Have you ever been tempted to use those “instant” online quotes to see how much life insurance you could get – for the lowest price possible? Sure, it’s quick and easy… and many times the prices do seem extraordinarily low. But as everything else in life, it’s buyer beware. Let’s take a look at what dangers lurk behind the convenience of online insurance quotes…
Term, Permanent, Indexed… What’s Right For You?
Each person has their own set of circumstances. What’s right for Bob may be totally wrong for Barbara. Life insurance policies come with a wide range of different conditions, benefits and payouts. Will just a death benefit (payable only if you die) be enough for safeguarding your family? Do you want or expect to convert your life insurance into cash value at the end of a certain period of time? What about inflation – will that eat away at the purchasing power of any money you or your beneficiaries expect to receive?
Yes, the online insurance quotes you see will have the raw numbers, but not the explanation behind those numbers. Here are some quick examples of real online insurance quotes:
MALE, age 53, non-smoker
Quote 1: $600,000 term life insurance / $643/month (no cash value)
Quote 2: $500,000 whole life insurance / $643/month (cash value at 10 years: $41,163)
FEMALE, age 35, non-smoker
Quote 1: for $500,000 term life insurance / $175/month (no cash value)
Quote 2: for $500,000 permanent or whole life insurance / $205/month (cash value at 10 years: $14,901; at 20 years: $46,898)
MALE, age 60
Quote 1: $500,000 term to 100 life insurance / $1,023/month (no cash value)
Quote 2: $500,000 term permanent life insurance / $980/month (cash value at 10 years: $56,506)
Now let’s look at the real benefits vs. costs:
For the 53 year old male, a quick look and you may think Quote 1 is the better deal. After all, he’s getting $100,000 more coverage for the same price. But, for a healthy individual, Quote 2 may well be the better alternative – because after 10 years, he’ll receive a nice check for $41,163. By initially choosing the first option, he’ll get nothing.
For the 35 year old female, yes the monthly payment options for Quote 1 are significantly lower. But again, when the insurance term has run its course, the policy will have zero cash value. Quote 2, however, will pay her actually more. The savings she realized by paying less upfront will actually be offset by the cash value! With a cash value of $14,901, this amounts to $117 a month for 120 months, making the second policy $87 LESS per month when all the chips are finally counted.
For the 60 year old, Option 1 is guaranteed to stay in force until he reaches 100 years old. But while the second policy is good only for ten years, it will pay out a tidy sum of $56,506 – enough to finance an annuity for his remaining years!
Life Happens– What Happens When Payments Are Missed?
Life can be funny. Things happen that no one really expects. For instance, at age 45, continued good health may seem a given. But at age 70, Alzheimer’s dementia may set in, and constant care will be needed. Taking care of your own finances will be out of the question. But what happens when your caretakers neglect your insurance payments – either through ignorance or inattention?
If you had term life insurance, after a certain grace period, the insurance would just be cancelled, and you’d be left with no insurance whatsoever. However, with a permanent policy, the monthly payments could come from the “banked amount” of its cash value – continuing the policy in full force.
This isn’t just an exercise in possibilities. Take this real life case from Ontario:
An elderly Ontario woman had a rather substantial four million dollar term life insurance policy. After falling ill, she was moved to a retirement home. Her house was quickly sold and her son took over management of her finances. As is so often the case when someone moves, her insurance company wasn’t notified of her new address. When her yearly insurance statement was mailed to the address the insurance company had on file, it was returned as undelivered.
Of course her insurance agent visited her neighbors, but no one knew where she had gone. After a set grace period, the policy expired. The woman soon thereafter passed away, and then came the real shocker. Her two daughters and son learned that due to non-payment of premiums, the $4,000,000 insurance policy their mother had been contributing to for years was no longer binding. For this familial oversight and mismanagement of a couple of thousands of dollars, an entire fortune was lost. Who’s responsible? It wasn’t the insurance company. They did perform due diligence over and above what was strictly necessary. Eventually, the two sisters ended up suing their brother for the loss of their share of the 4 million dollars.
Could this situation have been prevented? The simple answer is yes. A small change in the policy when issued would have made provisions for an automatic premium continuation, even if the change of address wasn’t duly registered with the insurance company.
What Should You Watch Out For And Consider?
If one online premium seems to be far less than the others, there’s usually a very good reason for it. The underwriting company may not have the reputation you’ll want for peace of mind, or there are other factors not being highlighted which are affecting the price being offered. On the other side, is one online quoted policy far over-priced for the protection you’ll need? This is especially true for the “no-medical questions” asked promotions. Sure, you’ll be issued a policy, but the premiums will be way overboard for the usually minimal coverage offered.
Are you familiar with term vs. permanent life insurance, along with the benefits and conditions of each? Do you really know how much life insurance you and your family will actually need, and not just what sounds good at the moment? Do you know how to make sure your policy remains in force, even if snafus rise up and conspire against you?
The Bottom Line
Online insurance quotes are best used only as guidelines, testing the waters to see what’s available and through whom. But unless you are an insurance agent yourself, it’s more than recommended to sit down and consult with an insurance agent or better yet – a certified financial planner – for expert advice. A certified financial planner can take the totality of your financial life into account, and recommend alternatives that even a professional insurance agent may not be aware of. It’s your money. Make sure you protect it.
Brian Poncelet is an insurance specialist and independent certified financial planner (CFP) working in the financial services industry since 1994. For more information, visit his profile HERE.