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YOUR MONEY: Grab low prices before life insurance rates increase

The window might be quickly closing on consumers' opportunity to refinance at great rates -- not their home mortgages, but their term-life insurance, experts say.

The window might be quickly closing on consumers' opportunity to refinance at great rates -- not their home mortgages, but their term-life insurance, experts say.

For the first time in a long time, premiums are on the rise.

"Every week, it's like, 'Who's going to call us this week telling us they're raising rates?'" said Byron Udell, founder and president of insurance-comparison Web site AccuQuote.com. "It's unbelievable how it's happening. Almost everybody is raising rates."

Over the past several years, prices on simple term-life insurance have been plummeting. Premiums in recent years could be less than half of what they were in the early 1990s. For example, the same policy that had an annual premium of $1,400 back then might have cost $350 last year.

The price drop represented easy savings for consumers, who could simply buy a new, lower-priced policy -- even with the same insurer -- and then cancel their old one. They could choose to buy more coverage for the same money or buy the same amount of coverage and pocket the savings.

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Unlike refinancing a home mortgage, which involves expensive closing costs, swapping term-life policies is free to consumers. The insurer pays the "refinancing" costs, such as a medical exam and the administrative expenses of setting up a new policy.

For smart spenders, replacing an old policy with a new one was a no-brainer.

That's changing. Here's what you need to know about term-life insurance:

The pressure is on.

Since the start of the year, life insurance companies have started raising premiums for new policies -- most often by 5 percent to 15 percent, although a few raised rates by much more, Udell said. While a typical policy might be about $20 per year more expensive, these likely represent just the first wave of premium increases, he said. And even at $20 more, that's a price increase of $400 over the life of a 20-year policy.

Insurers are raising prices for several reasons. First, they invest your premiums so they can pay life insurance claims. But in today's investment climate, they're struggling to obtain the same returns as in previous years. Second, part of an insurer's reserves -- the amount regulators require them to have on hand to pay claims -- is funded by the credit markets. The cost of that credit, in such vehicles as letters of credit, has skyrocketed with the credit crunch.

"Their cost of doing business is going up and returns on their invested capital has gone down, and it definitely is putting pressure" on profit margins, Udell said.

Lock in now.

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Rising rates do not affect most term policies already in place because premiums are level, meaning they stay the same for the duration of the policy. But if you were thinking of buying a policy, re-shopping your old one or buying additional coverage, now is the time.

"If you're thinking about it, if you're in the market, it makes sense to grab it at these low prices versus waiting until rates go up," Udell said. "The good news is, rates are still at almost-historic lows."

Of course, you have the usual reasons to buy now rather than later. For one, those who are healthy now might not be in a few years. And the older you are when you apply for the policy, the higher your premiums.

"Waiting is not going to help anybody. Time is your enemy right now," Udell said.

Opt for longer terms.

You might have been tempted in the past to buy policies with short terms, such as 10 years, figuring you'll just add to it later when prices are lower. That's a riskier gamble now in an environment of rising premiums. Consider buying a policy with a longer term, such as 20 or 30 years, to lock in today's relatively low prices. "It makes more sense to lock that rate in and hang on," said Paul Ford, chief executive of insurance referral site NetQuote.com.

-- Shop around.

It always has been a good idea to shop multiple insurers because premiums can vary widely for the exact same coverage. Today, it's more important because some companies have raised rates, while others haven't yet. "A lot of these insurers are in very different places with their investment portfolios," Ford said. Some desperately need to raise rates, while others can afford to keep rates low to attract more customers.

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"If it's on your to-do list, now is a very good time to buy because a lot of companies haven't made (price) adjustments or are in the process of making adjustments, and those adjustments vary greatly," Ford said. "It's more important than ever to shop your options."

One of the easiest ways to shop multiple insurers is to go through an insurance broker, either in person or online, who can scout premiums from a variety of companies.

(Karp is a personal finance writer for The Morning Call newspaper in Allentown, Pa. He can be reached at greg.karp@mcall.com .)

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