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Factors to weigh when it comes to life insurance
by Danny Mensh
Our e-mail inboxes and mailboxes are routinely peppered with offers for insurance and financial products at cheap rates from companies that most of us have never heard of, let alone done business with in the past. In today’s world, it has become even more comforting to place our trust in companies or associations with broad resources and proven financial strength and ratings. But it still can be costly to simply trust the name without doing your homework.
Recently, I received an e-mail from a large, well-known international bank that offered to issue up to $500,000 of term life insurance without medical underwriting. It would be a guaranteed issue, other than a few basic questions that included classifying me as either a smoker or nonsmoker. Out of curiosity, I went through the quick online process to obtain a quote.
I plugged in my age, state, height and weight, and answered the basic quick-quote questions. This brought me to a screen where I could choose from $100,000 to $500,000 and 10- to 30-year terms. The cost for $500,000 and a 20-year term for me was $81.58 per month. At first, this sounded pretty good. It would be easy to click a few more times and have a policy show up in a week or so. But would that be financially prudent?
Next, I ran all of the same basic information through a life insurance wholesaler’s Web site. Without any medical history and no cigarette use, my rate for the same $500,000 for 20 years was only $24 per month. The caveat is that I would have to complete a yes-no health questionnaire and allow for a blood and urine exam, as well as a review of my medical records.
To some, giving up this information is a worthwhile hassle, while for others it can be a deal breaker. Many people have a very real fear of medical exams or have quite an extensive medical history, which could prevent them from qualifying for coverage. For those with medical concerns, fear of exams or those who are comfortable with spending more money for convenience, many of these online insurance programs are ideal.
I decided to look at another trusted and powerful group — the United Services Automobile Association (USAA) — and compared some of its rates to those available in the marketplace. I found them to be competitive to the open market for term life, but not quite as good as I had expected. A best-rate female at 40 years old could secure $500,000 of 20-year term insurance for $32.07 per month, compared with $27 per month through independent sources, while a best-rate male at 50 years old could secure $1 million for $174.15 through USAA or $157 from the independent market.
So what does this tell us?
On the one hand, many would assume that the larger association would have discounted rates that are far below what could be secured in the marketplace. But the flip side of this assumption is that due to its glowing satisfaction rates and a loyal consumer base, USAA has many purchasers willing to pay a slight premium when securing life insurance.
Lastly, other associations such as the American Institute of Certified Public Accounts (AICPA), which is based in Durham, have competitive life insurance programs for younger members and even offer credit or refunds to offset some insurance costs.
What’s important to note is that rates do adjust by age, typically in five-year bands. While there might be a fixed cost for a few years, there will always be a jump to higher rates on the horizon.
The bottom line: For those who are healthy and can qualify for preferred rates, it’s best to shop and compare prices across the board. Check associations, groups, banks and online discount offers. Ultimately, the decision might be to move forward with the association coverage, but if it saves 10 percent or more per year to shop around and find the best rate, then it could make a big financial difference in the end.
About the expert
Danny Mensh entered the insurance industry in 1996 and became president of Mensh Insurance in 2007, taking over a family business that has been in existence since 1968. With more than 10 years of experience, Mensh is certified in long-term care and brings an independent approach to discussions concerning life and disability insurance for individuals and businesses. Planning topics range from protecting income due to disability or premature death to estate planning and preservation measures.
Mensh has appeared on radio and has filmed various educational programs on insurance issues, and has written articles in local and regional magazines on the topic. He received a Bachelor of Arts degree from Duke University in Durham and is active in the Duke Alumni Association in North Carolina. He also is a member of the National Association of Insurance and Financial Advisors, National Association of Health Underwriters, and American Association of Long Term Care Insurance. To learn more, call (336) 631-5503, e-mail firstname.lastname@example.org or visit www.menshinsurance.com.