DEAR HARRY: I am 36, married with two daughters, in a very good job, with no debts other than a manageable mortgage and car payment. I have been looking for insurance to cover me until both girls finish their college educations. That will be about 17 years from now. I am looking for a term life insurance to cover me for 20 years. The broker I'm speaking with gave me quotes that are higher than what he gave me last year . . . even from the same companies. He said that this has happened to all insurance premiums because of low interest rates. I don't see the connection, but the rates are higher everywhere. I was under the impression that rates have been getting lower because people are living longer. What's the scoop here, Harry?
What Harry says: In life insurance, money has to be held by the company to cover the period between the receipt of the premium and the death of the person insured (if it occurs). This "float" must be invested by the company. If the interest rate on bonds goes down, less money is earned, and the shortage has to be made up by higher premiums. Sure, life expectancy increases will work to reduce premiums, but recently they have not been enough to make up the income shortage. Incidentally, get at least two quotes, because rates can vary by almost 50 percent among good companies. And my standard of company safety: Make sure the company you choose writes the policy you choose on New York residents.
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