by Chris Funnell
One constant with a term life insurance policy is the increase in life insurance rates at renewal. As people age life insurance rates increase because the insurance companies have more claims.
Now, naturally, you wouldn’t want to be on the receiving end of a life insurance rate hike so here are a few tips to help you minimize the increase.
You don’t have to be surprised about when your life insurance rates increase if you keep an eye on your term life insurance from time to time. You’ll know that term life insurance rates increase at renewal (usually after 10 or 20 years), and that the increase can be between 2x to 5x the initial cost of your policy. That’s a lot of money to consider.
Also, life insurance rates don’t just go up at renewal on a whim. It’s because you’re older and health circumstances can change. Some people will experience a medical change in health due to an accident or a disease, and your insurer factors this into consideration which results in higher premiums at renewal.
One of the advantages of the internet is the ability to shop and compare life insurance rates online from the comfort of your own home. With just a click of a button, you are able to match up best life insurance rates from numerous sources and decide which company is in the best position to get your business.
Though many life insurance companies use a similar standard for evaluating their applicants, there is a surprising range or spread of rates between different companies. Shopping around can mean a much lower insurance rate on renewal.
For a Life Insurance Company, your age means two different things: your actual age and your insurance age. Your actual age is the date of your birthday. Your insurance age, also called “age nearest”, means your closest age. If you were born on January 01, 1953 and today is October 15, 2013, then you are closer to your 61st birthday and you are considered 61 years old (not 60) for insurance purposes.
How does this affect your life insurance rates? Rates increase by approximately 10% each year you get older. If your existing insurance is up for renewal, and you qualify for new life insurance when you are closer to your next birthday, then you will be paying based on your “age nearest” age, and will pay a premium that’s about 10% more.
Likewise, if you re-apply and re-qualify for a new plan before your age nearest goes up, then you can reduce your cost each year for the next 10 or 20 years by approximately 10%. This is why the timing of a new application is crucial, and is something many people overlook.
A simple method for avoiding a life insurance rate increase is to start new coverage (from scratch) and cancel your old coverage so you won’t be affected by the life insurance rate renewal. The new premium will likely be significantly less than what you’d pay for the old policy on renewal.
Many people don’t realize the renewal rates on their old polices are about double the going rate. Savvy consumers can lower their life insurance rates by about half with a new policy versus letting their old policy automatically renew.