The Term Life Insurance Quoting Game

This one is intended for the consumers out there.  Ever tried to compare term insurance rates across an array of different carriers?  Ever wondered why some are consistently so low while others are incredibly more expensive?  Ever talk to an agent who seems to throw a bunch of numbers at you without a lot of explanation why one might be better than another?  Term life insurance seems like such a simple product and yet a lot of agents can make it so painfully difficult to buy.  Why?  The truth is, despite all the advice to the contrary from the non insurance licensed (yet apparently knowledgeably enough to offer you advice, which might violate individual state insurance law) term is not term is not term is not term.  There is a fair amount of subtlety to the product that differentiates one carrier from another.  What nuance among carriers do you need to keep in mind?  4 Things:

  1. Features
  2. Company Underwriting
  3. Company Financial Strength and Structure

Features

Most people have a hard time wrapping their head around the notion that Term life insurance could be anything more than paying a premium to guarantee a death benefit for a certain period of time.  Sounds like something only a life insurance salesman would say.  But hold on a minute.  There's a credibility behind the notion that not all term products are the same.  They'll all hit the major point, if you die while the policy is in force the insurance company pays a death benefit you a named beneficiary.  But what about other avenues that might come up later in life?  Things like continuation of the policy after the level term period is over, the accelerated death benefit, convertibility, etc?  Honestly it's not a huge array of considerations, but a lot of them are pretty important to at least mull over a bit before pulling the trigger on one policy.

Continuation of coverage is rarely considered.  In fact, I'd wager a lot of agents don't realize some companies will not allow their level term products be carried on after the level period is over (say nothing about the knowledge consumers have regarding this).  It's true though.  And while we're on the topic of continuation, ever term product can be illustrated.  If it is possible to continue coverage (although at a much higher price) what does that price schedule look like?  These rates are based on mortality tables, but the insurance company has some discretion in terms of how much they can charge.

Accelerated death benefit is a big variable in term products as it's a huge benefit you might actually end up using at some point.  Some companies only offer a trigger on this benefit if you are terminally ill, others will kick in benefits for chronic benefits.  The problem agents and consumers run into is believing that all companies will offer the same benefit on their permanent and term products.  Not true.  Some companies only offer their accelerated benefits on their permanent products, while others offer different (usually less attractive) benefits on their term products.  A lot of the classically cheaper term carriers are not known for their strong accelerated death benefits, and this makes sense.  You are getting the discount on premium because there's something missing.

On the conversion side, this too is a feature that varies a lot among carriers.  Some term policies are only convertible for a few years, others for the entire period of the term.  Some term products are only convertible to certain permanent products the insurance company offers, while others can convert to all products currently available.  Again, some companies have lower rates than others, because something is truly missing, your ability to convert to a permanent product if you want or need to.

Features can be based built in or added by rider.  How you get them isn't all that important, but what is important is making sure that you are comparing products with similar features.  A lot of agents and insurance companies employ their magician's skills by partaking in a little slight of hand when it comes to this.  Like a contractor hoping to keep your attention away from the fact that they omitted a key piece of service from the scope of work in your RFP so they can hit you with that little surprise later, not everyone else there is interested in comparing apples to apples.

Underwriting

I can't tell you the number of times someone has brought a “quote” to me that some insurance agent ran at Super Preferred.  I understand another term for insurance salesman is Field Underwriter, and we all have manuals from each company that details how they are likely to underwrite a case based on certain factors, but the top risk class should never be quoted, I don't care how impressively healthy you are (at one time I wasn't eligible for top rates at certain insurance companies because I didn't weigh enough).

It's very nice that Company X is the most competitive at $1 million dollar cases for super preferred cases, everyone is, because so few cases get issued at Super Preferred.  And if you're agent give you a quote at Super Preferred, you should be ready for a disappointing application process.

It's a good idea to drill into specifics about company practices.  What company is most likely to give you the best underwriting rate, and is their best necessarily cheaper than someone else's standard or standard plus.  This isn't easy to sort out on your own, and this is where the agent needs to earn his or her keep.  This is also why independent agents tend to have the edge.

Sometimes labels aren't what they seem.  What what company calls preferred, might be known as standard plus at another.  Or, some companies may not have certain risk classes (i.e. instead of Super Preferred, Preferred is their highest underwriting risk class).  If you're comparing multiple quotes it's important to know roughly what you are being quoted across companies.  This sometimes is not easy information to obtain, but any competent agent ought to be able to decipher for you.

Financials

Financials is not a topic I want to make out to be a huge deal, but it holds a degree of importance.  There are some tiny life insurance companies out there that can be difficult when it comes to doing business and being a client.  It's also typically pretty good to work with a company that is well capitalized and doesn't resort to underhanded practices when it comes to daily business.  I don't hide the fact that I have a degree of discontent and apprehension over doing business with Reliastar (aka ING) over the Health Ledger incident.

So, Term life insurance has slightly more complexity to it than most realize, especially at first glance.  Collecting “quotes” on term insurance is pretty meaningless if you don't know what you're doing, and a good independent agent can get you far.  Look for one who is willing to go through the pases.  Contrary to the myth championed by some of the Term-ites Term life sales pay an agent relatively well, so don't be afraid to make an agent earn it.  If you have questions, or would like a second opinion, we're more than happy to help when we can.


One Response to “The Term Life Insurance Quoting Game”

  1. […] Re: Whole Life As a Retirement Plan?         Go to Top        Probably the two best cheaper term carriers out there with really high quality convertible term products are Ohio National and SBLI. Banner actually had a pretty good UL with a solid guarantee on it. The big thing to keep your eye on is the length of the conversion period. This has been cut back a bit in recent years. Oh and hey, Term was the topic of the most recent post on the Insurance Pro Blog […]

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