Ideas, tips and news about life insurance and the uses of life insurance

You’ve made the decision to purchase life insurance and you thought, “I’m going to simplify this process by researching and  making the purchase online.”  However, when you Google the words “life insurance,” or “life insurance quotes,”  you are presented with many choices.  You were looking for a simple solution, so how can you simplify the process?  The first step is to gain an understanding of the types of life insurance websites on the Internet:

• The Broker:  This is most efficient way of purchasing life insurance.  You enter a little information and the web site’s quote engine will give you several choices, based on your information.  If the quote takes into account health questions (e.g. blood pressure, cholesterol, family history, etc.), your quote will probably mirror the insurance companies’ underwriting guidelines and will most likely be closer to the final premium determined during the underwriting process (the actual premium may vary from the quote if other medical and/or lifestyle information comes up in the process).

• Insurance Company:  A few insurance companies have their own web presence and even offer quotes on their websites.  In most cases, your information will be forwarded to agents or brokers who will contact you.  Many people go direct to an insurance company’s website, thinking the premiums will be less expensive than going through a broker.  As the premiums are set and filed in every state, the price is the price, no matter who you purchase the policy through.  The downside of going through insurance company sites is that you will have to go to many different sites to comparison shop several companies.

• The Lead Generator:  These websites generally don’t give you instant quotes.  They will require that you complete an online form and will forward your information to one or several agents or brokers, who paid the lead generator for your information.  You can usually expect several phone calls from these agent/brokers, as they are looking for a return on their investments.

• The Lead Generator Aggregator:  This is my least favorite of the online options.  With this type of website, you enter your zip code and a list of companies comes up.  Usually, it’s a combination of brokers, insurance companies and lead generators.  You now have to sort through all the offerings and see which one you’d like to use.  It’s basically a duplication of websites you can find yourself in Google (or Yahoo or Bing) and will only add to the time spent shopping for life insurance.  There has recently been a rash of these types of websites popping up out of nowhere.  Most, in fact, are owned by the same company.

I would recommend checking out several broker websites and work with an established firm with a process that simplifies the shopping experience for you.  Several websites, including LifeInsure.com, meet these requirements.

I have had several clients ask me recently about the Medical Insurance Board (MIB), so I thought I’d give a brief description of who they are and what they do.

MIB Group is a membership corporation owned by member life insurance companies in the United States and Canada.

They maintain a database for member companies to exchange confidential information of underwriting significance when an individual applies for life, health, disability income, long term care or critical illness insurance.  This information is maintained and safeguarded in a coded format that is accessible only to authorized personnel of a member company to which you have applied for insurance and have authorized the company to use MIB as an information source.

How does your information get into your MIB file, you might ask?  When an application is made to an MIB Member company, any information that is of significance to health or longevity (whether admitted on the application or discovered during the underwriting process) is sent to MIB by the Member company in a coded, encrypted format.  Use of these codes ensures that the confidential information is protected.

What does an MIB file say about you?  Coded information identifies medical conditions or medical tests that are reported by MIB members to MIB under broad categories.  There are also a few codes that are non-medical.  Those codes report potentially hazardous avocations or hobbies, or results of a motor vehicle report showing a poor driving history.  MIB has no actual “reports” or “medical records”on file, only the coded “resume” provided by the Member.

What do these companies do with your information?  Authorized underwriting personnel of the Member company review the application information provided by the person applying for insurance and compare it to what is in the person’s MIB file.  The information in the person’s MIB file is used only as an alert.  No underwriting decision can be made solely on the basis of a coded report, such as issuing a policy with an extra premium or declining to offer coverage.

How can you find out if you have an MIB file and what information about you it contains?  The federal Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003, allows a consumer to request free disclosure of his or her consumer report annually.  Only you can request an MIB file on yourself.  If you are a US resident, call MIB’s toll-free telephone number – 866-692-6901 (TTY 866-346-3642 for hearing-impaired) to request disclosure of your file.  You will be asked for some personal identifying information  so that your record can be located, if one exists.

I don’t know when it happened for me, but I think it was about 3-4 years ago when my online purchases outnumbered the purchases I made in a typical sales environment. It is now rare that I don’t at least do some comparison shopping online before I make a purchase (as I did recently when purchasing a new car). I love the convenience (don’t even get me started on shopping for clothes in a mall) of sitting at home or work (during a break, of course) and doing my research and, ultimately, making the purchase online. I even get excited when the UPS man makes the delivery.

When we started our life insurance website six years ago, after having sold many policies over many years in the manner (in my clients’ homes or offices), we were excited about the prospect of simplifying the life insurance buying process. We started out wanting to create such a website where people could research different types of policies, estimate their needs and search a database of life insurer’s quotes (anonymously), and ultimately leave us their contact information so we could follow up with a phone call and conduct the sale transaction over the phone in much the same fashion as we did in their homes and offices.

While many people still want to have these discussions (in person or on the phone), we have found there is a large portion of the population that would prefer to conduct their business solely via the Internet. While we are always more than happy to discuss life insurance needs with a prospective client, we now know that in order to accommodate the Internet-Only Folks, we need to automate as much of the process as possible. You can now learn about life insurance, compare quotes from the major insurance companies, begin the application process and schedule the required medical exam all with a few keystrokes and button clicks. Of course, if a person has questions or concerns that need to be addressed, our representatives are always available via telephone or email.

We are looking forward to making improvements to our process in the near future to the end of a fully automated system. To that end, we will be conducting surveys to find out what people need and want in this experience. Once we have compiled this data, we will incorporate changes (that are technically possible) to the system that fill these needs and wants. And to all those who still want to hear the voice of an experienced insurance representative, we will always make that available to those who don’t want a Fully Automated system.

The cost of life insurance, specifically term life insurance, has been at historic lows for the past several years. I believe that anyone who has secured term insurance, especially with terms of 20 and 30 years, has gotten a real bargain. Insurance companies have been jockeying around for competitive position and the consumer has been the real winner.

We have seen several companies increasing their premiums and/or removing longer term periods (30 years) from their product lines. Others have removed popular products such as Return of Premium Term life insurance. We’re even seeing some tightening of the permanent life insurance market, with many carriers raising their premiums.

If you need life insurance, I truly recommend that you purchase it soon, as we expect the market to tighten some more, resulting in even higher premiums. We’re not getting a lot of advance notice about increases, either. Your may have received a quote and submitted your application, but the insurance companies are giving very little grace period to the increases.

If you have a group policy at a job that will be phased out soon, look into replacing the group policy as soon as possible. It will probably save you some money in the long run.

During an economic downturn, many families look for ways to reduce or cut expenses. Perhaps your daily latte is the first victim of your budget cutting. Maybe you’ll start carpooling more and renting videos instead of going out to the local movie theater. Or perhaps, according to a recent article in the Pittsburgh Post Gazette you might be like 27 percent of families that would or have canceled their life insurance policies.

While most would survive without the daily lattes and watching movies at home doesn’t have quite the excitement of seeing the latest blockbuster on the big screen, canceling a life insurance policy could prove to be a recipe for disaster, according to the LIFE Foundation. “Without life insurance to replace the income a family depends on, they are going to be worse off than before,” said Marvin Feldman, chief executive officer of the Life Foundation in Arlington, Va., a nonprofit insurance education organization.

Before you cancel your life insurance policy, you have to ask yourself the difficult question, if times are difficult now, what would it be like for my family if I were to pass away and leave them without the financial protection of a life insurance policy?

Rather than eliminating life insurance from your budget, perhaps you can look at ways to reduce the premiums you pay. Term life insurance premiums are at an all-time low. When was the last time you researched rates? Maybe you can reduce premiums by purchasing a new policy and replacing your old, more-expensive policy. A review of your current needs might also reveal that you are over-insured and should purchase a policy with a lower benefit or shorter term period.

Include life insurance in your revised budget and you will be keeping a very important safety net in place for your family. And if you save money by finding a lower-cost policy, celebrate and have that latte.

We will start answer questions we get emailed in or left in comments, please feel free to leave any questions below.

Question: Are insurance companies likely to fold in the USA?

In the United States, insurance companies are regulated as to the type of assets that they can invest in and have strict requirements for reserves.

This does not guarantee solvency but has proven to be a successful system. When life insurance companies have failed so far, another company has typically taken over their obligations and policies.

Even the AIG life insurance companies should be fine as they did not take the risks, the parent company did and each life insurance company stands on its own.

I do suggest that one look at the financial strength ratings from AM Best, Standard & Poor’s, Moody’s and Fitch. Look for an A+ or better rating from AM Best and an AA or better (Aa from Moody’s) from S&P and Fitch.

There’s also an interesting article from forbes.com on this entitled “Safety in Numbers.” http://www.forbes.com/forbes/2008/1013/060a.html

With the turmoil in the financial markets, the question has come up about the financial stability of life insurance companies.

Life insurance companies are regulated as to the type of assets that they can invest in and have strict requirements for reserves. This does not guarantee solvency but has proven to be a successful system.

Very few well run life insurance companies have had solvency issues.

When life insurance companies have failed so far, another company has typically taken over their obligations and policies. Even the AIG life insurance companies should be fine as they did not take the risks, the parent company had the difficulties. Each of the subsidiary life insurance companies stands on its own.

I do suggest that one look at the financial strength ratings from AM Best, Standard & Poor’s, Moody’s and Fitch. Look for an A+ or better rating from AM Best and an AA or better (Aa from Moody’s) from S&P and Fitch.

There’s also an interesting article from forbes.com on this entitled “Safety in Numbers”. This article makes the additional case for getting one’s life insurance from a mutually owned (owned by the policyholders) insurance company.