Are You Paying a Fair Price for Your Life Insurance?


With life insurance, a fair price means one that’s appropriate for the risk of you dying.

When you buy or sell a home, you negotiate the price and contract provisions. You have your own agent and lawyer and you pay them directly. With life insurance, you can’t negotiate and the advisor gets paid by the insurance company. This seems to put you at a disadvantage but you are protected by laws and industry practices.

Where you buy doesn’t matter either. An insurance company will sell the same product for the same price through different distribution channels: direct channels, captive agents, or independent advisors. Whether you buy from the place you invest or an advisor specializing in life insurance, the price will be the same.

A legal requirement

Insurance regulators want fair prices, too. For example, under Ontario Regulation 7/00, an unfair or deceptive act or practice includes: “Any unfair discrimination between individuals of the same class and of the same expectation of life, in the amount or payment or return of premiums, or rates charged for contracts of life insurance or annuity contracts, or in the dividends or other benefits payable on such contracts or in the terms and conditions of such contracts.”

An insurance company would have nothing to gain by violating the intent of this regulation because it could result in bad publicity and a firm could lose business to its competitors.

Bad business

If an insurance company sells the same product for less online, it risks losing business from independent advisors. And not just for that product but for its entire product line. That’s risky unless the favoured distribution channel is expected to have stronger sales.

If anything, products sold online can be more expensive. For instance, quick-issue term life insurance costs more because the underwriting process is faster and less rigorous. The consequence is there could be more exclusions (situations where the insurer won’t pay out benefits).

Insurance companies may offer an exclusive product to a specific distribution channel or distribution partner. Here, exclusive means different but it may not mean better. Comparing against non-exclusive products will show if you’re getting more or less for your money. Since other distribution channels and distribution partners don’t like products they can’t sell, insurance companies are wary about creating exclusive products.

In addition, having more products or making exceptions is expensive for insurance companies. The risks rarely warrant the effort.

The bottom line

Just because a product sells for the same price in different places doesn’t mean it’s the right product for you. The onus is still on you to check wherever you buy.

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Flickr: GotCredit