Comparing Life Insurance

Comparing Life Insurance

Life Insurance is NOT a Commodity

Comparing Life InsuranceIf you are deciding between two things and they are identical in every way then the only way to differentiate is on the basis of price. In the world of life insurance how do you differentiate between policies? They all do the same thing right?  They pay a death benefit to your family when you die. Yes, but there are some other important things to consider when purchasing the policy.  Remember that a life insurance policy is a contract between you and the insurer.  And each contract has different language.

I am a self-proclaimed, savvy shopper. I love to shop for a deal.  But I want to get a value, I don’t want to just get a cheap price.  I can pay a low price for an inferior product just like anyone else.  What I want is a great product for a great price.  As a life insurance agent since 1996, I present to you questions for a savvy shopper for term life insurance: Comparing Life Insurance

Does your policy have a rider (supplemental benefit you pay extra for) called “disability waiver of premium?” Comparing Life Insurance

If not, it should. This rider states that, if you become disabled for a certain period of time, say six months, the insurance company will waive the premiums you must pay to keep the policy in force during a period of total disability or illness. For most companies this rider is available up until your retirement age which is usually 65. The specific benefits of disability waiver of premium may depend on the age of the insured at the time the disability begins and the benefit may vary depending on the type of policy such as term, universal life or whole life. Read the contract to know how your policy works. Many consumers do not even know such a provision is available for their policy and I believe many would select this accessory to their policy, given the choice. Likewise, many people do not have sufficient disability insurance coverage in place, so a disability can lead to serious financial problems for the family, including the cancelling of life insurance policies due to the lack of funds. Check your policy to see if you have waiver of premium.

Does your policy have a convertibility privilege (sometimes called an “exchange” option)?

If not, it should. A convertibility option allows you to convert your policy from term to a form of permanent coverage, without having to requalify medically or financially or otherwise. What happens if you buy a 20 year term insurance policy and 8 years into the policy, you find out that your life expectancy is shortened but the doctor thinks you will probably live more than 12 years? You would probably want to have a contingency plan, i.e., a way to keep your life insurance policy in effect for longer than the remaining 12 years of the term without having the premiums increase too exorbitantly. This is why you want to have a convertibility privilege. But here is where we can get tricked as a consumer. Many “cheaper” life insurance policies do, in fact, offer a conversion privilege. But what is the policy convertible to? A good convertible privilege allows you to convert your term to ANY permanent policy the insurance company makes available to the marketplace (universal life or whole life). A bad convertible privilege only allows you to convert your term to a more expensive permanent policy designed specifically for the conversion market. Now, when you buy a 20 year term policy you are probably buying it because you think you will only need the insurance for 20 years and then you won’t need insurance. Or you believe that if you do need the coverage for longer then you can just apply for a new policy and do the whole qualification process at that time. But what happens if your situation changes and you don’t qualify at a good rate or what if you don’t qualify at all? This is where you will read every single word of your existing contract to try to understand your options. If your health changes then the only option at your disposal may be to exercise the convertibility privilege. Be aware of what contingency plan you have in your hands when you buy the term policy. Check your policy to see what the convertibility options are. Call the company and/or your agent to be sure you understand the contract language. Comparing Life Insurance

Is your term insurance with a mutual or a stock insurance company? Comparing Life Insurance

Mutual companies have no stock holders to answer to, they have policy holders. The board members of a mutual insurance company have a responsibility to policyholders as well as to the viability of the company. With mutual companies, the policy holder of a “participating policy” is treated as a shareholder of the insurance company and thus has a say in the direction of the company through voting rights. By contrast, board members of a stock company have a fiduciary responsibility to the stock holders as well as to the policyholders of the company. There can sometimes be a conflict of interest in the shareholders desire for quarterly earnings over the long term viability of the company. This is why I typically recommend mutual company products to clients over stock based insurance companies.

What are the ratings of your term insurance company? Comparing Life Insurance

Ratings can be very confusing and, I feel, misleading. Let’s look at S&P ratings for a moment. Do you know that S&P has 7 A ratings? They are as follows: AAA, AA+, AA, AA-, A+, A, A-. Are you aware that they have a total of 16 different ratings? So a company which is rated as an “A” carrier has actually received the 6th highest rating possible. Be sure to check the company’s ratings and be sure to understand what the rating is and how good it actually is. Also consider using the Comdex rating in addition to a ratings agency for determining which company you choose. The Comdex rating is not an actual rating from an agency. It is a composite score between 1 and 100 of all ratings agencies who have provided a rating.   The agencies used in calculating a Comdex rating are A.M. Best, Standard & Poor’s, Moody’s Investors Service and Fitch and an insurance company must have a rating by at least two ratings agencies in order to be given a Comdex rating. Comparing Life Insurance

So when it comes to buying term life insurance, not all products are created equally. And because we live in a world of sound bites, I think we can sometimes miss some very important aspects to making a good decision.   A good agent will provide you information on the policies and will help you to make an informed decision for your specific situation.  I believe that most people should have disability waiver of premium on their policy. They should buy a policy from a highly rated company. They should strongly consider buying a product from a mutual company. And lastly they should understand what type of contingency planning they have through the convertibility or exchange privilege that is built into the contract. Comparing Life Insurance

Troy Wirth

Troy Wirth has been an agent and financial adviser since 1996. His company, Wirth Financial and Insurance Services is located in Irvine, California. Troy Wirth is an agent with New York Life Insurance Company and a Registered Representative for NYLIFE Securities LLC and an Investment Adviser Representative with Eagle Strategies LLC.  He provides fee-based planning solutions to his clients. Troy is a Certified Financial Planner Practioner® and holds the Chartered Life Underwriter designation.  Wirth Financial and Insurance Services is not owned or operated by New York Life Insurance Company or its affiliates. 17941 Mitchell South Suite C Irvine, CA 92614.  949-854-4695.  Life Insurance is Not a Commodity

about the author

Kimberly Johnson

As a co-owner of Senior.com, Kimberly Johnson is passionate about providing Seniors with the resources and products to live well.  Kimberly is a seasoned caregiver to her family and breast cancer survivor.  Her father battled ALS, Lou Gehrig’s disease, for 13 months before passing.  Today Kimberly lives in Southern California near her 102 year old grandmother, widowed mother, a mentally disabled sister and second sister who is also a breast cancer survivor.  She is happily married to her husband of 22 years and they have 3 children.

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