Term Insurance Rates Are Going Up

The last thing insurance customers need in this economic environment are higher rates, but that’s exactly what we’re seeing with term insurance these days. Tighter credit markets are one reason why, but not the only one.

What is term insurance? It’s a fixed-timeframe form of insurance that covers you for a period of time you select (for example, 10 or 20 years) and pays benefits only if you die during the time you're covered. Unlike whole life insurance, term insurance doesn’t accumulate any cash value, which means if you do not die within the time you're covered, your estate does not collect any money from the policy when it ends. However, most life insurance companies offer the ability to convert your term life policy to a permanent policy under certain circumstances.

Term insurers have raised rates on policies by between 5-and-15% in 2009, a trend that began back in January as insurance companies battle low returns on the investment side and higher costs of capital and reinsurance issues on the protection side. It’s not just a handful of insurance companies, either as term rates have spiked pretty much across the board. ING (Stock Quote: ING) has raised term insurance rates by about 5% in 2009, and Prudentia Insurance (Stock Quote: PRU) raised its rates by an average of 4%, effective May 1.

Insurance.com reports that approximately 75% of the insurers that use the online insurer to market its products have either raised prices or announced they intended to raise prices on term insurance.

Here’s a letter to customers from American National, announcing that it’s raising term prices effective July 1, 2009:

The challenging global economic conditions have affected all financial institutions, including insurance and reinsurance companies. These conditions continue to have a ripple effect on certain products and pricing structures, and accordingly American National will be releasing a repriced ANICO Select Term effective July 1, 2009.

The repricing will affect the base policy for ANICO Select and the Disability Waiver of Premium. The optional Return of Premium Rider will continue to be available at its current pricing.