How to save on life insurance

When you evaluate a life insurance policy, you're likely to feel like you've entered The Twilight Zone. Insurers' "illustrations"—projected values for policies—can seem surreal. For instance, projected returns for cash-value policies may be calculated based on the record stock market of the 1990s.

What to do? Don't try to analyze cash-value policies yourself; get professional help. One option: For $55, you can get an unbiased analysis of a single policy from the Consumer Federation of America. Additional analyses, requested at the same time, cost $40 each. Check out www.evaluatelifeinsurance.org .

Term policies—pure insurance with no savings component—are simpler to compare, but get quotes from several companies, says Glenn S. Daily, a fee-only insurance consultant in New York. The simplest way to do that is through a Web site like www.term4sale.com or www.insure.com .

In addition, for all types of policies:

• Avoid insurance agents, if possible. "They have a commission incentive to sell something, so it's impossible for them to be unbiased," says Peter Katt, a fee-only insurance adviser in Mattawan, MI. Katt recommends that consumers contact a company like Ameritas Direct (800-555-4655; www.ameritasdirect.com) which sells policies directly to consumers.

• If you do use an agent, try to decide in advance how large a death benefit you'll need and what kind of policy you'd prefer.

• If your insurance needs are complex, you might want to go to a fee-only consultant. "The usual charge is $200 to $300 an hour," says Katt. But over the long run, a well-chosen policy is apt to save you far more than you paid for the advice.

• Screen insurers. Ask your state insurance office for complaint reports (for contact information, go to www.naic.org/state_contacts/sid_websites.htm ). And consult the financial ratings of A.M. Best, Fitch Ratings, Moody's Investors Service, Standard & Poor's, or Weiss Ratings, available online, from your agent, or your library.

• Ignore pitches that liken insurance policies to bank accounts, personal investment accounts, annuities, or anything else they're not.

• Skip most "riders," which are the insurance equivalents of optional floor mats in a new car. They're usually expensive and unnecessary.

• Beware of tax-saving schemes that hinge on loans, which may no longer be available when you need the money. Among them: policies offering "tax-free retirement income." You're safer with an annuity.

—Staff Editor Carol R. Pincus

 

Carol Pincus. How to save on life insurance. Medical Economics Sep. 19, 2003;80:56.