November 23, 2022
  • November 23, 2022

Don’t Fall For That Life Insurance TV Ad

By on February 24, 2022 0

It’s a scenario that John Buenger encounters too often in his independent insurance agency. People see an ad for life insurance on TV, but when they ask for more details, the police aren’t what they expected. “The fine print in these ads goes by so quickly that when people call for more information, the terms are totally different than what they had in mind,” says Buenger, senior financial director and adviser at the rice agency in Hagerstown, Maryland.

At first glance, life insurance seems pretty straightforward in that all products follow the same general setup: you pay the insurer’s premiums and, if you die, the insurer pays your heirs a death benefit. . But there are different types of life insurance, and the difference between the products isn’t always clearly explained in a 30-second ad. In fact, TV commercials leave out a lot of key information. Here’s a better way to familiarize yourself with these products so that the next time you see a tantalizing advertisement for life insurance, you’ll know if it sounds too good to be true.

Know the basic types

The costs, features, contractual restrictions and length of your coverage vary depending on the type of life insurance you purchase.

Guaranteed issue. The most common television commercials are for guaranteed-issue life insurance policies, says Kelly Maxwell, owner of the insurance brokerage firm. Mutual for seniors in Pflugerville, Texas. Since these policies do not have a medical exam or health care underwriting, anyone can easily qualify for them. “Insurers can potentially set up a policy in five minutes over the phone,” says Maxwell, with lifetime coverage.

If you are in good enough health and want to have a medical exam, there are cheaper options. In fact, even applicants with moderate health conditions, such as high cholesterol, can qualify for a lower price after passing a health exam. Buenger recently calculated the numbers for a healthy 70-year-old man and $10,000 life insurance to cover funeral expenses. The premium for the policy requiring a medical exam was $67 per month, but a guaranteed issue policy charged $99 per month, almost 50% more. Guaranteed issue policies are often used to cover funeral expenses, as the amount of coverage you can buy is limited, usually up to a maximum of $25,000, whereas policies with a medical could insure you for six or even seven digits.

There are other drawbacks. Guaranteed issue policies do not pay a death benefit in the first few years. For example, a policy may state that if you die for any reason within three years of purchasing it, your heirs will receive only the premiums plus interest, not the stated death benefit. “Insurance advertisements tend to gloss over these drawbacks,” says Rafael Rubio, president of Stable retirement planners in Southfield, Michigan. “While there is a place for guaranteed issue when applicants cannot qualify for other policies, people who could meet life insurance health standards would receive a better offer by applying with a medical examination.”

Lifetime. Life insurance that requires a health exam generally falls into one of two categories: term or permanent. The term is term life insurance. It lasts from one to 40 years depending on the term, with the quoted rate guaranteed only for the duration of that term. If you survive the term, coverage ends.

Depending on the contract, you may be able to renew, but the premiums will cost more because you’re reapplying at a later age, when you may also have more health issues. “People will tell me they’ve had a policy for 20 years, but then they have to cancel because it got too expensive,” Maxwell says.

Permanent life. As long as you continue to pay premiums, permanent life insurance does not expire. The flip side is that because these policies are more likely to pay a death benefit, they initially charge more than a term life insurance policy, about five to 15 times more at first. Therefore, only smaller coverage amounts can be affordable.

Permanent life insurance can also include a cash value, allowing you to take money out of the policy while you’re still alive. Cash value growth and premium stability depend on the type of permanent life insurance. For example, whole life charges the same premium for as long as you have the policy, and the cash value increases with a guaranteed return. A variable life insurance policy, on the other hand, invests the cash value in market-based investments such as mutual funds, so the return is not guaranteed. If the investments do well, your death benefit increases, but if they do poorly, you may need to contribute more to the policy or lose coverage.

Accidental death. As the name suggests, these products only pay if you die in an accident, such as a car accident or falling down a flight of stairs, but not due to a medical condition, such as heart disease or cancer. “These policies hardly ever pay out and the definition of accident is getting smaller every year,” Maxwell says. “People buy these products because the ads make them look cheap – and they are – but customers don’t realize the coverage restrictions.”

The life of grandchildren. Some advertisements advertise a policy that can be set up for grandchildren or another family member under the age of 18. The rationale for buying the policies is that you set a low price for these family members at a young age, ensuring they have coverage should they develop health issues later on that prevent them from buying their own policy.

Grandchildren’s life insurance policies typically include a cash value and are often promoted as a way for younger family members to build savings. But that’s not the most efficient way to do it. “The rates of return are quite low,” says Rubio. “They don’t replace a college savings plan because there isn’t enough time [for the money] to grow, although an advertisement may make it seem like a useful goal for these fonts. Plus, you have to keep paying premiums to keep the policy in force, which isn’t the best use of your retirement assets.

Be skeptical and shop around

Life insurance advertisements on television tend to present information using the most optimistic scenarios that are unrealistic for the average consumer. “When they give a sample quote, it’s always for their favorite super fare: someone perfectly healthy at an ideal weight who doesn’t smoke,” says Buenger, who estimates that only about 5% of applicants can match. to this profile. If you’re not a health paragon, “that $19.99 policy could actually cost you $50 a month or more,” he says.

The ads also gloss over significant shortcomings. For example, they don’t always make clear that a policy premium is temporary, such as for a term life insurance policy, or that renewal rates will be significantly more expensive. Buenger also sees ads misrepresent costs by quoting the unit price, which is usually just $1,000 life insurance according to the company. “You might hear $10 per unit and think that’s what you’re going to pay, but if you want $10,000 of insurance, it would cost $100 a month.”

If you’re in the life insurance market, treat these ads with a healthy dose of skepticism and forget to call the hotline listed on the ad. The representative who answers will only be interested in selling you the advertised product and nothing else. You’ll especially want to shop around if you’re not in perfect health, as companies rate medical conditions differently, which can affect prices. For example, one insurer may charge less than another for former cancer patients.

Although you can contact life insurers directly for quotes, websites like political genius and Select Quote quote premiums from multiple companies at once. Independent agents and insurance brokers also sell policies from multiple companies. Unlike an agent who represents insurers, brokers represent consumers and work directly with them to find a suitable policy.

In any meeting, Rubio says “make sure the professional goes beyond just trying to sell a product and [is] get to know your financial goals. The right product may or may not be a life insurance policy.