How to Shop for the Cheapest Term Life Insurance Rates

As I mentioned earlier, Term life insurance is a very low commission sale for the life insurance agent.  Therefore, it is only the most charitable agent who will promote Term life insurance.  So you are either going to have to ask your agent about it or shop for it yourself as I will describe to you now.

Many of us have the availability of so-called "affinity" benefits via an association or group that we belong to.  For example, I am a member of the American Institute of Certified Public Accountants.  The AICPA offers a menu of benefits to their members.  It so happens that after shopping around, the very best Term life insurance rates I could find were the AICPA affinity rates.

This may be the case for you as well with affinity benefits that you might have access to through AAA or AARP or others.  But don't jump at the first affinity promotion as being the best for you.  Through my membership in a variety of other professional associations, I also have a number of other affinity Term life insurance rates available to me as well.  None of them come close to the AICPA rate (or, in most cases, rates of insurance that anyone can buy through the sources I will describe to you now).

One of the many great things about America, and why our general cost of living is so much less here than in the rest of the world, is competition.  Significantly increasing our access to competitive rates on Term life insurance is our old friend, the World Wide Web.  There are a number of excellent Web sites available that will allow us to confidentially and easily shop for the best Term life insurance rates.

Before going to the Web site, recall how Term insurance is priced.  Term insurance, being pure death protection without an investment element, becomes more expensive as the insured grows older and the actuarial risk of death increases.  Thus, all things being equal, Term life insurance costs per $1,000 of coverage should increase a bit every year as the insured under the policy ages.  As we also noted earlier, if premiums are level and guaranteed over a 5, 10, 15 or 20-year period, as in level Term life insurance (page 130), what is theoretically occurring is an overcharge in the earlier years of that period (when the actuarial risk of death is lower) and an undercharge in the later years of the period (when the actuarial risk of death is higher).  Therefore, Annual Renewable Term Insurance (page 130) should theoretically be the most economical form of insurance since it readjusts in one year increments.

In the real world, however, the theoretical norms are frequently distorted.  For example, in today's insurance market, it is not as easy to find Annual Renewable Term life insurance (ART) as it used to be.  Moreover, when you do find ART available, it is often priced higher than other Term policies.  For example, if you go to the TIAA-CREF life insurance cost calculator (go to my Web site, click on Life Insurance Planning and then TIAA-CREF), you will see that $500,000 of ART on a 48 year-old, non-smoking male (me) has a first-year premium cost of $950 and increases each year thereafter.  However, if you go to the Quotesmith Premium Calculator (at the same site), you will see that the 10-year Level Term rate for that amount of coverage can be obtained from an excellent company for $550 -- $600 per year guaranteed level for that 10-year period.

Why the dramatic difference in premium costs between the ART and Level Term policies?  You have to be aware of the underlying policy provisions to understand this.  The TIAA-CREF policy is guaranteed renewable through age 70 whereas the Level Term policies are guaranteed only for the 10-year period.  If you're health deteriorated, you could continue to renew the TIAA-CREF policy through age 70.  Whereas, with the Level Term policies, if your health deteriorated you would either have to find new insurance (which would be hard if your health is seriously in question) or you would have to convert the Level Term policy to a much more expensive Cash Value policy provided by the insurance company by the end of the 10-year term.

So it is a bit of a roll of the dice and a "pay me now or pay me later" dichotomy.  What would I do?  If your health is good and you have no family history of serious disease, I would not hesitate to obtain one of the lower priced 5 or 10-year Level Term policies.  If your health remained good, you could continue to shop around for newer and cheaper policies.  If your family health history is not so good (or you are more risk adverse and wanted to play it safe), I would give more consideration to a longer 15 or 20-year Level Term policy or a Cash Value policy.

NOTE:  There are two big reasons for not shopping around for newer and cheaper insurance but rather staying with your old insurance company.  If your health has worsened or (in a worse case) you have become uninsurable (because of extreme health problems), the last thing you want to do is cancel your existing life insurance policy.  Also, under the insurance laws of most of the states, an insurer can contest paying a death benefit if death occurs within two years of the policy being taken out and the insurer demonstrates that the policy owner misrepresented substantial facts on the life insurance application.  Additionally, most life insurance policies include a two-year suicide clause.  If the insured under the policy commits suicide within two years of the policy being taken out, the insurer does not have to pay.  Once the policy has been in force for two years, the owner need no longer worry about a contested claim by the insurer under the incontestability and suicide clauses of the policy.

Since the vast majority of us do not misrepresent substantial facts on our life insurance applications, do not plan to kill ourselves, and are in good health, there is no reason (other than the time it takes) not to regularly shop the life insurance market for the best and cheapest Term life insurance available.  This way, the typical American can keep his or her eye on the ball and more realistically provide an adequate amount of death protection.

I have made available to you excellent sites to price and purchase Term life insurance at the best rates.  Go to my Web site and click on Life Insurance Planning.  If you are in the less common situation of needing a Cash Value policy because you plan on maintaining the policy for an extended period of time, it is best to deal directly with an experienced life insurance agent.  In my estimation, the finest life insurance company in the country for the provision of quality Cash Value life insurance products is Northwestern Mutual Life Insurance Company.  You can find local agents in your Yellow Pages under Life Insurance or check them out on my Web site.  TIAA-CREF is listed as well and that company also provides quality Cash Value products and good counseling over the phone.