Term Life Insurance: the smart way to shop, avoid mistakes, and save money, Part 1

If you now or will have, any loved one relying on you being around to bring home a paycheck, you need your own term life insurance policy. Life insurance coverage through work is not enough, and may not be there when you need it. It’s not just insurance agents thinking you need an individual term life insurance policy: You won’t find anyone educating people about personal finance, be it Suze Orman, Dave Ramsey, or the money columnist of your local newspaper, not recommending term life insurance. So, you know you need term life insurance, or maybe you bought a policy a few years ago and need it reviewed. How do you shop for proper advice, good rates, and the right policy? How do you avoid a high pressure sales pitch? Similar to auto & home insurance, term life insurance rates can be more than double the price with some life insurance companies, for the same amount of coverage, as other companies. But unlike auto & home insurance, going to the major insurance company websites to get online price quotes, or to find a local agent, is not a good way to shop for term life insurance. In fact, the most obvious places for people to get advice and price quotes, can lead to paying too much for your term life insurance policy, or even worse, lead to you making a costly mistake, by being convinced to buy a permanent life insurance policy, annuity, or investment product you’ll later regret. Part one of this blog series will discuss where NOT TO SHOP for term life insurance.

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1. Don’t contact your auto or home insurance company or agent for life insurance.

Companies like State Farm, American Family, Liberty Mutual, Allstate and all the other auto & home insurance companies, can be a good choice for insuring things like your car, house, boat, vacation home, motorcycle, etc. but these companies rarely have competitively priced term life insurance, their agents lack expertise in life insurance, and they sell the term life insurance of only a single company.

The large auto & home insurance companies have uncompetitive term life insurance rates.

I checked term life insurance rates for a $500,000 20 year term life insurance policy, for a 35 year old male non-smoker with above average health (Standard Plus). I first looked at the very best health rating, but there were not enough of the large companies known for their home & auto insurance in the sample. Change any of the variables of age, sex, tobacco, health class, amount of coverage, and the companies with the best & worst rates change. This is a random choice, so I’m not cherry picking the results to prove my point.

The lowest priced company was Metlife at $429 a year.

AAA Life Insurance Company is $470 a year.

State Farm is $560 (Preferred) or $750 (Standard) per year.

Lincoln Benefit Life Company (sold by Allstate) is $580 a year.

Now Metlife, through Metlife Auto & Home, is a major national car & homeowner insurance company, but it’s primarily a life insurance company. However, if you look at the standard rates for this same person in the example, the lowest priced company is Ohio National Life Assurance Corp. at $520, and Metlife is $614. So don’t think Metlife is a short cut to good rates.

Agents selling auto & home insurance don’t have expertise in life insurance and are usually limited to one company.

Many auto & home insurance companies push & incent their agents to sell financial products, like life insurance. But many of their agents are not comfortable with products outside of home & auto insurance, so many agents do as little as possible with life insurance. However, you’ll find some auto & home insurance agents doing everything they can to get you to sit down and sell you a life insurance policy or investment product. Some companies, like Allstate, have a financial specialist working with their agents to sell financial products for them.

A common professional designation, used to convince you of life insurance expertise, is something called the Life Underwriting Training Council (LUTC) fellow, and it’s not uncommon to see the letters, “LUTC” on an agent’s business card, after the agent’s name, like you would see CPA after the name of a certified public accountant. However, the LUTC is primarily a sales training program, so don’t rely on it to prove expertise or commitment to ethics as a fiduciary.

Term life insurance is a simple product, and it’s far from rocket science, but true expertise benefiting the customer comes from knowing the market, and being able to work with many companies. For example, an independent agent specializing in term life insurance knows and can work with the best companies for vegans, tobacco users, overweight people, or diabetics. If you have any heath issues, most of the auto & home insurance companies will decline you for life insurance, where an independent agent can most likely find a company willing to accept you. When your State Farm, Allstate, or Farmers agent quotes you term life insurance, they usually have only one company they can use.

2. Avoid agents working for one of the major life insurance companies, such as Prudential, Ameriprise, MassMutual, New York Life, Metlife, Northwestern Mutual or Primerica.

These agents are called captive agents, and may represent only one company. Sometimes they can sell for other life insurance companies, but there is a lot of pressure and incentive to sell for the one company they have on their business card. As you can see from the term life insurance rate examples above, companies like Metlife can sometimes have competitive term life insurance rates. But these companies do not want their agents selling term life insurance. They want their agents to make an appointment to meet with you, sit you down, give you a presentation & needs analysis, and talk you into expensive permanent life insurance as a savings plan, or to fund your child’s college education. With Northwestern Mutual or NY LIfe, you’ll get a pitch for whole life insurance. Primerica recommends term life insurance, but it is rarely competitively priced, they’ll want to sell you an investment product with high fees, too, and they will want to recruit you to sell for Primerica. Primerica agents are mostly part-timers with little life insurance industry knowledge, operating as multi-level marketers. If you sit down with any of these agents, you’ll be lucky if the worst thing that happens is you pay too much for term life insurance.

3. Don’t use friends or relatives with less than two years experience as a life insurance agent.

I know people trust and want to help out their friends and family starting in the life insurance business. Life insurance companies know it, too, and are constantly hiring new agents, knowing over 90% will move on to different jobs, once they run out of people they know to whom they can sell life insurance. Buying term life insurance from your nephew won’t be a financial disaster for you, but you’ll have to sit through a sales presentation, accompanied by your nephew’s sales manager or mentor, and they will steer you toward permanent life insurance, annuities, or investments you or your nephew aren’t likely to fully understand. You’ll hear the pros, not the cons. Did they mention the large surrender charge? Probably not. You can insist on buying term life insurance only, but that won’t help your nephew keep his job.

4. Avoid life insurance agents not willing to quote you over the phone. Don’t sit down with any agent until you are ready to buy a term life insurance policy.

This is true of all agents, whether they work as a captive agent for a major life insurance company, work for Allstate, State Farm, American Family, etc., or as an independent life insurance agent. An agent’s goal is to qualify you as a prospect and try to meet with you. If they can meet with you in person and give their sales presentation, they are more likely to close the sale. It also helps them steer you toward the life insurance they prefer to sell you, if it’s something other than term life insurance. If it’s Northwestern Mutual, and you can afford it (By the way, they won’t want to meet with you, if you can’t afford it), you’ll hear an hour-long presentation on the virtues of whole life insurance. If the agent knows how to do his or her job, you’ll be convinced it’s the best thing in the world for you. Ameriprise may recommend you buy a universal life insurance policy to save for your child’s education and also meet your life insurance needs. I’m not saying either of these products won’t work for you, but they are complicated products requiring unbiased research before buying, because many people lapse these types of policies and lose money.

Even an independent agent selling term life insurance to pay off your mortgage wants to meet with you, and it can be awkward, because they don’t want to leave your home without a check. No agent meets with you to give information for you to think about and maybe buy later. I had a relative meet with an Ameriprise representative for “financial planning.” My relative told the representative they wanted to think about it. My relative was a bit unnerved, because the representative wouldn’t leave, and said he would wait outside while my relative and her spouse discussed and “thought” about it. The representative did not want to leave without a completed application and check.

Term life insurance is simple enough to be discussed and quoted over the phone. Other types of life insurance and investments are not. Term life insurance can be applied for by phone and through the mail, but if you prefer to do business face-to-face, wait until you are ready to buy, before you meet with a life insurance agent.

Now you know where not to shop, part 2 will tell you how to avoid making mistakes buying term life insurance. In the mean time, paying less for your auto & home insurance can help you afford the term life insurance you need. Many people pay too much for their auto & home insurance because they never shop for better rates, or if they do shop, they don’t check the rates of enough companies. For a lot of people, the best insurance company is the one with good coverage and the lowest rates. The ad below will take you to links to get online quotes from leading Home, Auto, Health, & Life insurance companies in your area. Choose the type of insurance, put in your zip code, and start shopping now!

Have you had any terrible experiences with life insurance agents? Tell me about it. Comment on my facebook page. If you have questions and would like my help, you can reach me at help@smartshopyourcarinsurance.com. Follow me on Twitter for important insurance consumer news & new blog entries at CarInsWatch.