I’d like to drop my expensive (term) life insurance policy, in favour of the ones you see heavily advertised on tv. You know the type, $15 month, never increase, cannot be turned down, yada, yada. It would provide the same coverage with quite a cost savings.
So what am I missing? Anyone have any experience with these organizations? Is the extra cost of my current policy just supporting the salesman, or is there some benefit to paying more?
One of the big problems I have with insurance is there would seem to be no way of telling, until someone dies, if they really are going to pay, promptly, or just jerk you around endlessly. If it’s a crapshoot either way, I’m leaning toward saving myself some money, at least.
There is the issue of the financial stability of the insurer, but this is a minor issue for coverage amounts below the state guarantee ($300k in most states).
The bigger issue is what is in the fine print. Lots and lots of exclusions and usually a waiting period. You cannot be rejected, but they will not pay out if you die tomorrow (waiting periods) if you die of x, y or z. The monthly cost may be fixed, but the amount of coverage varies based on your age. And there is a huge amount of upselling going on, once they get you on the hook.
But there are definitely no-frills insurance companies, whose rates can be dramatically lower than the “full service” ones. My bother was an agent, and I didn’t buy from him, because the price his company had was 30% higher than I could get from the largest provider in my state, which has no commissioned agents. But the commissions are not the big cost, at least not for term. My brother left the industry because the pressure to “convert” customers who are interested in buying term life into whole life was huge.
As runner pat notes, make sure you are comparing apples to apples. If you have done so and you want to do it, then do it. Cancel your current policy and take out a new policy.
If you have concerns about the credit worthiness of your insurance company do some research on them. If beneficiary’s have problem collecting on claims, there should be a history of it. Insurance companies (at least in the US) are regulated and are required to maintain minimum capital amounts.
The general rule of life insurance is that the younger you were when you took out the policy, the cheaper it will be for equivalent coverage. I’ve yet to see a violation of this rule, and can’t really imagine it being cheaper to switch unless it’s a “bait and switch”. Luckily my mom and dad took out lifetime guaranteed flat-rate policies for me and my sister when we were born, and I’m paying $5.60 a month for it until the day I die (or until they get a payment a day late and probably cancel the policy–lol, let’s just hope that never happens).
If you put $5.60 a month into an investment account that earned an average of 4% over a 50 year period, you would have $10,692 at the end of the 50 years.
Life insurance is only necessary for your dependents to cover the missing income or increased costs you generate for them in the event of your death. It’s not intended to be a magic jackpot for the beneficiaries upon your death.
An income earner with children or a spouse dependent upon them should have a term life policy equal to approximately 10 - 20 x their annual income.
Once that person is retired or their children are no longer dependent upon them, the amount of insurance needed should go down significantly. Maybe have enough to cover burial costs, etc.
Married couples with a spouse at home taking care of children should consider spousal life insurance to cover the cost of a permanant child care until the children no longer need it, in the event of loss of the spouse.
Whole life policies are typically not good values. It is usually cheaper to have term life insurance and save the difference in the premium amounts.