Free Quote Websites

Probably most people have run across websites or ads for websites that offer free quotes for either life insurance or health insurance.  Now those websites do have a useful purpose (sometimes).  They can give some people a sense of what insurance companies may be best for their situation.  And for some people, those websites can be reasonably accurate.

However, most of those websites that offer quotes have a little secret that the people or companies responsible for the sites don’t tell you about.  The vast majority of these sites aren’t really upfront, or don’t tell you at all, that the quote they give you may not be helpful at all.

You see, these websites generally assume the best case scenario–that means no tobacco use, no health problems (not even minor ones), proper weight, etc.

Now, in a sense, there’s no problem with that.  Any quote comparison has to have a level base of comparison, which means, in a sense, making up an imaginary person.  But a more responsible agent or company will often use an imaginary person that’s closer to the average real person.

More realistically, of course, there is a problem with the assumptions of these websites.  The problem is that for many people, perhaps most people, the quotes that they get will be totally unrealistic and irrelevant to their situation.

Suppose you go to one of those websites, get an attractive-sounding quote, and on the strength of that, you call up that company and apply for a policy.  If you have some health problems, or you’re significantly overweight, or perhaps simply middle-aged, the price you will get at the end of the underwriting process will be drastically higher than the price you thought you would be getting.

I encourage everybody to shop around, but usually the best way to do that is to talk to an independent agent who represents more than one company.  This can also be helpful if you’re looking for the best value, rather than the absolute lowest price.  An agent can walk you through the comparison process, and help you figure out what company and what type of policy is best for you.

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The Philosophy of Health Insurance

A lot of people don’t understand the real purpose of health insurance or how it should be used.  Many want both the lowest possible copay and the lowest premium.  From there it tends to be a fairly short journey into the swamps and bogs of needless complexity and mindless regulations.

On the other hand, what people want–or at least theoretically should want–is simplicity and control.  Imagine the mess that things would be if car insurance was like traditional health insurance.  You would have a copay every time you bought new tires or had the oil changed.  And you might have a list of shops that you had to choose from.  That’s not why you buy car insurance.  Its purpose is to help you financially when you have an accident and need a significant amount of money to repair or replace your car.

So here’s a novel idea–why don’t we make health insurance more like car insurance?  That means relative simplicity, no copays, and a single deductible amount.

Health insurance like that actually exists.  And that brings us back to the beginning of this post.

Most people don’t think of it like this, but the purpose of health insurance should be to protect whatever assets you may have built up.  It does that by providing you access to a pool of money that you can use in certain situations.  Health insurance should not be used to cut down on the cost of each little doctor’s visit, but rather as a tool to use in case of emergency and catastrophe.

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Why I Became an Insurance Agent

There are several reasons why I decided to sell insurance.  If you asked me why more than once, you might get a different answer each time, depending on which reason I happened to think of first at any given moment.  But first, let me tell you a story.

Mike Wilk, the president of Five Rings Financial (the company that I’m affiliated with), tells this story.  He had just started out in the insurance business, and a friend had introduced him to a couple that this friend knew.  This couple had a $400,000 mortgage.  The man made about $80,000 a year, give or take, while the lady stayed home to take care of the children.  They had three children, all less than 10 years old.  He had a small but expensive term life policy–no more than $20,000, and perhaps only $12,000.  (It’s been a while since I’ve heard the story.)  She had no life insurance.

Now–stop and think for a bit.  If this man had died, just how quickly do you think that the lady would have had to start looking for a job?  How likely do you think it would be that she could have held onto the house?

Well, Mike went through his presentation, and discovered that he could do a mixture of a little bit of whole life and a much more appropriate amount of term–I think it was $400,000–for virtually the same price that he was paying for his totally inadequate and very expensive policy.

At the end of the presentation, the man said to him something like this–I didn’t want you to come here in the first place.  The only reason you’re here is because I wanted to do our mutual friend a favor.  Plus, our favorite TV program is going to be starting soon.  However, if you can get the paperwork all drawn up before our show starts, I’ll go ahead and buy it.  But I don’t want to see you again.

To throw in a little editorializing here, you the reader may find the proceeding paragraph hard to believe.  All I can say is that I’m trying to tell it the way Mike Wilk told it, and I believe it really happened that way.

Now–back to the story.  Mike was able to get all the paperwork done in time, and he left that house with a check for the premium.  About two months after that, he received a call from the wife.  Her husband, who was fit and healthy, turned out to have an aneurysm on his aorta that nobody knew about–that is, until it ruptured and he died.  A few days after that, Mike delivered a check for $400,000 to the widow.

I tell that story in order to say this–Mike made a difference in that family’s life.  And one of the reasons that I became an insurance agent was so that I could make a difference in people’s lives.

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Life Insurance and the Very Elderly

There’s a little secret about life insurance that may blow up in our faces as society ages.  Traditional whole life expires at age 100.  To take an extreme example, suppose that your parents bought you a whole life policy when you were in grade school.  When you turned 18, you took over the payments, and kept it in force.  If you are lucky enough to live to 101, you will get NOTHING from your life insurance, because it expired at age 100.

Not many people know this, and even fewer have cared.  The reason, of course, is that so few people live that long.  But as we know, people are living longer and longer, so this is starting to become a real, though still small, problem.

According to the Census, in 1990, there were about 37,000 people 100 or older.

In November 2008, that figure had grown to about 96,000.

By 2020, there will probably be at least 135,000.

The latest projection I could find as of the date of this writing shows that in 2050, there will be 601,000.

However, some insurance companies are changing their policies to reflect this trend.  One company that I’m aware of now has a few policies that go all the way up to age 115.

Sources:
http://www.census.gov/prod/99pubs/p23-199.pdf
http://www.census.gov/newsroom/releases/pdf/cb09-ff07.pdf

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Term Insurance

There’s really not a lot that can be said about basic term insurance.  Most people probably know most of it anyway.  But in the interests of thoroughness here’s a quick rundown.

  • expires after a certain time
  • 10-30 year policies
  • for a healthy young person, VERY cheap
  • the most coverage for the least amount of money

Now here’s a bit of trivia that most people may not know.  The vast majority of people (more than 90%) who have term insurance outlive their policy.  That’s why it’s so cheap.  So in a sense, people who outlive their policy both win and lose and the same time.  Obviously they win by staying alive.  But they also lose by staying alive, because that money is gone.  But now you can win no matter what.

A few years ago, some innovative companies came out with a new type of policy–Return of Premium term (ROP).  Now, this type of policy does have one disadvantage:  it costs a great deal more than traditional term.  However, it has one huge advantage:  if you buy it, and outlive the policy, you get back every penny that you paid in premiums!

To give an example, say a 35-year-old man buys a 20-year regular term policy for $250,000.  That would cost about $28/month.  Now say his twin buys a 20-year, $250,000 ROP policy.  The twin would pay $88/month–but at the end of the 20 years, he would get a check from the insurance company for slightly over $21,000.

A ROP policy is not for everybody, of course, but for some people it makes sense.

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Basics

You can find all sorts of blog posts and other articles on the internet about the types of life insurance.  If you’ve read any of those, or otherwise already know about this topic, please excuse me.  However, I recommend that you read this post anyway, because you may learn a little bit.

Before I wrote this, I did a Google search on “types of life insurance,” just to see a sampling of what’s out there.  I was not very happy with a lot of what I found.  A pretty high proportion of articles claimed, or at least gave the impression, that there are several basic types of life insurance.  I suppose it might depend a little on how you categorize the different types, but quite honestly, that simply is not true.

On the most fundamental level, there are two–and only two–types of life insurance:  temporary and permanent.  Temporary is called term life, and permanent is called whole life.  All other categories (and there are a lot) are subdivisions of those two main categories.

Term is mostly just term.  But whole life has a bunch of different kinds–universal, variable, accidental death, etc.  And most of those are further subdivided.  I’ll devote future posts to greater detail about all these kinds.

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In Which I Introduce Myself

I’m an independent insurance agent with Five Rings Financial.  We focus heavily on educating people about how money works.  I specialize in life insurance, health insurance, and annuities.  I will try to answer any and all questions that people may have, but if you don’t live in Colorado, don’t expect a detailed answer.  I’m currently licensed only in Colorado.

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