Five Biggest Misconceptions about Life Insurance
Just how healthy do you have to be to get preferred rates on a policy? Are whole life policies really good investments? Exactly how much do agents make when they sell you a policy? If you're in the market for a policy, questions like these are probably swirling around your head. You can find some reliable answers online, but you'll also probably find a great deal of contradictory information. Even talking to an agent, broker, or carrier representative still might not clear up any confusion that lingers. In an effort to assist you in your quest for coverage, we've compiled five of the biggest misconceptions our visitors tend to have about this invaluable product. These misunderstandings are enumerated below.
- The rates a carrier quotes you are non-negotiable. Agents would have you believe that they are just helpless minions doing the bidding of the corporate giant they represent. They'll try to convince you they have no authority to negotiate rates-don't believe it. Your most potent weapon in negotiating better rates is information. Show the agent what another carrier is willing to offer and ask the agent to match it.
- Health is not a major concern in qualifying for coverage. This misconception usually stems from the heavy promotion of "guaranteed" plans that promise coverage approval with no medical exam. Guaranteed-issue policies exist, but they are subject to myriad restrictions. Usually, the death benefit for such plans is negligible for two years, or what insurers call the contestability or "suicide" period. If you died within this window, your carrier would likely contest your beneficiaries' claim by disputing the veracity of the information provided on your application.
- Agents and brokers must divulge the commission received on your policy. The insurance business is one of the few that remains where commission does not have to be disclosed completely. Instead, it is typically mentioned deep in the fine print of your coverage contract. Insurers have a very compelling motive to do so-according to the Consumer Federation of America, the commission on a whole life policy is an average of 85 percent of the premiums paid in the first year, and seven percent for the next ten years. Seeing these staggering commissions would likely deter consumers from choosing permanent offerings, which is why finding commission numbers is like looking for a needle in a haystack.
- Permanent plans are valuable investments. This statement is inaccurate for two reasons. One, the returns on whole, universal, and variable policies are extremely modest because the investment vehicles used are predominantly low-risk. Two, according to industry analysts, nearly half of permanent policyholders drop out within ten years, thus failing to give the plan sufficient time to accrue any substantial value.
- The medical exam doesn't have much bearing on your rates. Insurers place a lot of stock in the results of your medical exam. In fact, the entire underwriting process depends on it. The outcome of your exam will be evaluated against data collected by industry trade group MIB to determine your mortality risk and, thus, your premiums.