Unlocking the Mysteries of Term Life
UPDATED: Mar 3, 2020
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EDITED BY AMY DUNKIN
At one time, if you wanted to buy life-insurance coverage,insurance agents and the occasional savings bank were the only games intown. But now all kinds of financial-service companies are getting intothe act, from discount brokers to direct marketers to commercial banks.The explosion of new sales channels gives consumers more choices than ever.It also means they have to make an extra effort to ensure they understandthe options before they buy.
Mostly, companies are peddling variations on term-lifeinsurance, which simply pays a death benefit to your beneficiaries if youdie. But one discount broker, Charles Schwab, is also offering a universal-lifepolicy (which features an investment account as well as a death benefit)and a second-to-die plan (or permanent cash-value coverage that insurestwo lives and makes a payment following the death of the second person).
Most commercial banks, which now sell about one-fifthof all annuities, aren’t marketing traditional life insurance yet. Butthey’re eager to begin. Thanks to a Supreme Court decision last March regardingBarnett Banks in Florida, the likes of Citicorp and First Union will soonbe able to offer policies in most states. The court’s ruling that a statecannot prevent national banks from selling insurance in towns with as manyas 5,000 residents negates prohibitions on bank insurance sales in almost20 states. It also allows banks to use regional offices to sell policiesacross the U. S. as state regulators permit. At least one major insurer,Metropolitan Life, has said it is seriously considering selling its productsthrough banks.
MetLife is one of many insurers investigating alternativechannels to reach baby boomers, who have shied away from traditional lifeinsurance. “Everyone’s experimenting to figure out what will work,” saysBob Baranoff, head of the specialty distribution services unit for LIMRAInternational, a life-insurance trade association. U. S. sales of all typesof individual policies have fallen 30% since 1985, to 12 million last year,according to LIMRA. Unlike their parents, who purchased universal-lifeand other types of cash-value policies, baby boomers tend to save through401(k) plans and individual retirement accounts. When they buy life insurance,it’s more likely to be term.
Insurers and marketers are responding to consumer demandby offering a variety of low-cost term-life products. Indeed, someone shoppingfor a basic term policy today can turn up more than a dozen fairly comparablechoices simply by dialing a handful of 800 numbers or browsing a few Webpages on the Internet.
Of course, direct marketers such as Veritas (800 552-3553)have used toll-free numbers to provide policy quotes and plans for a decade.What’s happening now is more players are involved, and they’re teamingup in unusual ways. Not surprisingly, the Internet is a popular proving ground.
FAST AND FREE. In June, ln-tuit, maker of the popular personal-finance software Quicken, announced that its new subsidiary, InteractiveInsurance Services, is joining with three major carriers, Metlife, Lincoln Benefit Life, and Zurich Direct, on a Web site called InsureMarket (http:// www.insuremarket.corn).By summer’s end, consumers will be able to get price quotes and sign upfor Lincoln and Zurich term-life plans.
Another online service, QuickOuote, has had asite on the Web (https://www.quickquote.com) for almost a year, nabbing Netsurfers with free, instant quotes on level-premium policies that run 5,10, 15, and 20 years. If you want to purchase one, you provide your name, phone number, and address, and Incline Village (Nev.)-based Quick-Quote, which gets a commission on the sale, sends an application in the mail. Its services aren’t limited to cyberspace. Since May, Charlotte (N. C.)-basedFirst Union has been stuffing flyers advertising QuickQuote’s servicesinto statements mailed to account holders. Bank customers call a special 800-number to reach operators who have access to the same database as Web browsers.
What to Ask When Term Policy Shopping
What are the terms of renewal when the original policyexpires? For how long can it be renewed? Can I be denied lower rates atrenewal based on the results of my medical exam? What will the new premiumbe?
Is the term insurance convertible to permanent coverage(whole life, universal life, variable life)?
Is this a level-term policy, meaning the premiums areguaranteed to stay the same for the life of the policy?
Are the insurer, agency, and agent licensed to sell inmy home state? (Check with your state insurance office for a definitive answer.)
Have I been quoted “preferred rates” (the cheaper premiums that require superior health)? What are the criteria for preferred rates? For example, if I’m being treated for hypertension, will the insurer cover me at low premium?
DATA; ELLIOT LIPSOK, FEE-ONLY FINANCIAL PLANNER; BUSINESSWEEK
As banks investigate ways to enter the insurance business,they’re looking over their shoulders at discount brokerages such as Schwaband Jack White. Just as they undercut the full-service brokers with lowcommissions, the discounters are making insurance cheaper by offering no-loador commission-free products with prices on a par with direct marketers.
NUANCES. The problem with this proliferation ofchoices is that comparisons can be tough to make. For example, both SelectQuote,a San Francisco-based telephone-quote service, and QuickQuote offer a 10year, $250,000 term policy from Jackson National Life Insurance for a levelpremium of $300. But what if you are 57 years old and want to convert topermanent coverage when the term’s up? At this premium, on this policy,you wouldn’t be allowed to do that. You’d have to opt for a more expensive($340 annual premium) version of the same policy or a different one. “It’snot tough to decide you want life-insurance coverage. But choosing theright type isn’t as simple as it seems,” says Elliot Lipson, an Atlanta-based,fee-only financial planner and insurance adviser.
Most sellers offer assistance in figuring out the amountand type of coverage you should get. But they may not explain the nuances unless you ask. For example, if you’re considering different term policies andyou know you want to renew when the coverage period is up, comparing premiumsalone is not always the best way to assess cost. Take North American’sPremier Econo 10-year Term. If you bought it at age 40, with a death benefitof $250,000, the premium would be $305, guaranteed for 10 years. When theterm expires and you want to renew, the new premium would be $575 provided you’re healthy and you pass a medical exam. If you develop health problems,you could be switched to an annual renewable-term policy at a cost of $1,145the first year and $1,250 the next. “If you are concerned about not qualifyingfor lower rates at renewal, then you might consider a policy that offersreasonable guaranteed rates at renewal,” says Lipson. Or, consider a policythat doesn’t require medical requalification. Such a policy might be moreexpensive at first, but over time it could cost less if your health deteriorates.
NEW TERRITORY. When picking a policy from a quoteservice’s list, check each insurer’s financial health with a ratings servicesuch as A. M. Best. You want a carrier with strong ratings and a reputationfor treating customers well. Internet shoppers should also know that sellingon the Net is new territory for insurers and regulators. SelectQuote Vice-PresidentSteven Stark says its site (www.selectquote.com) isn’t active yet becauseof concerns that cyberselling doesn’t meet all regulations in states wherethe company does business.
If you’re buying via an Internet service, DavidGlair, Ohio’s insurance warden, advises you to confirm that the insuranceagency, agent, and underwriter are licensed in your home state. Otherwise,if the insurer fails, you won’t have access to your state’s guarantee funds,which are set aside to indemnify policyholders. Or, say you buy a policyfrom an unlicensed agent, you make a claim, and the insurer won’t pay.The usual recourse would be to appeal to your state’s insurance department.But in this case, your state would not have jurisdiction. “Even beforethe Internet, we had fraudulent operators, and this medium is rife for fraud,” he notes.
The result of these burgeoning options in term-life coverageis more low-cost choices. But unless you know what you’re buying, there’sstill no insurance you’ll get the best deal.
A Comparison of Offerings
A 40-year-old nonsmoking man who is 6 feet, 180 poundsand lives in Illinois wants a 10-year renewable level-premium term policywith a $250,000 death benefit. Here are some quotes from direct marketers:
|800 628-3317||Jackson National Prime 10-Year Term||$300|
|https://www.quickquote.com||North American Premier Econo 10-Year Term||$305|
|First Colony Life Colony 10||$307|
|First Penn-Pacific GTO 10||$310|
|Charles Schwab||Great-West Life & Annuity||$335|
|800 542-LIFE||Schwab 10-Year Life|
|SELECTQUOTE||CNA Life-Super Low Cost Term 10||$288|
|800 343-1985||Jackson National Prime 10-YearTerm||$300|
|Midland Life Alternative ST 10-Year||$303|
|North American Premier Econo 10-Year Term||$305|
|The Travelers Special T 10-Year Level Term||$328|
DATA: COMPANY REPORTS
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