Credit Crunch Leads to Higher Term Life Insurance Premiums

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The premiums for new term life insurance policies are on the rise. That's according to Compulife Software, Inc., a company that manufacturers life insurance comparison software and which provides free online quotes to the public at http://www.term4sale.com. Compulife is encouraging consumers to make sure that they have taken advantage of today's low term life insurance prices before they go up.

When you buy a term life insurance policy with a 10, 20 or 30 year guaranteed level premium you are locking in your right to get that insurance for that premium. While consumers can cancel their insurance policies anytime, the guarantee means that the life insurance company cannot come back later and increase the premium.

The premiums for new term life insurance policies are on the rise. That's according to Compulife Software, Inc., a company that manufacturers life insurance comparison software and which provides free online quotes to the public at http://www.term4sale.com. Compulife is encouraging consumers to make sure that they have taken advantage of today's low term life insurance prices before they go up.

Bob Barney, president of Compulife, said, "When you buy a term life insurance policy with a 10, 20 or 30 year guaranteed level premium you are locking in your right to get that insurance for that premium. While consumers can cancel their insurance policies anytime, the guarantee means that the life insurance company cannot come back later and increase the premium."

Barney added, "Nothing stops a company from increasing premiums for new policies which is what is now happening. Given those increases consumers need to make sure that they have all the term insurance that they will need for the foreseeable future and more important, they need to shop and compare prices. Regardless of price increases or decreases, premiums vary significantly from company to company; so shop!"

Asked why premiums are on the rise, Mr. Barney offered this quote from a recent email that he received from a life company who was explaining their recent price increase. The company said:

"As you should be aware, global credit market dislocation and risk
re-pricing has significantly increased the cost of capital - affecting
basic pricing, the cost of reinsurance and the cost of financing
Triple-X reserves."

The credit crunch affects companies acquiring new life insurance customers because new life insurance policies are never profitable in the short run. It can take a number of years for companies to earn back their initial costs of adding a customer due to sales, marketing and underwriting costs that the company must pay up front. In effect the company borrows money from itself or someone else to cover those early costs, and then gets the money back over time as they collect premiums for that new policy. Therefore, as the ability to obtain capital tightens up, it results in a cost increase for the company or it may limit the number of new policies that the company can issue. Either way, raising prices reduce the number of new policies being sold and those that are sold are more profitable.

Using Compulife's web site http://www.term4sale.com, Mr. Barney offered an example from the company who just increased premiums. Using a male non-smoker age 40, and comparing $500,000 of 30 year term, the lowest premium offered by the company had been $655 per year. After the price increase, the same policy had a premium of $695 per year - an increase of $40 per year.

Mr. Barney went on to explain that the older the individual, and the longer they wanted the premium guaranteed, the more significant the price increase.

A further problem occurs for those life insurance companies that depend on reinsurance companies in order to acquire larger policies. Reinsurance companies act as wholesalers to smaller individual life insurance companies who need to spread the risk on larger amounts of coverage for any one person. Mr. Barney suspects that reinsurers are being hit even harder by the credit crunch and are responding by aggressively raising premiums.

The reinsurance price increases appear for those buying much larger policies. Considering the same individual from the previous example, the cost for $2,000,000 of the same coverage had been $2,410. The new premium has jumped to $2,740, a $330 per year price increase which represents a total cost increase of almost $10,000 over the 30 years.

While a number of life companies have recently increased premiums, Barney said there are a number who have not yet done so. For this reason it makes sense for consumers to shop and compare now. Compulife's on-line quote system at http://www.term4sale.com allows consumers to compare over 100 life insurance companies. There is no charge for the service and consumers do not have to divulge their contact information in order to do comparisons. Barney emphasizes that Compulife does not sell life insurance and so the company's comparisons are most objective in the market.

Barney concluded, "It's always been funny to me how consumers will switch gas stations for a couple of cents per gallon, but buy life insurance without thought or care for what they are paying. I started Compulife in the 1980's to make it easier to compare life insurance. I created http://www.term4sale.com in the 1990's to make it even faster and easier for consumers. Despite that, there are still lots of consumers who have never done a market comparison to see if they are paying too much. That's a shame when it is so easy to do."

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ROBERT BARNEY
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