Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, August 29, 1994 TAG: 9408300006
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: By JANE BRYANT QUINN WASHINGTON POST WRITERS GROUP
DATELINE: LENGTH: Medium
But 10- to 20-year price guarantees may not last much longer. Those who want them should think about buying within the next few months.
Why might they not last? Because some insurers have priced these ``guaranteed-term'' policies too low, in the opinion of many state insurance commissioners. Put another way, not all companies may have backed their policies with enough ``reserves'' - which is the capital they need to pay claims. By skimping on reserves, they hold down their costs and pass on the savings on to consumers.
But that's a dangerous game. Skimpy reserves can undermine an insurer's solvency.
For five years, the National Association of Insurance Commissioners has been working on a model regulation to require higher reserves. Many in the industry thought the new regulation was going to be recommended to the states in June, but it was delayed. Industry sources think it could be adopted by the end of the year.
New York has created a regulation of its own, and some other states may follow if NAIC doesn't act.
If and when the model regulation reaches every state, insurers still will offer 10-, 15- and 20-year policies. Your premium, however, will probably be guaranteed for only about five years, says Donald Maves, financial officer of Kemper Life Insurance Cos. in Long Grove, Ill., and head of an industry committee advising NAIC. After five years, your premium could rise.
But don't be rushed into buying a policy by an insurance agent chanting ``last chance for guarantees.'' NAIC's concerns about under-reserving should incline you toward companies with high safety ratings (AAA, AA-plus or AA from Standard & Poor's; A-plus-plus, A- plus and perhaps A from A.M. Best).
Term insurance is the policy of choice for temporary insurance needs. It builds up no savings but delivers large amounts of low-cost family protection.
Annual renewable term, or ART, which is the classic form of term coverage, starts out low in price. The premium rises every year to reflect your increase in age.
Guaranteed-term policies, by contrast, cost more at the start than ART. But over the five- to 20-year guarantee period, the premiums don't rise - and that saves money.
Take a healthy 35-year-old California man who doesn't smoke and wants $250,000 in term coverage. The first year, he might pay $175 for an ART policy from the North American Company for Life & Health in Chicago, or $247.50 for its 15-year guaranteed term policy.
Just 10 years later, however, at age 45, the ART premium has climbed to $665 while the guaranteed-term policy is still at $247.50. Even counting the time value of money, the guaranteed-term policy will cost much less.
Unless you've chosen your insurance company carefully, however, you face a risk when the guaranteed term expires. The company will continue your coverage - typically as ART, although some insurers offer a second guaranteed term. Either way, you'll be charged a much higher price. At age 50, North American goes to $1,150 and rises from there.
You could get a lower premium from any company you chose, if you could pass a physical. North American's price for a 50-year-old in tip-top health is $757. But you can't count on getting that low rate, because so many insurers are so picky about what constitutes good health.
So, when buying guaranteed term, price shop intensely. Any one of 62 companies offers the lowest premium, depending on your age, sex, whether you smoke, the term you want and how big a policy you need, says Milton Brown of Insurance Information Inc. in South Dennis, Mass., telephone (800) 472-5800. A list of term quotes from Insurance Information costs $50. If you're working with an insurance agent, ask if he or she uses a price shopper like Quotesmith or Compulife Software.
If you might need coverage beyond 20 years, see what each policy would cost you if you couldn't pass the physical. Also, look for a policy convertible into cash-value coverage up to age 60 or more, with no physical required.
by CNB