You’ve probably done some research and have a good idea who the top rated life insurance companies are based on type, riders, and options. But, maybe you’re still questioning some things. That’s good, because we’re going list the top 15 secrets life insurance companies want hidden from the average shopper.
Let’s get into some inside information that many of these life insurance providers do not want you to know.
15 Secrets life insurance companies want hidden
At Life Insurance Blog, we want to give our clients the very best information and create lasting relationships built on trust. We believe you deserve to know the top secrets that life insurance companies try to keep hidden from potential customers.
Let’s face it, you are looking for life insurance to protect your family from a financial disaster. What you might not know, building financial security for your family and loved ones can be a little daunting because even the top life insurance companies have their little secrets!
Read on and find out what life insurance companies do not want you to know.
1. Buying direct DOES NOT save you money, but could COST you more!
Understand, all life insurance companies have online sites, agents, and call centers to provide quotes to those shopping around. What they do not tell you, their online quote systems will only provide you with half the information you need. They do not tell you that the quotes are only a small part of what is actually available to you.
Many of these quote systems will only provide a select number of companies to choose from whose rates are much higher than other companies. The problem is, you will never know the difference because they will have you believe you are getting the most affordable, best quotes on the market!
Bottom line – Untrue!
Another trick by these companies, they will give you a sample rate to show you how really cheap life insurance can be. What they leave out, these quotes are only good for people they have ranked as “Preferred Best” ratings. That means unless you qualify for this rating, you will never get the best quotes.
With every change in your rating classification, another 25% will be added to your premium. You have less than a 5% chance of being qualified for a “Preferred Best” rating based on industry statistics.
2. Best Advice : Use an INDEPENDENT agent, not a CAPTIVE agent!
Did you know that life insurance agents are not the same. Some are quite different.
Typically, there are 2 types:
To summarize, a captive agent works with 1 company and only offers the products from that single company. An independent agent doesn’t work for a company, but has access to multiple.
Make sure you use an independent agent who can shop your case from dozens of companies like Life Insurance Blog. Shopping with multiple companies will make sure you’re getting the best deal available.
Just because a company has a well known name doesn’t necessarily mean they’re right for you. Don’t focus just on a familiar name. If they’re familiar to you, then they’re spending millions on advertising. There are some great companies you may never have heard of that your agent can add to the comparisons.
3. The Ugly Truth: Your HEALTH can significantly affect your rate!
Did you know that some of the best life insurance companies look into applicants’ medical conditions? These insurers need to determine the risk factor involved in insuring them.
If you have health issues, preexisting conditions or are a smoker, chances are you will pay more for coverage.
It’s not just you health, but your lifestyle too!
Obviously, if you have several tickets they will see you as an unsafe driver. If you are a pilot or on weekends jump out of airplanes, you are a risk.
If your business takes you to dangerous areas of the world, you could be a risk and the list goes on.
Unfortunately, there is very little you can do to avoid a higher premium but should your situation change, you can request the insurance company reevaluate your policy and possibly lower your rates.
4. You may REGRET skipping the life insurance medical exam
Some companies will work with you if you hate needles or even doctors. Keep in mind, a No Medical Exam life insurance policy will probably cost more and your coverage will be less.
Applying for a fully underwritten policy with a medical exam will probably cost you less in the long run.
5. Permanent life insurance can be a HUGE mistake
Permanent life insurance isn’t evil. We even wrote a post on why whole life is better than term – but it isn’t for most people. It has its place, especially for a variety of business life insurance strategies.
They make a great deal more money from these plans and their agents receive much better commissions compared to Term Life insurance.
Even though you will get cash value from most permanent life policies, what they have a habit of leaving out is it will take approximately 5 years or more to build up any cash value! Also, permanent life insurance policies have a much higher rate of lapsing over time than term life.
Approximately 25% of people who have permanent life insurance policies will let them go within the first 3 years and an amazing 40% will allow them to lapse within 10 years.
You should know that your premiums pay the agent’s commission over the first year. Over the following years, a large amount is covering administrative fees and the death benefits. Also, over the entire existence of your policy, you will continue to pay administrative fees. This is another little tidbit insurance companies do not want to you know.
In most cases, you are better off buying term life and investing the difference into other investments that you would’ve used for Permanent Life.
6. News Flash: not everyone NEEDS life insurance
If an agent is trying to push a policy for everyone in your family, including your kids, show caution! The fact is, not everyone needs life insurance and you are wasting your money by providing a policy to dependents that may possibly be moving out of your home in a year or so.
7. The MAJORITY of life insurance policies will LAPSE
Each year, approximately 4.2% of life insurance policies will lapse.
This equates to 85% of all term life policies and 88% of cash value life insurance policies.
What’s even worse, 74% of term policies and 76% of cash value policies that are sold to seniors over the age of 65 will never payout. Unfortunately, the rates are higher among those who need the pay out the most and are usually those living on lower incomes.
In most cases, a policy is dropped so the insurer can save money and increase their profit margins. With whole life policies, the policyholder can receive a cash payout but what they don’t realize, it will be significantly less due to fees and early withdrawal penalties.
This should give you something to consider when debating whether whole life insurance is the best investment for you.
In general, whole life insurance policies are not good investments when you compare it to other financial options. The value of whole life will seriously reduce if you terminate them early and approximately 90% of these policies will lapse without any payouts.
8. Certain life insurance products PAY higher commissions to agents
There are several life insurance types on the market.
You should be very suspicious if any agent, including an independent agent, tries to sell you an alternative life insurance policy instead of Term Life- without a good reason.
This includes annuities and Permanent Life products such as Whole life and Guaranteed Universal Life.
Because life insurance companies pay higher commissions for selling higher priced products, it’s very tempting for some agents to try and push them.
This temptation is never in your best interest.
Agents do not make a big commission on Term Life but will make a great deal more selling Permanent Life policies. Agents also know they can make an even bigger killing on commissions if they can sell you an annuity!
Many agents have a lucrative incentive in selling you whole life policies because they obviously will make more money.
They know they will get upfront commissions and other compensations that are over half the amount within the first year of your premium. In other words, practically nothing will go into the cash value account.
The insurance industry also defends these practices with little to no remorse. The fact is, permanent policies or an annuity is not the best choice for the average American whose looking for life insurance.
9. Read the fine print or you may REGRET it!
All life insurance companies have fine print within their policies- and you need to know what it is.
For example, some Final Expense life insurance companies offer Guaranteed Issue policies with a “Graded Benefit”. These final expense policies often have a 2 year waiting period before they pay the full benefit amount.
Some agents may not clearly explain this very important detail. There are exclusion clauses that could deny your loved ones from getting the promised amount of death benefits.
Some of these exclusions will probably include accidental outside their country of origin, drug or alcohol abuse, or from being involved in risky activities. The companies have a 2 year life insurance contestability period to investigate cause of death.
It’s imperative that you read through the fine print and understand the policy, completely, before signing on the dotted line. If you are not clear on the fine print, bring it to your attorney or hire an attorney to read through it and explain it to you.
10. Life insurance companies RARELY pay out
Depending on your age when you buy, most people who have term life policies will still be alive at the end of the policy. For those that don’t, it’s really important to make sure you have protections in place, just in case.
Keep in mind, your policy must remain in force throughout its life. You must pay your premium in full during the premium’s set time.
If you fall behind and do not pay on the policy, it will lapse and you will have no life insurance coverage.
What many of these life insurance companies do not tell you, is that you have the option of lowering your premium by simply decreasing the amount of your death benefits.
In many cases, this will keep your policy active and also reduce how much you are paying out yearly.
We advise that if you have a permanent life policy, keep it for a number of years and then surrender the policy vs letting it lapse. You can at least get back whatever you accumulated in cash value.
11. The DIRTY truth about Whole Life insurance
The truth is, Whole Life insurance is a good option for some people.
The dirty truth is that there are some life insurance agents that love to push whole life insurance for their high commissions. They will tell you there are many benefits to purchasing whole life vs term life.
They will tell you not to throw your money away on term life that you will never benefit from.
They will point out that buying a whole life policy will ensure your beneficiaries will get your life insurance payments, a portion of your premium will be invested, and you can borrow against your policy, tax-free, to use toward your retirement, your children’s education, and just about anything else.
The bottom line, it’s not a very good investment.
Keep in mind, the insurance benefit will be limited due to your premiums being rather high. Also, because a lot of the premium goes toward investment fees and coverage, there is practically nothing left to invest with.
12. Your Whole life cash value WILL NOT benefit you for years
No matter what an insurance agent tells you, it will take many years to build cash value. It usually takes at least 5 years before you will have any decent amount of cash value.
In other words, the amount of 5 years of cash value growth may equal the 5 years of premium payments.
Even after 5 years, it may not match it- so be aware that Whole Life cash value growth is a long term strategy.
13. Don’t rely on the life insurance company for FIND your beneficiary
If your beneficiaries do not file a claim after you have passed away, your insurance company is not going to go out of their way to find them and pay up.
Sadly, there are several states that life insurance companies need to pay approximately One Billion dollars in life insurance claims. In many of these cases, the beneficiaries have no idea they were named in the policy and therefore have never contacted these companies to file a claim.
The result: the money owed out to beneficiaries just sits there pending for years.
Now, there are many states that are ordering life insurance companies to use the Social Security Administration’s Death Master File to find the beneficiaries.
To keep this from happening to your beneficiaries, when you name someone as your beneficiary, you need to tell them as soon as possible. Explain to them that you have a life insurance policy and where they need to file their claims, (i.e. the insurance company!).
You should also give your beneficiaries the policy number, the issuing agency’s name, and the life insurance payout amount of your policy.
Related: What is a contingent beneficiary?
14. Life insurance underwriting is DIFFERENT with each company
The insurance isn’t standardized when it comes to life insurance underwriting and qualifying. Each company can have similar or vastly different guidelines with how you can qualify for their policies.
It doesn’t stop there.
How you get rated can be extremely different from company to company. Let’s say you’re a diabetic and your agent is shopping your case to multiple companies.
Depending on the specific details of your Type 2 diabetes and health- and each life insurance company’s guidelines, you could get rated anywhere from Standard to getting outright Declined!
That’s right- some companies are more lenient and some are more strict depending on your specific details. That’s why it is so important to have an independent agent research which companies can offer you the best deal.
15. Make sure you compare rates for the BEST deal
There are literally hundreds of life insurance companies in the United States.
If you only seek out a few quotes from a few companies, you are shooting yourself in the foot and decreasing your chances of getting the best price for your insurance needs.
Adding to that, if you only have a few companies in mind, the agents will only offer you the options that the company sells. While comparison shopping, do not fall into the trap of a particular company’s life insurance quote because these rates probably are not going to be accurate….They are simply estimates!
The only way you will get an accurate quote will be after supplying your health and lifestyle to your agent. They can then check all the underwriting guides to see which company can give you the best deal.
You should work with an independent agent, like Life Insurance Blog, to get the best quotes. We have dozens of the very best life insurance companies in the industry. You will get much better alternatives instead of sticking with one company and their limited plans.
We’re here to help you find the best company for your specific needs and situation.
We hope you’ve picked up a few tips about the 15 Secrets life insurance companies don’t want you to know about.