If you had “buy life insurance” around the to-do list for 2021, you might be wondering be it still a good time to get a life insurance policy. We're going to be experiencing and enjoying the results of the COVID-19 pandemic for a while, after all – and those effects already include an economic decline, at least for the short term. Does which means that it's a bad time for you to buy a life insurance coverage? Will you find yourself in trouble paying higher rates for coverage?
Not necessarily. Recessions don't affect life insurance coverage rates as much as you might think, especially if you elect to protect your loved ones having a term life policy. Whether there is economic uncertainty, buying life insurance now, when you need it, is still a smart financial move.
Here's what you ought to learn about how life insurance companies price their policies, why term life insurance coverage is less affected by economic fluctuations than permanent life insurance policies, and just what you can do to obtain the least expensive life insurance coverage possible.
How life insurance coverage companies price their policies
Your life insurance coverage premium rates are determined by how old you are, health background and tobacco use. However, life insurance policy rates, as a whole, are determined by the profitability of the life insurance coverage company, which is generally impacted by three main factors: mortality rates, company expenses and also the interest rate environment. “If you've got a change in these three components, it will impact a life insurance company's profitability,” explains Aneesha Deshpande, head of product innovation at Haven Life. Whenever a company's profitability goes down, its policy rates might increase.
That said, short-term economic volatility doesn't typically affect life insurance policy rates. “Life insurance providers have investment managers that are prepared for these short-term fluctuations, and are generally able to handle them with no rate impact,” Deshpande says. If an economic recession appears like it could last for a longer period of time, life insurance coverage companies might start to increase rates to maintain profitability – but if this happens, term life insurance policies are experiencing smaller rate increases than permanent life policies.
For example, a proper 35-year-old woman can buy a 20-year, $500,000 term life policy through Haven Life for about $20 monthly. If term life rates would increase by 5%, that woman's premium could be about $21.
Term life insurance rates generally remain stable
Term life insurance policy rates tend to remain stable even during periods of financial crisis. Why? Because these policies cover individuals for a while of your time relative to permanent insurance – usually 10, 15, 20 or 3 decades, depending on the coverage you select. Permanent policies, however, cover you for a lifetime, so as long as the coverage remains in good standing, there is a 100% chance the insurance company pays out a death benefit sooner or later.
These shorter-term lengths protect both consumer and the life insurance provider from economic fluctuations, Deshpande says, because “term goods are less severely influenced by low-interest-rate environments” than permanent life policies. (See more about that below.)
This is why life insurance companies are comfortable offering affordable term life insurance policies even during recessions and when people are unemployed. Since each policy provides coverage for any defined time period, the insurer isn't taking on as much risk that they'll lose money when the economy declines long-term.
Consumers also get to benefit from the safe factor that affordable level premium term policies provide – once you complete your term life application, you'll secure a regular monthly premium which will remain constant for the period of your insurance policy.
Your term life premium won't change
When you purchase level premium term life insurance, you lock in your premium rate for the length of the term — called “guaranteed level premiums.” Quite simply: If you buy a 10-year term life policy, you have to pay the same monthly premium for the full Ten years, regardless of what happens to the economy during that period. If you choose to protect your family having a 30-year term life policy, your premium rate will remain the same, every month, for three decades.
How many other products can provide the same guarantee? Term life insurance is designed to squeeze into virtually every budget, and also the security of understanding that your premiums won't increase because of inflation, recession or any other economic issue can provide as much peace of mind as the policy itself.
Permanent life insurance coverage may become more expensive during economic uncertainty
Unlike less rate of interest sensitive items like term life insurance, permanent life policies – common types being universal or whole life insurance – are more likely to see rate fluctuations in a period of economic uncertainty. “Permanent life insurance policies protect the policyholder for a lifetime plus some products offer long-term cash value guarantees,” Deshpande says. “These guarantees can be costly for a lifetime insurance companies in the present market environment.” Inside a lower rate of interest environment paired with economic uncertainty, life insurance companies can be impacted by reduced profitability or perhaps losses on these items, and for that reason, rates will likely increase.
Deshpande also notes that premiums won't change for existing permanent life insurance policyholders with level premiums – which is the case for most whole life policies. However, some universal life insurance coverage products might have premiums projected based on a higher assumed rate of return than is the current reality. Permanent policyholders should review their coverage having a financial professional to make sure policies don't lapse prematurely and to know how a low-interest-rate environment may impact their coverage.
Buying term life early can help you save money over time
The the easy way keep the life insurance rates low is to find your term life insurance policy early. Signing up for a term life insurance coverage when you are healthy and young can save you a lot of money over time – and when you'd like to see just how much money it can save you, here is a chart showing typical monthly premium costs for any 20-year, $500,000 Haven Term policy for individuals in excellent health at various ages. Notice how the premiums go up as you get older?
Quotes for term life insurance insurance
Buying life insurance now can help you get the best possible rate – and don't forget, you will be paying that very same rate for that period of your policy, whether that's 10, 15, 20 or 3 decades.
What about life insurance ratings?
If you've been watching life insurance industry news – what, you have not? – you might have realized that Moody's recently downgraded the life insurance sector from stable to negative. Does that mean it is a bad time to buy life insurance coverage? Nope. “Moody's publishes these outlooks on the sector-by-sector basis,” Deshpande says. “It does not speak to specific credit scores for individual companies.” Haven Life's parent company, MassMutual, remains one of the top-rated life insurance companies, with an A++ rating from A.M. Best, AA+ ratings from Fitch and Standard & Poor's (S&P) as well as an Aa3 rating from Moody's (as of May 1, 2021).
No matter what all of those other economy is doing, a low-cost term life insurance policy is usually a must-have for families, because it provides a financial safety net for your family members should you die. Although life insurance premium rates might fluctuate slightly as federal interest rates go up and down, term life insurance is designed to remain as affordable as possible for lovers – and also the sooner are applying for the term life policy, the sooner you can lock in your monthly premiums for the following 10, 15, 20 or 3 decades, come what may.