If I get a life insurance comparison quote, and one company is less than the others, how come everyone doesn’t just buy the cheapest one?

Asked by Irene

3 Answers

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Hello Irene,

We send multiple carrier quotes to those seeking coverage. There are over 60 life insurance carriers that we could show, but we tend to show the top 5, based on premium rates. On occasion, the least expensive carrier may not be the best one for the person who is asking for it. Why? Because several factors make it important to move away from price as the single determinant of "what is best" for that person. Here is one: underwriting. Underwriting is the process of reviewing medical and other info about the applicant so that a rate class is applied, leading to approval, and an offer of coverage. The least expensive carrier may look upon the slightly overweight applicant in such a way that the applicant is charged more at the underwriting stage (the rate class might be Standard as a result). The next carrier on the spreadsheet may have a more liberal view about height and weight and see that person as Standard Plus, and charge less.

All carriers are not the same. Just because they appear next to each other with a price that is different, that is not the whole story by any means. Some see marijuana usage as a reason to rate more expensively, while another does not. Or the least expensive may be rated A- (Excellent, by AM Best), and the client wants only an A+ rated carrier - who might be the third or fourth carrier on the list. There are literally too many nuances that exist to cover here, but for a lot of people the assumption is that the price is where the "cut" is made. It is also where a large number of errors occur when selecting the right carrier or the right plan. If we bought cars that way, those with large families would only purchase small cars since small cars cost less than large cars. That would amount to putting too much emphasis on the price rather than the need. By the way, the cost among the top 3 or so carriers for a given plan is is usually only different by about 2 or 3 dollars per month so you can see that putting too much emphasis on the price won't result in a huge premium difference but it can distract from other important factors.

Kirby
Term.com
LifeInsuranceToday.US
NoExamLife.US | 02.03.16 @ 19:10
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$commenter.renderDisplayableName() — {comment} | 12.03.16 @ 00:19
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Answered by Lenny
This question is a great example of "price vs. value". Because prospective purchasers of life insurance are not generally aware of all the additional issues related to the underwriting of a policy and conversion opportunities, they focus on price because it's easiest to understand. That's why a good independent agent should educate first while they obtain information from the prospect regarding health, lifestyle and future plans for coverage.

Major quote sites on the internet focus on price because it is the easiest to understand and they are looking for volume.

If you are interested in purchasing coverage, the best advice I can give is to ask for references from an agent, and get a "feel" for how your first conversation goes. Is the agent simply giving you a "best price" or is he/she asking questions to help with your understanding of available options? | 02.09.16 @ 19:40
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$commenter.renderDisplayableName() — {comment} | 12.03.16 @ 00:19
Answered by Larry Gilmore, Insurance Agent in Marysville, WA
Actually because the "cheapest one" will be different for every person out there. Age, gender, health and face amount are factors that can change the cheapest from one company to another. Also an insurance company can decide for business reasons that a certain demographic is one that they "want" as a customer and price in such a way that they become the lowest by their choice. So there isn't a cheapest one, but there are many that work well for different people. | 03.03.16 @ 08:22
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$commenter.renderDisplayableName() — {comment} | 12.03.16 @ 00:19
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