As we've discussed in more than a few articles, term life insurance has really become somewhat of a commodity.  Just like rice, or corn, or aluminum, this should tend to make the marketplace more transparent and bring variability in rates down across the various carriers.  Indeed, this has happened and it's been accelerated by the internet and the ability of shoppers to price shop many term life plans and carriers side by side.  All in all, it's been a very good period for term life shoppers.  That being said, when you run a standardized quote (say $250K for 10 years base on a given demographic mix of age, area, and gender), you'll get different rates from the life insurance carriers.  Some may be only a few dollars apart but if look at the lowest versus the highest rate given, it can be 20% swing.  What gives?  Why are some more expensive and are those plans offering you additional benefits that don't immediately make themselves clear when running the quote?  Good questions.  Let's take a look at why term life insurance rates quoted online are different from each other.

The term life product really is fairly simple and there's not a lot of differentiation to be found in the core product.  Why would one company's rate be 10% lower or higher than another company's rate for the same exact product design (say $250K at 10 years)?  There are a few variables that come into play...some of them legitimate and others less so.  First, a term life carrier will price it's plans based on three core variables:  claims experience; it's derivative - claims expectation; and desired margin over expense/reserves.  Let's look at each of these and see if there's a hint to our original question of pricing variability.

It's not uncommon to see a carrier tighten or loosen underwriting (the front end qualification process based on health) depending on how claims come down.  Each carrier has a model of what they think claims will be.  These are sophisticated mathematical models aimed to project mortality based on given health and demographic make-ups.  If a company over-shot and were too conservative, granted this may be good in that their claims experience was low but they also lost business to other carriers  (potentially good, low-risk) business by being priced too high on the market.  You might see their pricing stay the same or reduce for new business going forward into the next cycle.  The opposite is also true, they may have underpriced their product based on faulty models  The knee jerk reaction can overshoot any middle ground and lead to higher premiums into the next pricing cycle.  So these two variable result from the fact that pricing life insurance is an imperfect science owing to the variability of people.  That's not going to change.

There are also business strategies that might push a given company's term life insurance rates (maybe even on certain term periods and amounts) higher or lower.  For example, a carrier might offer longer term periods but really doesn't want to be in that segment of the market.  They might price their plans higher figuring...if we get customers at that higher rate than fine but we don't really want to pursue it aggressively.    On the the other hand, a company may really like the risk/reward probability of certain amounts and periods which leads to a more aggressive pursuit (via rates and marketing) of those term life markets.  The company in general may want to "buy the market" by under-pricing plans in the short term to generate additional revenue.  There are all sorts of reasons for the pricing variability, very few of which have any concrete effect on  the shopper with one caveat.  You want to make sure that the life insurance carrier is financially stable with a long track history.  If that's accounted for, go with the lower priced plan and leave the variability to mathematicians.