Which Insurer Will Treat You Best?

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I finished two cases in December that each took over half a year to wrap up. Very unusual. They had other similarities too: minor health issues, over insured by major insurers, with young children yet oblivious to Social Security survivorship benefits, and best of all, their improvements were outstanding. These type of improvements motivate me.

The first client was a pharmacist with a State Farm $750,000 20 year term, issued nine years ago, costing 140/month, and rated table 2. His health condition had improved so we asked State Farm if they might reduce the rating, but they would not. I have my auto and homeowners insurance with State Farm, but they are no leader in life insurance. We first right sized his policy since he had young children with substantial Social Security survivorship benefits he did not know about. His assets had increased and debt reduced since he purchased the policy and he and his wife felt comfortable reducing it to $500,000. The new 15 year level premium policy (four years longer than the current one) was issued at Standard Plus for $505/year. He’ll save nearly $1200/year.

The second client was a young engineer whose pharmacist wife had a Northwestern whole life policy with a large loan. A Lincoln life agent was encouraging her to roll this into an annuity. The agent had sold each of them a $1.5 million term policy, and after carefully evaluating their survivorship goals and how they were already self-insured through current assets we reduced her coverage to $500,000 and his to $750,000. We also reduced the Northwestern to shrink the policy loan. Its cash value was earning an attractive dividend interest rate, and putting it through the commission ringer for the annuity unnecessarily whittled down its value.

Lincoln would not permit her to reduce her current policy which was excessive as per their goals. The engineer’s weight was a tad above the guidelines for the best risk category, so over several months he dieted to get below the threshold and ended up getting Preferred Best rates. I directed him to an insurance brokerage company representing many companies. The best risk category with a super competitive term specialist, along with rightsizing the policy, saves them $1440/year on term premiums, while reducing loan interest to Northwestern, and avoiding annuity commissions.

Periodically ask yourself– how did you came up with the amount of your policy? do you understand Social Security survivorship benefit? and have things changed? One last similarity: they will each save my fee back 1.4 times per year for many years, likely totaling 18K for one and 30K for the other. That’s a 140% annual after-tax return on their fee.

Neither the “Good Neighbor” company nor the one named after America’s favorite president served these clients as well as a specialist whose name you wouldn’t recognize. Knowing which insurer will treat your risk factors best and how to put your best foot forward is why there’s no such thing as a “good” company for all insureds. The risk category you are assigned can make a “good” company not so good after all.

Is Employer-sponsored Voluntary Term Life Insurance a Good Buy? – Case Study #6

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I just finished a case with an officer of a large company who had most of his life insurance through his employer. They paid for an amount equal to 2X salary; he paid for another 5X. Like a convenience store, employer sponsored life insurance makes it easy to buy: proximity, no full blown physical, check the box, and payroll deduction. However just like a convenience store, it’s not cheap.

Often 2X or 3X salary are offered “guarantee issue”, meaning there is no health screening at all. This invites higher risks. Those who sign up first often have an insurability problem – diabetes, DUI’s, obesity, smoker, etc. Insurers call this adverse selection and to provide for the inevitable higher claims they must charge more.

Even higher levels of coverage require only an abbreviated health questionnaire, far less rigorous than for an individual policy with its paramedical exam, blood testing, requesting medical records, etc.

Therefore rates charged under voluntary plans at work are always higher than favorable rates for an individual policy. I don’t just mean higher than the best risks, but also higher than the mild-hypertensive, slightly-elevated-lipids, or two-speeding-ticket risks.

If you have a major health issue, employer-sponsored life insurance may be a good buy, but if you don’t you can probably do better.

Here are some other advantages of individual policies. Most employer sponsored term plans have five-year rate bands with rates increasing at age 35, 40, 45, 50, and so on; most individual term policies have level premiums for 10, 15 or 20 years. Term insurance through work usually ends at retirement or termination of service; an individual policy goes with you regardless of employment.

One touted advantage of group life insurance is that $50k or less can be paid with pretax dollars. This small tax advantage is usually more than offset by the higher premium rate.

The popularity of employer sponsored plans is understandable. A new employee dealing with an avalanche of paperwork finds it easiest to check the box without fully understanding alternatives. Because it’s then automatically deducted from their paycheck before even seeing it, this out-of-sight-out-of-mind but ill-conceived financial tool can roll on for decades.

Remember the step that precedes all this is choosing the appropriate amount. Though buying in multiples of salary is a reasonable way for an insurer to administer a group life plan, it’s not the way a consumer should choose an appropriate amount of life insurance.

Also remember the new policy should be approved and in force before discontinuing voluntary insurance at work. Many people think discontinuing group term can only be done once per year during open enrollment period, however this time restriction does not apply to group life insurance over 50k .

After an amount is determined, then the most competitive individual term policy should be chosen, considering the nuances of your health. A duration needs to be chosen. If you need help in the process, that’s what we do