can get from different providers. They’re also learning that life insurance may be a good addition to their investment portfolios and retirement plans, because insurance benefits can replace lost income, pay medical bills, and offer liquidity and tax benefits.
What do those looking into life insurance options need to know? The first thing to know is that there are two basic types of life insurance policies: term and permanent. A buyer’s financial situation will dictate which is the right one for them. Term insurance requires monthly or annual premiums. A lump-sum amount will be paid to the policyholder’s beneficiaries when they die. Permanent policies are usually more expensive, but come with a tax-deferred cash value in addition to the lump-sum death benefit.
With permanent life insurance, policyholders can take out loans against the cash value of their policies. This reduces the death benefit that will be paid. If they stop paying the premiums on a permanent policy, the premiums owed will be deducted from the cash value. If the policyholder cancels the policy, they get that cash.
There are different types of permanent policies. These include whole life, variable universal life and universal life. The different types of permanent life insurance come with different premiums and coverage, different annual tax-free dividends, and different levels of control over how the cash value is invested.
Does the increase in quotes and applications mean consumers are looking at their life insurance options and—gasp!—making smart decisions?
Maybe. But it may also mean they’re taking advantage of the market while they can. As it turns out, informed buyers are often surprised at how low life insurance rates are these days, so this may be the best time for them to take action to protect their families. For example, a 45-year-old nonsmoking male in good health can get a $500,000 term life policy for $50-$100 per month. A $500,000 permanent policy might cost him about $600 per month, but thanks to the interest rate the policy will earn, the cash value might reach $35,000 in five years (about the same as the amount paid in premiums) and accrue to nearly $200,000 over two decades.
If rates stay low and consumers continue to investigate their life insurance options, there’s every indication that the insurance market will get stronger and stronger. This is great news for anyone in the insurance business, as opportunities to help people find the right policies for them will no doubt continue to increase.