Buying Life Insurance Right From the Source
Let’s face it, buying life insurance can be a drag. Most consumers assume they must buy it through an insurance agent--and prefer to do so anyway.
But if you are willing to bear the extra burden of shopping for yourself and buying directly from an insurance company, you could save big bucks.
A small but growing number of insurance companies are offering so-called “low-load” insurance policies that carry lower sales commissions than policies bought through agents--if you buy the policies directly from the companies.
The concept of direct marketing has also reached auto and homeowners’ insurance. Firms such as 20th Century, which bypass sales forces and sell directly to the public, have saved consumers hundreds of dollars through reduced commission fees. Buying a no-load or low-load mutual fund can also save you hundreds of dollars in commissions.
Similar savings can be had in life insurance, particularly if you are buying universal life, whole life or another type of cash-value policy that has a savings component as well as a death benefit. Those are the types of policies on which sales commissions are the greatest.
With low-load policies, you will usually save in the form of a lower surrender charge--the part of your premium that you forfeit if you cancel the policy. With agent-sold policies, you’ll usually forfeit most or all of your premium if you cancel in the first one or two years. But with a low-load policy, you’ll likely get most or all of your premium back, says James H. Hunt, a director of the National Insurance Consumer Organization.
For example, for a policy where you pay a $2,000 annual premium (not unusual for someone age 45 on a policy with a $100,000 death benefit), you may get as much as $1,800 back on a low-load policy that you cancel within the first year, Hunt says. But if you cancel an agent-sold policy, you may get little or nothing back, he says.
In effect, the cost of changing your mind is much lower with a low-load policy.
Further, a low-load annuity--an investment contract that allows you to receive future payments, presumably after you retire--might give you a better investment performance in the form of a higher interest rate because fees will be lower.
Low-load annuities can earn as much as 75 basis points more in a year (100 basis points equals 1 percentage point) than standard plans, says Glenn Daily, an independent insurance consultant in New York and author of an upcoming book, “The Individual Investor’s Guide to Low-Load Insurance Products.”
So, even if you eventually go through an agent, at least inquiring about low-load policies can be helpful. “It will give you some starting point, some basis for comparison,” Daily says.
But beware: Low-loads have potential drawbacks, too.
For one, not all low-load products perform better or are less expensive than conventional policies. In the case of term insurance--the type that offers a death benefit only, with no investment or cash-value component--the savings can be negligible. You may be able to find agent-sold policies that are cheaper, Daily says.
Some low-load policies also are available only through financial planners. The policy may be less expensive, but you may have to pay a big fee to the planner.
Also, remember that buying on your own means you must do research yourself. You won’t have an agent do a lot of the shopping, product comparison and hand-holding for you.
And you will have fewer choices. Daily says he has identified only eight companies that offer low-load plans, far fewer than the several hundred offering full-commission policies.
Having considered these drawbacks, where can you go for a low-load plan?
For cash-value life insurance, analyst Hunt recommends USAA, at (800) 531-8000, and Ameritas, (800) 255-9678. Other firms offering low-load, cash-value policies include: American Life of New York, (212) 581-1200; Colonial Penn, (215) 988-8000; Essex (201) 325-3655; John Alden through Fee for Service, (813) 874-5662, and Lincoln Benefit, (800) 525-9287.
For annuities, Hunt suggests starting with USAA. This company has shown some of the highest and most consistent investment returns on its annuities, Hunt says.
Other firms also offering low-load annuities, Daily says, are Essex, John Alden and Lincoln Benefit.
For term insurance, try American Life, Lincoln Benefit or USAA. The latter tends to offer the best rates of the three, although generally for younger customers, Hunt says.
When shopping for these, specify that you are interested in their low-load products, because some also sell full-commission plans as well.
Gail Hillebrand, an attorney in the San Francisco office of Consumers Union, publisher of Consumer Reports magazine, suggests asking several questions: Is there a load? What are the surrender charges? If I only keep the policy for one or two years, how much of the premium will I get back? This is especially important if you are looking for whole or universal life policies, because commission fees can be so huge in the early years, she notes.
If you need more help, consider the booklet “How to Save Money on Life Insurance” ($11.95; National Insurance Consumer Organization, 121 N. Payne St., Alexandria, Va., 22314.)
Bill Sing welcomes readers’ comments and suggestions for columns but regrets that he cannot respond to individual’ letters. Write to: Bill Sing, Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.
