Cheap Life Insurance: The number one rule
After decades of poor consumer protection in the life insurance game, there has been an effort by government authorities and industry players to clean up the insurance business. Despite the best efforts of these groups there are still some questionable practices being used in the insurance industry.
The Financial Services Authority (FSA) has made an effort to educate the consumer about life insurance, thereby reducing the impact of dishonest insurance agents. Lately the FSA has focus on comparative insurance websites as these have only recently made significant inroads into the chain from provider to customer.
Although these new websites are using different strategies for marketing to customers, the rules of the game remain the same.
The number one rule for any consumer is that if the deal seems too good to be true it probably is. This rings true for anyone buying life insurance as it does with almost anything else. In fact, because some life- insurance policies can be complicated it is easier to hide policy conditions and ‘rework’ terms to make it a more appealing to the customer.
Quite often a customer will find that the cheapest life-insurance policies are not always the best, and paying a higher premium can ensure the customer get a policy that fits their needs and delivers on its commitment.
One of the first things to be sure of is what is actually being sold. Because the industry received a lot of bad press in the 70s and 80s, some providers of insurance will avoid using the term life insurance. Sometimes brokers instead to use terms such as mortgage protection.
Most of these policies are technically life insurance rebranded. For example, mortgage protection insurance can be simply term life insurance with an expiry date set to the same date as the terms of a home loan. This is a basic example, when investigating retirement plans the line between what is life insurance and a pension policy blurs.
Another issue that arises with cheap life-insurance quotes is that often the provider makes assumption that deliver the cheapest policy. The final cost is not determined until the insurer can make an accurate assessment of your circumstances. Most insurers use a mortality table to assess life-insurance costs factoring in age, sex and general lifestyle information (such as if the customer is a smoker).
Some insurance companies require some customers to take a medical examination before they will provide cover, particularly if the customer falls into a high-risk group. The quote is simply an estimate and a cheap policy may just be using assumptions that minimize cost rather than what reflects the customer.
People shopping around for life insurance should take all the conditions into consideration. The best way is to investigate what features and conditions are attached to life-insurance policies. Looking at authority websites, such as FSA, and insurance comparison websites a consumer can collect information about the different life-insurance deals and factors which influence the cost and quality of a policy.
An insurance customer should get quotes from at least three companies, but five would be preferred. By collecting five quotes a customer can make a better assessment of value.
Insurance customers should be aware that prices are not fixed. A client is able to add features to policies in other to manipulate price. If a quote is cheap but does not offer the same features as other policies the customer should contact the insurer and get them to re-quote with the features you want included. The quote that is returned could still be cheaper when compared to other quotes.
There is also opportunity to defer cost and choose various life insurance cost structures. The two most common forms or payment structure is fixed premium and flexible premium. The fixed premium option is initially more expensive than the flexible option, but over the duration of the policy the cost falls below the flexible option. The flexible premium is re-evaluated regularly and the cost of the premium usually rises over the life of the policy.
Recognizing which payment structure you are quoted is essential to make an accurate assessment of a policy.
A customer is not obligated to purchase life insurance after receiving a quote and most companies would provide amended quotes. Life insurance is a long-term commitment and a client should take other factor into consideration not simply price.
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