Buying life insurance can be so easy today that it’s just crazy compared to 30 years ago. If you’re healthy and don’t have any dangerous hobbies you can quickly and easily get the family protection you need from one of the big on line agencies, a small on line agency like mine, and even your local agents should be equipped to make the process quick and smooth these days.
If you have significant health issues and/or hobbies or avocations that some companies would consider a mortality risk, you can rule out the first and third options as good ways to go in acquiring life insurance. I’m sure the big on line agencies and probably your local agent would disagree, but I’d like to share a little about how both are limited in what they can do, again, in cases where there is some impaired risk or perceived risk by avocation. I’ve worked in all three worlds and have settled where I am for a reason.
The big online agencies are powerhouses of crunching large quantities of business out every day. The best of them are well oiled machines that are fueled by low maintenance business, mostly in the preferred plus and preferred rate classes. They will claim to represent all of the most competitive companies but if they disclosed where most of their business goes, in all likelihood more than 50% would go to one company. The reason isn’t because that one company offers the best value or the best underwriting for more than 50% of their clients. The reason is that they have a compensation contract with that company that pays them a much higher than normal commission if the meet annual business requirements.
Since I’ve never been able to goad any of the big boys into an online discussion of this subject I will just share with you the kind of contract Eterm.com had when I was with them for a few years over a decade ago. At that time they were definitely one of the big hitters. The company that offered the best deal to Eterm was Federal Kemper. Regular street commission on a 20 year term policy was 85% of the first year premium. By steering about 80% of their business to Kemper, Eterm was able to get a yearly bonus that raised that rate from 85% to 135%. This was hundreds of thousands, if not millions of dollars in bonus money. We represented other companies that would have often done a better job for our clients but were made very aware that we were only to use them if a client actually called us on it and said, “but XYZ company has a better rate”.
I was also a local agent for many years with Mutual of Omaha and can tell you that being tied to one company by contract puts you in the same position or worse than the mega agencies. All clients don’t belong with the same company for the simple reason that not all companies underwrite equally.
When something like depression can get preferred rates from one company and standard rates or a decline at another company, it’s because the first company has done their homework and see less of a mortality risk than the competition. One company will charge a private pilot a $3.50 flat extra per thousand while another company will approve them at preferred plus rates. So on a million dollar term insurance policy the $3.50 per thousand equates to $3500 per year. So if companies A and B give you preferred plus rates based on your health that makes the premium $1000 a year, company A will actually charge you $4500 a year so you are covered for aviation and company B will stay at $1000.
Some local agents are independent like we are, but it is a rare local agent that has the nationwide contacts and impairment knowledge to be able to make a living in a small market.
So, how are you best served? Make sure your agent represents multiple (at least 20) of the best companies. Make sure your agent understands (you can tell by the questions they ask) your particular underwriting issue. Make sure your agent shops your case and is willing to show you the responses from underwriters and how they equate to the rates quoted.
Bottom line. The difference from company to company in the underwriting realm is too large to be ignored. Placing your business with the big boys because bigger seems like it ought to be better or placing your business with a local agent because you can shake their hand are not good strategies to get the best results. This is about getting the most bang for your life insurance buck, nothing else.