The Point Of No Return!

Not a week goes by that I don’t get to have the “reality” discussion with someone about the fact that life insurance rates have been dropping steadily over the past 10-15 years.

That fact is absolutely 100% true for some people. First, the biggest decreases have been among those that qualify for preferred plus rates. I’m not one of those anymore, but plenty of people are. A good health history and a good exam result will get you there. There is a myth that older people, those in their 60’s and 70’s for instance, can’t qualify for preferred plus rates. The truth is that less of them qualify but only because they don’t meet the criteria, not because of their age. I have personally placed policies at preferred plus rates with a client who was 78.

Probably the bigger issue is just that curve that occurs in life insurance rates due to the undeniable fact that the older you get, the closer you are to death. To put that in perspective, using preferred plus rates, a male age 45 can buy $500,000 of 20 year term insurance for $615 a year. That same policy if he waited a year to apply for it would be $665, $50 difference. It is reasonable to assume that the downward trend in life insurance rates might well overcome the upward trend in rates due to age, if you’re 45.

The same scenario played out 20 years older points out the Catch 22 in the downward trend of life insurance prices. If the guy was 65 and wanted $500,000 of 20 year term it would cost $4345 a year. If he waited a year to purchase that policy it would cost $5265 a year, $920 difference. It is not reasonable to assume that the overall downward trend in life insurance pricing is going to overcome that fast moving upward trend due to age.

Those examples assume a one year period. Most customers are hoping to replace something they bought, say, 7 years ago. So, at age 65 we know that the client is going to pay $4345 for a new policy. But, he is replacing a policy purchased seven years earlier for $1995. “But I thought prices were going down?” Well, they are. If you would have been 65, 7 years ago, it would have cost more than $4345.

Even given continued perfect health, there is a point where you will have to admit that replacing a policy is going to cost more. That has to be weighed against the value of making that change.

Bottom line. The picture just doesn’t get any prettier the longer you wait. If you need to make a change because your policy no longer meets your needs, shop it and get used to the idea that the more experienced we are, the more expensive we get.