The staid, old insurance industry is in the throes of a price war. The first one in its time-honored history. Competition is keen and some companies have slashed premium prices by half or more.
Look what's happened to the generally lower-cost term-type policy prices. Before the price cutting started, term insurance rates ranged from $4 to $7 per $1,000-worth of coverage. Now, the price range is $1.13 to $2 per $1,000. p
The same thing has happened to prices for whole life insurance. That's the kind that maintains a level premium rate and builds up a cash account.
Before the industry price cuts, the range for whole-life policies was from $17 to $24 per $1,000-worth of coverage. Now it's $10 to $14 per $1,000.
The above ranges were based on coverage for a 35-year-old man. Prices vary according to your age and circumstances (health, sex, marital status and the like).
So now you may be asking why doesn't everybody get the cheaper term life insurance instead of the whole life? According to Barry Kaye, author of "How to Save a Fortune on Your Life Insurance" (Carol Press, $12.95), "Term insurance is a good bet for young families who can't afford whole life." "You get pure protection for dependents, but no cash value build up.
Even more important, while term life insurance is much cheaper when you're younger, the price keeps going up as you grow older. So at around age 45 or so, whole life with a fixed annual premium rate begins to make more sense.
But prices have been coming down for both types of insurance and Kaye explains why: "Insurance companies have been able to make more money on their investments and, in general, people are living longer." So some insurance companies started passing on their cost savings to new policy holders.
When you go out to buy a new insurance policy, or have one of your old policies analyzed to see if you can get a new policy that's cheaper, here's what you look for:
1. Several agents that sell for a number of different life insurance companies. Try to compare prices among a half dozen or so companies.
2. For term insurance, look for the lowest possible premium price for a policy that can be renewed no matter what happens to your health and can be converted into whole life later on if you so choose. But be careful. Check how much the whole life would cost if you converted. Some companies give you cheap term insurance, but when you want to convert into their whole life -- it's overly expensive.
3. For whole life, look for a policy that gives you a guaranteed death benefit at the lowest first-year premium cost. Pick a financially sound company (A or A-plus rating) and, if competing policies are close in price, pick the one that builds the best cash value.
Q. My wife and I have taken our money out of a savings account for deposit in a money-market fund that pays much more interest. We received a letter from the fund asking for our support in combating proposals made by the savings industry to have Congress limit the interest we can earn with our money. Isn't this changing the rules after the game has started?
A. I put your question to the executive vice president of a large savings and loan in my area. His response:
"It seems to me that if the regulatory and economic climates were hospitable to the development of the money-market mutual funds, the designers of those funds should not be penalized for taking advantage of the situation. To come on the scene now with post-partum restrictions is an ex post facto operation that is specifically prohibited in the Constitution [Article I, Section 9, Paragraph 3]."
But, having said that he thinks Congress should not punish the money-market funds and their investors, our savings-and-loan executive did say savings institutions are in serious trouble and need some sort of help.
As people move their money from lower paying savings accounts and certificates to the money-market funds, which often pay much more and impose no penalties for withdrawing deposits, savings institutions have less and less money to lend for things like mortgages.
The savings executive says Congress should pass legislation to permit tax-free savings accounts. Perhaps, he suggests, the tax-free benefit might only apply as long as the interest dividends stayed in the account.