Life Insurance: Is the Price of Your Premium All You Should Worry About?

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One of my favorite childhood memories would have to be sitting in the rear seat while my mother would drive around from supermarket to supermarket, weekly promotion brochures in hand. This with no regard for her fuel spend to get the best deal and save a couple of cents on products that were on discount. Saving money is the responsible and prudential thing to do. This approach, for me, was one of the good examples of someone wasting money by trying to save money.

I can’t tell you how many people I have come across who were trying to get insured in the cheapest way possible. I need to be clear, this is the best way to go about buying a finite amount of money. If you are purchasing $100,000 of life insurance it would be silly to pay $20 per month for it if you could get the same amount of cover for $15. That $5 saving amounts to $60 per year which can go a long way over the years.

What I am getting at here though is not all companies are the same, and they charge different premiums for assuming your financial risk, hence people shop around to look for the best deal.

But there is another way in which insurers are not the same that is not given nearly enough consideration: They have different honored claim statistics.

Look into the Insurer

If Insurer A can give you an insurance policy for $15 per month while Insurer B can give you the same amount of cover for $20 per month it would seem that Insurer A has a better deal to offer you. What if Insurer A had repudiated 72% of its claims in the previous year while Insurer B had honored 94% of its claims in the same year? Would this not mean that for a monthly saving of $5 per month your risk of having your claim repudiated would grow from 6% (Insurer B) to 72%?

For premiums paid over five years, if repudiated at claim stage, you would lose all the premiums you paid over this period, your loved ones would be left to make ends meet without the insurance payout or what would have been your income and you would have opportunity costs for an infinite set of permutations on how your money could have been better spent. I don’t know about you, but for my money, I would rather err on the side of the convincing statistics.

Swap Around Your Priority List

Instead of asking “Who has the cheapest premium”, I would rather you ask, “Who will honor my claim when the time comes?” Once you have whittled down your list to isolate the insurers that have integrity, you can then ask yourself from the contenders on this list “Who has the cheapest premium?”

How to Spot a Sketchy Insurer

In my experience, virtually all the dubious insurers share two common traits: They market their product based on the premium and they sell it over the telephone. These markers are of course not the monolithic test for integrity.

Good insurers tend to focus on the quality of their product and not so much how much it costs. The irony is that sketchy insurance often costs pretty much the same as decent insurance.

Selling insurance over the phone, for the most part, means that no financial needs assessment gets done.

Many times when meeting a prospective client I have been asked at the beginning of our meeting, “What products do you sell?” To me, this is like meeting a doctor and asking what they have in their dispensary.

Just like you wouldn’t trust a doctor if you walked into their practice and were immediately written a prescription, advice without context is questionable. Allow your situation to be assessed before you get insurance. Don’t get life insurance with a tele-insurance company.

More importantly, selling over the phone means that no underwriting is done. This would mean that underwriting (disclosure and risk assessment) would only be done at claim stage where you will not be able to defend yourself. Hence, these are the companies that tend to have atrocious claim statistics. This is not a risk you have to take.

Tricky Wording to Look Out For

In recent years, life insurance products with names such as Accidental Death Cover have made their way to the market. To me, the only suitable application for such a product would be to insure individuals who were otherwise declined life insurance due to poor or risky health, where the insurer would be willing to assume their mortality risk outside of health-related claim events.

Sadly, these are not per se the people that these products were designed for and most people that tend to procure these products are generally healthy. This means that they are essentially betting that they know that their deaths will be brought about by some kind of accident and that they can take the risk of not being covered in the case of health-related death.

This would not be the smartest way to manage your finances and the savings that you could make from the cheaper monthly premiums are far from worth it.

Read more about this in my post, Insurance Product Wording

How to Protect Yourself

If you want to protect yourself follow these simple steps when applying for life insurance:

• Be honest. If you have a preexisting condition, make it known and try to insist on having this on record
• If you have a health condition, get a doctor to manage and monitor it before you apply because the insurer would want to hear from a medical professional whether your condition is manageable or volatile
• Get life insurance when you are young and healthy with an insurer that does its underwriting at inception stage and not at claim stage
• Pay your premiums. Keep the policy active
• Don’t submit facetious claims

For companies that tend to honor their claims, the instances I have listed above tend to be some of the main reasons that they would not honor a claim. The good news is that all of these are in your control, and that the insurer (if they underwrite at inception stage) will most likely decline you the cover at application stage should there be a reason that they would not honor your claim that I haven’t listed above.

Even then, this would be great news because it would allow you to create other means to cater for your loved ones instead of paying premiums to an insurer that ultimately will not honor your claim.

Conclusion

Be smart about the criteria by which you determine who the best insurer is.

The biggest monetary saving you can make from insurance is getting cover from an insurer that will honor your claim.

Compare premiums by not only comparing the initial premium, but also compare how your premiums will increase over the years (also referred to as a premium pattern).

Getting insured is the most important part, so you are on the right path.