Live Longer and Save on Life Insurance

Physician's Money Digest, April15 2004, Volume 11, Issue 7

Americans are living longer thesedays due to healthier lifestylesand medical advances. The averageUS male's expected life span hasincreased from 70 to 74 years and theaverage US female's from 77 to 79 years.For the first time since 1980, state regulatorsare revising the mortality tables thatestimate how long people will live and areused to set premiums to reflect theselonger life expectancies. This means lowerrates for life insurance buyers.

Insurers and analysts predict that duringthe next several years, rates for someterm insurance policies will drop as muchas 30%. Other policies will experienceless significant single-digit drops.Analysts say prices for whole life insuranceshould also fall, although it'sunclear by how much.

Falling Insurance Premiums

WallStreet Journal

The mortality tables are a key factorin determining how much people pay forlife insurance, according to a recent report. The longer policyholderslive, the longer the insurancecompanies get to hold onto premiumdollars. Therefore, insurers can afford tocharge less in premiums.

Life insurance premiums had beenfalling even before the revision to mortalitynumbers. Growing competition,sales on the Web, comparison shoppers,and healthier customers have all contributedto a reduction in rates. The newactuarial tables will bring about a furtherdecline in rates because they willreduce reserves, which are the funds thegovernment requires insurers to have instock to pay claims.

The most significant savings will occurin term policies that pay only upondeath, rather than in coverage thatincludes the promise of investment gainsor in whole life policies that build up acash value that can be withdrawn beforedeath. Today's most popular term policy—one that guarantees coverage at afixed premium for 20 years—is likely todrop the most in price.

USAA Life Insurance (www.usaa.com)—one of the first insurers to react to thenew mortality tables—has implementeda lower rate schedule. The insurer says ithas cut rates on new term policies byabout 10% to 30% in 39 states and theDistrict of Columbia. Other large insurerssay it is too early to predict how the newtables will impact their rates on variousforms of coverage. However, industryconsultants believe the rates are likely todrop, or that some insurers may simplyguarantee they won't raise rates for alonger period of time.

However, the new mortality rates willonly affect new insurance policies. As aresult, you may want to cancel an existingpolicy and buy a new one at a lower rate.Depending on your age and an existingpolicy's terms, you may be able to getcomparable coverage for less or get substantiallymore life insurance for the sameprice—or less than—you are currently paying.Since rates and savings among differentcompanies and for different applicantscan vary widely, physician-policyholdersshould shop and compare.

Just as the new tables won't affectexisting policies, it also doesn't affectcertain forms of insurance, such as variablelife, in which the value of a policy isfrequently linked to stock marketreturns. In addition, the tables shouldn'taffect annuities because many insurershave already built the longer life spansinto annuity rates.

Adopting New Tables

Journal

The mortality tables themselves arebased on actual life insurance companydata collected between 1990 and 1995,notes the article, and includemortality improvement projections toupdate the tables to 2001. While the lifespans of many demographic groupsimproved, some did not. For example, atcertain ages, the death rate for femalesmokers is higher than it was in 1980.

The National Association of InsuranceCommissioners will adopt the new tablesbeginning Jan. 1, 2004. Individual stateswill have 5 years from that point to beginrequiring insurers to use the tables.However, it could be several years beforepolicyholders see any big rate changes.States are not required to adopt thetables until 2009, and insurance companieswon't be compelled to reduce theirreserves until 3 years after the majority ofstates adopt the tables. Still, some insurershave already begun to drop theirrates. And knowing that even better lifeinsurance deals are in the offering isgood news indeed for physician-policyholders.