Hot Level Term Prices – But for How Long?

Robert Barney

In the December 1995 edition of Canadian MoneySaver I warned readers that Term to 100 prices were going up. The article reviewed the price increases that had occurred between June 1995 and December 1995. I recommended that readers who needed such insurance should act to take advantage of current pricing because increased prices still left Term to 100 attractive. I warned that prices could continue to go higher. Here’s what happened:

$250,000 of Term to 100
Male Non-Smoker

Prices shown are for the lowest priced, fully guaranteed Term to 100 policies found in the Compulife(R) Quotation System as of April 1995, November 1995 and May 1999.

While price increases have been marginal, prices for many companies have gone up. Just recently two more life companies have re-priced their Term to 100 products with price increases of about 10%. The point I want to make is that I was correct; prices on Term to 100 policies went up.

I am now warning you that a much more significant price increase is on the horizon. I recommend that you pay attention to an opportunity that may vanish January 1, 2000.

As background, in my June 1997 Canadian MoneySaver article I told you that U.S. level term price wars had spilled into Canada. I gave you examples of how much premiums had dropped. Table 2 is an updated price table. In all cases prices have continued to drop, some sharply.

Comparison of 10 Year Term Premiums *
($250,000 Male Non-Smoker)

* Prices shown are for the lowest priced, fully guaranteed 10 year term policies found in the Compulife(R) System as of May 1991, May 1997 and May 1999.

There are three important things you need to know about the above 10 year term prices:

1. Without exception, the lowest 10 year premiums offered in May 1999 are from Reliable Life located in Hamilton, Ontario. The premiums offered by Reliable Life are the exact same premiums that are offered to U.S. consumers by Reliable’s parent company: Old Republic Life of Chicago, Illinois. While there are a number of life companies that do business on both sides of the border, Reliable is the only life company offering the same low premiums to Canadians that its parent provides to U.S. consumers.

Most Canadians do not realize that U.S. term buyers pay less for level term insurance. This is a particularly sad irony given that some of the large life companies which are based in Canada, and which sell to U.S. consumers, charge those U.S. consumers less than they charge Canadians. The reason for this is simple: there is less competition in Canada. Canadians pay more because they don’t realize that they could be paying less.

Incidentally, some mistakenly believe the difference has something to do with Canadian/U.S. monetary exchange rates. This is not true. Remember, a Canadian policy charges Canadian dollar premiums, and pays Canadian dollar death benefits. A U.S. policy charges U.S. dollar premiums, and pays U.S. dollar death benefits. In term insurance, it’s the mortality assumptions (death rates) that determine cost versus death benefit, and you can’t tell me that Americans live longer than Canadians.

You can prove how much the price difference is on yourself by visiting www.termforsale.com. Term4Sale is Compulife’s new Internet term comparison site for consumers. Both U.S. and Canadian consumers are free to use Term4Sale to do their own term comparisons.

To find out how much less U.S. consumers pay than you do, run a 10 year comparison for yourself in Canada, then run the same comparison as though you lived in California (the default state in the U.S. comparisons). With the exception of Reliable Life, life companies based in Canada, doing business in the U.S., charge Canadians more for level term.

2. These extremely competitive premiums may not exist after January 1, 2000. The NAIC (National Association of Insurance Commissioners), which has a powerful influence over individual state regulations of the U.S. life insurance industry, is trying to persuade individual states to pass a new regulation labeled Triple-X (XXX; I’m not kidding; they gave it the name/warning you put on a bottle of poison). If Triple-X passes, the above mentioned Reliable Life prices will vanish and premium increases will be substantial.

Consider the 55-year-old example above. A 55-year-old male can buy a $250,000-10 year Reliable Life policy for $565. That’s the same premium charged by Old Republic in the U.S. which is relatively close to the least expensive 10 year plan currently offered to California consumers at $500.

However, if you ran the same U.S. term comparison for the state of New York you would discover the least expensive 10 year policy in that state is $697.50. Why is there such a price difference between California and New York? To date New York is the only state to have passed the Triple-X regulation. If the rest of the United States adopts the regulation, U.S. consumers can expect that same kind of price increase.

I have been one of the most outspoken opponents of the Triple-X regulation. On over 20 different occasions (since 1995) I have written to each individiual state insurance commissioner explaining the serious problems with this regulation. Those efforts have succeeded in causing many states to pause and question the regulation. However, recent cooperation between the NAIC and a number of U.S. life insurance companies has led to a revamped version of the regulation which threatens to go into effect January 2000. I believe the threat is real and if it happens prices for the level term plans will go up.

3. For the most part, U.S. term products have renewal premiums that are just awful. In the above mentioned examples, the 11th year premiums for U.S. 10 year term products skyrocket out of sight. If you discuss this with many Canadian insurance agents they will tell you to stay away from Reliable Life for that reason. They will tell you to buy a more expensive policy because the renewals are better. That advice often distracts from the fact that all 10 year renewals are bad, including other Canadian products. Your best strategy, if you need insurance after 10 years, is to buy a longer level term plan.

Consider this example: If the above mentioned 55-year-old wants insurance after age 65, then the best 10 year level term policy, based on an accumulated cost over 20 years, is with a company called Western Life. Instead of $565 with Reliable, you would pay Western $780. This would entitle you to an 11th year premium of $3,350 with Western. Incidentally, you will notice that a 65-year-old, in the above price charts, can buy a brand new 10 year term policy for only $1,513. When I say that other Canadian renewal premiums are bad, I mean it. Even so, Western Life’s renewals are among the best and they easily beat Reliable’s renewals.

So what does a consumer do if they need insurance for longer than 10 years? They should consider a 15 or 20 year policy from Reliable Life. Instead of paying $780 to Western Life you could buy Reliable Life’s 15 year policy for $753 or their 20 year policy for $865. Of course, at the end of 15 or 20 years, renewal premiums will skyrocket. If you believe you need insurance longer than that maybe you should be considering Term to 100. In the above tables a 55-year-old could buy Term to 100 for $3,885. That’s a premium guaranteed not to go up for the rest of your life.

Incidentally, if you were in New York, and wanted to buy a 15 or 20 year policy, Triple-X impacts those prices even more. Instead of paying $765 for 15 year coverage, you would pay $903. Instead of paying $865 for a 20 year policy it would cost $2,160. The longer the level term period, the greater impact that Triple-X has on level term price increases.

To summarize, Canadian consumers who want and need level term insurance may only have a small window of opportunity in which to take advantage of what will likely be historically low level term premiums. If you have short-term insurance needs of 10 to 20 years (most Canadians), and are in very good health, I strongly urge you to consider taking advantage of Reliable Life’s current term insurance offerings. It is also my hope that other Canadian companies will respond to Reliable Life’s competitive challenge.

Consumers can monitor the market by visiting www.termforsale.com. or call (800) 567-8376. Compulife will give you three subscribers nearest you to provide free insurance comparions.

Article reprinted with permission of Robert Barney and Canadian MoneySaver Magizine.  All rights reserved.

Robert Barney is an independent life agent and President of CompuLife Software Inc.  He has written more than 40 articles on insurance. He can be reached at barneyrl@concentric.com.

Look at the Canadian MoneySaver Magizine site for more Robert Barney Articles.  www.canadianmoneysaver.com 

Published June 1999, Canadian MoneySaver, PO Box, 370, Bath ON K0H 1G0 (613) 352-7448 Fax (613) 352-7700 moneyinfo@canadianmoneysaver.ca