Life insurance is going to get expensive, according to one USA Today contributor. Allyn Hughes wrote this summer that, "as a result of the low interest rates and investment returns, insurance companies are likely to earn less on their portfolios," which, naturally, leads to insurance companies raising prices in order to recoup those losses.
There are a lot of things wrong with the assumption that life insurance rates are going to go up, however. For starters, it completely ignores the fact that the Federal Reserve is probably going to raise interest rates soon. Soon, in this case, is a relative term, but in general, the trend for interest rates will be up, not down, especially for the high-quality bonds that life insurers typically favor.
Following Hughes’ logic, current life insurance premiums should be at their highest right now. Interest rates have been close to zero for six-and-a-half years – more than enough time for life insurance companies to adjust their expectations and premiums on new policies.
But here’s the thing: life insurance premiums are actually really affordable for most people.
You might not realize just how affordable life insurance is – according to one LIMRA study, 80% of people overestimate the cost of life insurance by hundreds of dollars.
More importantly, it’s a pretty bad idea to time your life insurance based on the market. So we agree with Hughes on one major point: buy term life insurance when you need it for the longest term that covers the period you need it.
But if you tell those 80% who think life insurance is expensive that it’s getting even more expensive, they’re not going to buy it when they need it. The perceived price is one reason why getting insurance is the lowest-ranked financial priority – lower than saving for retirement, paying down debt, and sticking to a budget.
So, is life insurance getting more expensive? Probably not – and even if it did, it’d still be cheaper than the majority of people think.
Image: 401(K) 2012