Real life Life Insurance

How hard can it be to buy life insurance, right?  The hardest part is figuring out how much you need.  But once you’ve done that, you go to the agent, tell him/her what you need and they get you a policy.  Simple.  Easy.  Right?
Not necessarily.  You need to decide product structure.  Do you want term insurance, whole life insurance, universal insurance or some sort of variable life product?  Many people feel insurance is a bad vehicle for making investments, which would direct you toward a term-type policy that provides only death protection without any investment component.  But there are certain (albeit pretty limited) situations where a policy with an investment component is better for you.
But let’s say you have decided you need a very simple insurance product.  Perhaps you want a level term contract where you have guaranteed coverage for a period of years at a fixed premium with no cash value.  Do you really need to put much research into acquiring this type of contract?  Aren’t all contracts of this nature pretty much the same?
We have a client who wanted to purchase a level term contract.  We decided to give a few different life insurance agents an opportunity to present proposals for this insurance.  Some would argue the need to do that is unnecessary given the “simplicity” of this kind of contract.  One agent not only refused to submit a proposal, but vigorously chewed us out for asking multiple agents because “this product is so simple all the costs will be the same and it will be a waste of everyone’s time.”
Well, you be the judge of the accuracy of that statement.  The proposals we received from agents who did respond represented 8 different companies.  Of the 8 companies, 5 were rated A+ or better by A.M. Best (the quality of the company is important because lesser quality companies, which have a harder time attracting business, may offer you a more favorable rate to entice you to buy from them.  But you also need to be sure the company will still be around to pay a claim if you die!) The others were rated a still-acceptable A.  6 of the 8 were rated A+ or better by S&P.
Contrary to the assertion of the one agent, there actually was a substantial difference in the quotes we received for this insurance.  This difference derives from differences in how the companies assess the health of the insured (i.e., the risk of the deal to them) and their agent commission structure in addition to other financial variables (company quality, business strategy, etc.)
The cost for exactly the same coverage from each of these 8 different companies varied from a low of $2.30 per thousand of coverage to a high of $3.67 per thousand.  That is a difference of more than 50%!
On $1 million of coverage, that is a difference of $1300 per year for exactly the same product.  And the lowest cost company was the second highest rated of the 8 companies presented!
You would never buy a car without negotiating between dealers.  You would never buy a major appliance or furniture without obtaining several proposals.  The same is true of life insurance – no matter how simple and “no brainer” the policy may seem to be.  If saving more than 50% on exactly the same life insurance product is a “waste of time” as the one agent suggested, then don’t waste your time checking prices.  But from where I sit, a 50% savings is well worth the investment of a little bit of time

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
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2 Responses to Real life Life Insurance

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