As we live longer, rates for life insurance fall

James and Alison Podworski of West Springfield, married for almost five years, hadn't thought much about life insurance. But all that changed two years ago when they had their first child, McKenna.

"Once we had a baby we kind of thought of our future," Alison Podworski, 31, said. "How are we going to make sure she's secure?"

The good news for new parents like the Podworskis and others thinking about financial protection for their loved ones is that the cost of life insurance has decreased significantly in the past decade.

From 1997 to 2006, health insurance premiums rose 123 percent, according to Hewitt Associates LLC. Homeowners insurance premiums were up 51.6 percent from 1998 to 2004, according to the Insurance Information Institute. But in the past 10 years, the average cost of term life insurance, which provides coverage for a period of time, has dropped. According to the institute, a 40-year-old nonsmoking man healthy enough to qualify as a standard risk paid $1,300 per year for a 20-year plan in 1996. In 2006, a man in the same circumstances paid about $641 -- about half as much.

Steven Weisbart, an economist for the Insurance Information Institute, said a big reason for the decline is increasing life expectancy due to improvements in medical technology -- a factor partly responsible for the rise in health insurance rates. He said the new mortality tables, which provide data for insurance companies to calculate life insurance premiums, reflect this change.

"When the new policies come out based on tables showing people living longer than they used to, the rates will keep going down," he said.

Weisbart also noted that consumers can now shop for quotes online, leading to more competitive pricing.

The lower rates were a bonus for the Podworskis, who were planning to get life insurance, no matter the cost. Both signed up for 20-year term insurance with Springfield-based Massachusetts Mutual Life Insurance Co. ; they are insured for a little over $1 million combined, which will cost them about $960 a year.

Bob Hurley, a certified financial planner at Rockland-based Stoddard Management Co., said life insurance should be on the minds of couples like the Podworskis.

"The time to start thinking about life insurance is when you discover your wife is pregnant," Hurley said. "What happens if you die, and how do you take care of those you want to take care of if you were to die? That's what life insurance is for."

Laurence Kotlikoff, a professor of economics at Boston University , said many families don't have enough insurance to protect against a death of the main wage earner. According to a study by Kotlikoff and Jagadeesh Gokhale, an economist, published in 2002, more than 30 percent of wives would see at least a 40 percent decline in living standards after the death of their spouse without life insurance.

"Husbands are in charge, they're making all the money, and they're being irresponsible, highly irresponsible," Kotlikoff said.

Dan Galli, a certified financial planner in Norwell , said the conventional wisdom is to insure for at least six to 10 times current income when purchasing life insurance. But, he said, most people don't buy enough.

"Part of the problem is I think people don't want to buy it or think about it," he said. "If anybody's going to suffer economically if you die tomorrow, you need to have life insurance -- at least enough to offset that."

Kathleen and Jonathan Anderson of Sutton, who have been married for almost 10 years, are in the process of rewriting their life insurance with The Union Central Life Insurance Co., based in Cincinnati, as they put together an estate plan after the birth of their daughter, Vanessa, a year ago. The Andersons say they are trying to ensure their daughter's financial and educational future.

Jonathan Anderson, 37, said he and his wife have been working with their financial adviser to figure out how much they need to insure for, although they have not finalized what plan he and his wife will purchase.

The Andersons will be changing their coverage from 20 to 30 years in case they have another child, which will double their premium because the coverage would extend well into their 60s. But the rate is still far cheaper than it would have been a decade ago.

Replacing a policy can be beneficial in terms of cost. Robert Sheridan, chief executive of Woburn-based Savings Bank Life Insurance Co. of Massachusetts , warned the process carries some risk, because most insurers require new health exams. And the people being insured would have gotten older -- raising the possibility premiums could be higher.

And to be on the safe side, Sheridan said, the old policy should be kept until the new one takes effect.

But even after the new plan begins, the insurer could contest the validity of the contract in the first two years of the plan. If the person being insured dies or becomes ill in that period, insurance companies have the right in most circumstances to search the client's medical records to see if any facts were not properly disclosed. And insurance company that finds discrepancies could void the policy and refund the premiums paid.

Craig Waddington, vice president of Massachusetts Mutual , said customers should shop around now to find a deal. Prices will not go down much lower in the future, he said.

"Everyone's getting older," he said. "Term insurance is a good buy right now. I wouldn't be waiting."

Se Young Lee can be reached at vlee@globe.com.