Is Temporary Life Insurance Necessary?

Checking my Google Alerts today I came across an article written by the guru of Accuquote, Byron Udell. The premise of his article was that you should always take advantage of the temporary life insurance agreement when applying for a new life insurance policy.

He uses the no harm/no foul logic, explaining that if your application is declined or “even if it’s issued exactly as applied for”, when you get the policy you can still choose to not accept the policy and get a full refund. I certainly don’t have any argument with the facts of what’s being proposed, but I do take some exception to what lies buried behind the logic.

As long as there have been high volume on line agencies there has been training in how to set the hook deeper from the the very first contact with a prospective client. After all, landing tens of thousands of new policy owners every year is a daunting task. You can’t, well, you don’t have the luxury of not using closing techniques and everything at your disposal to keep a client believing they’ve already bought, even if there is a refund available. You’ve applied, gone through an exam, paid premium, signed a temporary insurance agreement. Emotionally and psychologically you’ve purchased insurance even though you are still in the application phase. Even when you have some discomfort or buyer’s remorse you will, and they know this, feel as if you’ve already bought the farm.

I’m not suggesting that there is anything unseemly going on, but I think customers need to know that the reason these mega agencies want money up front (and with money it isn’t an option) is that they know from experience that their close of sale to in force ratio is higher if they have your commitment in the bank than if you opt to pay after the policy is issued.

If a potential client doesn’t have any life insurance in force, having the TLIA option is worth considering. There is danger in choosing the TLIA if you have coverage in force that you want to replace with the new policy. There is a tendency with all applicants to assume they will receive the outcome they have been quoted, which is better than what they have or they wouldn’t have applied. Many applicants look at the TLIA as a way to “bind” insurance so they can drop their current coverage sooner. You should never drop old coverage before the new coverage is approved and you know that you are guaranteed to be improving your situation. If an agent suggests using the TLIA as a way to dump your old policy quicker, buyer beware.

Just one other point. The TLIA hasn’t been around for that long and the predecessor was called a conditional receipt. The conditional receipt was restrictive in so many ways that it really wasn’t worth the paper it was written on. Quite a few companies still use this rather than a TLIA, so if you choose to “bind” your insurance application, make sure it is not done with a conditional receipt.

Bottom line. Temporary life insurance agreements are a useful tool in a limited number of situations. Keep in mind that just because you’ve paid doesn’t mean you can’t be declined or they can’t change the price dramatically from the original quote and amount paid.