5 Things Your Agent Doesn’t Want You To Know About Life Insurance

Here are the 5 money-saving secrets that your insurance agent doesn’t want you to know. Having these secrets in mind when you are shopping for a new or additional life insurance policy will go a long way in saving you money.

One of the best ways that your agent can save you money is to shop your policy to different insurance carriers to make sure you are getting the lowest rate. While you may think most agents will compare rates, research shows that most will only compare rates from a few carriers.

There can be a massive variance in rates between carriers, even for the same individual. Life insurance companies tend to specialize their coverage options for one type of client more so than another. By shopping your policy around, your agent should be able to find you the best product and rate for the coverage you need. As the example below shows, the rates can be 1.5x different! It pays to shop in life insurance for the same individual!

Most agents, however, do not do this.

Why? Over 60%* of agents in the US are “captive” or appointed with only one carrier. This means they only work with one insurance carrier and therefore they don’t have the ability (nor the motivation) to show you different options outside of their single carrier relationship. Even non-captive agents are only appointed with 10 or so carriers.

So you should just find a non-captive agent and shop at least 10 carriers, right? Unfortunately, no.

Even if they are appointed with more carriers, the majority of non-captive agents still tend to work with only three or fewer carriers when selling a life insurance policy. They tend to want to focus their policy volume with a few carriers because it helps to increase their commission rates. The more business an agent does with a given carrier, the higher the commission rate he or she gets paid on each policy.

*Limra: US Retail Individual Life Insurance Sales Technical Supplement (Q4 2018). Based on a weighted policy basis for term sales, comparing affiliated agents to independent agents.

The best way to save on a life insurance policy is to ensure your agent is appointed with multiple carriers and does significant volume with as many as possible. The best way to find an agent like this is to go with larger brokers. They have enough volume to get the highest commission with lots of carriers.

Like any sales environment, life insurance agents are aiming to get you to commit to something as quickly as possible. The most common way to do this is to quote you a low price so you agree to move forward, and then try to keep you committed if and when the final rate changes.

Most people don’t realize that the Life Insurance quoting process has four steps:

1. First an agent pre-assesses your level of health via questions. He is using this information to estimate your level of risk and your rate class. However this is only an estimate.
2. Second, you complete a medical exam, a blood test, and in some cases submit your health records.
3. Third, the underwriter takes this information from the medical exam, etc. and makes changes to your risk class, if needed. Sometimes they will upgrade your class and you will save money. If you thought your blood pressure was high but it turns out it is normal your quote might go down. On the other hand if your results are worse, your quote might go up.
4. You are presented with an approval with the new rate and must decide if you still want the policy. Most of the time the rate is the same as what you are quoted but not always.

The #1 thing an agent can do to ensure the rate you get in the end is the same as the rate they quote you is to ask you lots of questions about your health and lifestyle. The more they ask the more likely your quote will be accurate. Many agents only ask a few questions, but to get an accurate quote you want an agent who asks 30-50 questions.

It may take more time upfront, but the last thing you want is to spend hours getting a medical exam and gathering medical records only find that you don’t get the rate you want.

You can save money on your life insurance policy by “refinancing” the policy after positive health and life changes.

These life changes include improvements in your risk level such as:

• Losing significant weight and keeping it off for at least 12 months
• Giving up smoking and staying off it for at least 12 months
• Permanently giving up dangerous sports like scuba diving, race car driving, etc
• Reducing your coverage once your children have finished college and are no longer dependent on you.
• Just ran a marathon, rode more than 50 miles, etc.
• Improved your A1C / reversed your Type II Diabetes
• Lowered your cholesterol
• Lowered your blood pressure

You might think, of course my agent will “refi” my policy. They won’t always if your policy is recently issued. The reason for this is that carriers will penalize agents who “churn” their customer policies too often.

Given this limitation, most agents will try to sell you an additional policy but keep your old policy in force. There are two issues with this approach. First this might not always be the cheapest option since there are volume discounts you might not get by splitting your coverage (see next section for more on this). Second this solution only works if you need more coverage.

The aim of refinancing should be to improve your rate class and get additional discounts based on your recent lifestyle changes, not just to enhance your agent’s income. Changing one to two rate classes can reduce your rate by 25-50% and is well justified.

Buying in bulk saves you money in other areas of life, and life insurance is no different. As you purchase more coverage with the same carrier you will get volume discounts. When shopping for coverage it is important to have your agent look at your options with your existing carrier.

If you have multiple life insurance policies with multiple carriers it might make sense to consolidate those policies into one policy with one carrier in order to save money. Consolidating all of your policies will allow you to take advantage of volume breaks and eliminate policy fees from multiple carriers.

In addition to consolidating existing policies, if you are buying a new policy and are purchasing coverage that is within 15%* of the next volume break it is often in your best interest to purchase the volume break coverage. You will effectively get more coverage for almost the exact same rate.

*Based on the average of Pacific Life rates for a healthy male in CA for 10 and 20 year terms and ages from 18 to 80.

Many agents will offer you a policy that doesn’t require a blood test or medical exam, telling you it is faster and more convenient. While this is true, if you are in good health buying one of these policies may cost you up to 100% more or even higher, which is usually thousands of dollars over the life of the policy.

But first, here are a few terms you need to know:

• “Fully Underwritten” policies require a blood test and medical exam.
• “Non-Med” and “Simplified Issue” policies don’t require a blood test or medical exam.

So if insurance companies don’t actually check if you are truly a smoker or what your cholesterol is, how do they price? They simply assume an average level of health for someone your age and gender. What if you are in better health than others the same age as you? You will overpay by a lot.

To use an analogy, what if someone sold auto insurance without checking your driving record (a “no driving record” policy)? If you were a good driver and never had a ticket or accident, this policy would significantly overcharge you. On the other hand if you had 2 DUIs, a “no driving record” policy would be the best deal you could find anywhere. Life insurance is no different. If you are in good health, you should make sure you get a fully underwritten policy.

There is one more significant factor that can impact the pricing of Non-Med policies: fraud by smokers. Since smoker rates are 2x to 3x higher than non-smoker rates, many smokers buy non-med policies in order to hide the fact that they smoke. They know that no one will check during the application. Since Non-Med policies can’t protect against it, this fraud rate has to get built into the rate charged by Non-Med policies. Essentially when you buy a Non-Med policy and you are above average health for your age, you are subsidizing (at least a little) smokers who have declared they are not.