Life Insurance: What You Need, on the Cheap

(MoneyWatch)  LIMRA, the research and marketing outfit for the life and health insurance industry, did its best to sound an ominous warning bell last week when it reported that only 44 percent of U.S. households are covered by an individual life insurance policy, a 50 year low.

The headline on the press release was went straight for the kid weakspot/sweetspot:

Four in 10 U.S. Households with Children Would Have Immediate Trouble Paying Bills if
the Primary Breadwinner Died Today
Nor did LIMRA CEO Robert Kerzner go for subtlety in commenting on the findings:

"The numbers tell a grim story. Today there are 11 million fewer American households covered by life insurance compared with six years ago. A majority of families either have no life insurance or not enough, leaving them one accident or terminal illness away from a financial catastrophe for their loved ones."

The Far From Grim Solution
But here's the odd thing: What was nowhere to be found in the 874-word press release was the fact that there is in fact a ridiculously affordable solution for those millions of households.

Term life insurance.

The disconnect may be that in life insurance circles, term life insurance is also known as less-lucrative insurance. The annual premiums on a term policy can typically be a very small fraction of what you would pay for a permanent policy. And lower premiums for consumers mean lower commissions for agents. Thus, I am just guessing, it lowers the incentive for many insurance agents to talk up term. Some do. Many don't.

While it is absolutely true that in some circumstances a permanent policy is indeed the better way to go, for the vast majority of Americans, in the vast majority of cases, term is all that is needed. Besides, a term life insurance policy that is affordable is a better move than not buying an unaffordable permanent policy and going completely uninsured.

I think millions of the uninsured would be downright giddy to find out they could protect their family for the cost of a couple of Happy Meals or Venti concoctions a month. Byron Udell, CEO of Accuquote.com, which specializes in term life insurance, sent along a note that a 35-year old in good health could buy a $250,000 term policy for less than $14 a month. Yes, $14. Yes, per month. That's enough to pay off the mortgage in most parts of the country if the breadwinner dies prematurely.

Older, and/or need a bigger death benefit? Still not going to bust your bank account. I noodled around the term4sale website to do some rate ballparking. A 48-year old female in my neck of the woods (S.F. Bay area) who is in good health could pick up $500,000 in coverage via a 20-year guaranteed annual renewable term policy (the premium doesn't change during the 20 years) for less than $80 a month. A 50-year old male in the Chicago area, who's in good healthy and in the market for a $1 million 20-year term policy might pay $150 or so a month. That's a whole lot of family protection for about five bucks a day.

(Tip: If you want to play around with the term4sale rate finder, don't choose the Preferred Plus (Exceptional) option on the dropdown where you Describe Your Health. No matter how buff you are and how fab your exercise regimen, life insurers tend to have a very narrow definition of exceptional; typically just 10 percent or so of applicants qualify. Choose Preferred (Excellent) to get a better estimate of a rate you might qualify for. And I need to point out the obvious: the actual rate you are ultimately offered may vary based on your specific circumstances)

The news that so many Americans are going without life insurance is grim. But what's most troubling is that there is an affordable product that just needs to be talked up more to families with limited resources. The problem is that term insurance turns the old insurance adage on its head: It's bought, not sold.

Related MoneyWatch Articles:
How to Buy Life Insurance
8 Steps to Protect Your Family