This article article was published in the "New Rochelle Review" in the January 2007 issue.

Life and Money - "Reducing Term Life Insurance Costs"

By Frank Sisco, CPA, PFS

(Word count = 551 plus 68 words for About the Author)

Why not use the beginning of a new year as a reason to make an important improvement in your family's financial health.   In a few simple steps, you can probably replace your current term life insurance policy with a less expensive policy and save hundreds, if not thousands, of dollars. Don't cancel your present policy until the new one is effective.   To do it properly, use a life insurance agent who is familiar with the marketplace and with the rules governing the exchange of life insurance policies, including tax-free Section 1035 of the Internal Revenue Code and Regulation 60 if in New York.

 If your health has not worsened significantly since you purchased your term life insurance (called TLI) policy, you may be able to save money by exchanging it for a different policy with another company.   TLI costs have been declining over the last several years, as a result of certain developments in the insurance industry including intense competition.   For example, if five years ago you bought a 20-year guaranteed TLI and are paying $3,000 per year in premiums, you may be able to replace it with a 15-year guaranteed TLI policy that costs $2,000 per year, saving $1,000 per year, without jeopardizing protection.   Often, it is an opportunity to get additional coverage or stretch out the guarantee time with some of the cost savings.  

Even when a new policy costs a little more, it may be wise to replace it in order to stretch out the guarantee period and avoid the very high premiums that go into effect after the original guarantee period expires.   In a recent case for a 65-year-old client's $500,000 TLI policy, the ten-year guarantee term was set to expire in two years in July 2008.   The annual premium was scheduled to skyrocket from $1,925 to $37,270, a prohibitive amount.   Rather than taking the chance of waiting until 2008, and try to replace the policy at that time, when the client's health may not be as good as today, he made a wise decision to replace it now. Because it turned out that his health was found to be as good as it was when the old policy was issued in 1998, the new policy was then issued with an annual premium of only $2,613, resulting in a minor additional annual cost of $688 for the next two years but a very substantial savings for the eight years after that.   He could now rest easy that his beneficiaries would be protected at least for ten more years.

The five steps in replacing term life insurance policy with a less expensive policy are described in more detail in a videoclip on www.lifeandmoney.com.   A summary is as follows: (1) Gather the key information, such as quotes on several policies from highly-rated insurance companies. (2) With the help of an insurance agent, commence the exchange process.   (3) Get examined and hopefully approved by the insurance company.   (4) When the new policy is issued, pay the premium that is due, and pursue a refund on the unused period of time for the premium you just last paid. (5) With the savings, consider purchasing more term life insurance to better protect your beneficiaries and give them a greater chance of getting through a very rough time, at least financially.  

About the author.

Frank Sisco is a CPA and Personal Financial Specialist, and author of many articles about personal finance and issues of life and money.   His firm, Financial Management Corporation, is located in New Rochelle, NY, where he resides with his wife and daughter.   He can be reached at 914.740.4422 or by email at ideasmoney@aol.com.   Visit his website at www.LifeAndMoney.com, which contains this and prior articles.