26 April 2013 0 Comments

Did You Pay Too Much?

too much moneyAfter making a substantial purchase, the question often goes through your mind, “Did I pay too much?”  Don’t you hate it when someone right next door buys exactly the same car that you just bought and they tell you they got it for $995 less?  Of course there is always the question, “Is their car exactly like mine?  Maybe I have the extra chrome package.”

When buying life insurance it isn’t easy to know if what you have is exactly what someone else has, but you can determine if the deal you are getting is at least “in the ballpark” for someone your age and with the same underwriting parameters.  Term is the easiest type of policy to compare for pure price.  Let’s take the case of the male, age 35 who decides to buy a 20 year $1,000,000 term policy.  Assume that this individual is in pristine health, has great family history and will qualify for the best “Preferred-Plus” premium class with any company.  He starts talking to agents and finds that the annual premium ranges from $440 to $725.  If he pays the top price, is he getting anything more for the money?  Not really.  The premiums on both policies are guaranteed for the full 20 years and both policies are convertible for the full duration.  There is a 65% increase in cost between the two carriers.  Surely there must be some mistake.

There isn’t any mistake unless this individual buys the more expensive policy.  Of course, these premium quotes assume that both companies would issue the policy with their best underwriting class premium.  If not, there would be some differences. If the company with the $440 premium determines that the best underwriting class is “Standard-Plus” their premium would go up to $790 per year.  If the company with the $725 premium is willing to issue in a “Preferred” class, then their premium would be $753 annually.

Although both companies are rated A+ by Bests, the first carrier has a Comdex Ranking of 85 while the second company’s Comdex is 91.  But, if Comdex is important, then another company with a Comdex Ranking of 96 would charge only $465 for their best premium class. That’s only $25 more annually than the lower ranked carrier.

When comparing term life insurance premiums make sure that the guaranteed premium and conversion rights are the same; that they will issue in the class quoted and the company has acceptable financial credentials.  A single, independent agent should be able to handle this transaction for you.

Comparing permanent life insurance isn’t as simple…that’s where we go next.   

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