Monday, February 10, 2014

Life insurance = sleaze

I get auto and home insurance from a particular company. I like the company because of their reasonable premiums and decent customer service. I recently decided to add on life insurance. Naturally, I went to my existing insurance company. Instead of dealing with the central office, I was sent to an 'agent'. "The agent writes the policy" was what I was told. This turned out to be significant later.
So I got on the phone with the agent. The agent spent a lot of time with me. I think I wasted about 30min on that call. I got NO useful information and got the distinct feeling the agent was trying to ingratiate with me, asking me about my family, name of my children ("Oh, those are beautiful names!"). And the rates quoted were much, much higher than that on the website ("This is the cadillac plan.). This was a completely different experience for me, from when I bought their other products.
After the call I did a web search for life insurance. I found some interesting things that I had never considered. Life insurance is a very different beast compared to auto or home or any other kind of hazard insurance. I think the product in my head when I thought about getting life insurance is what the companies call "Term life insurance". You pay a fixed premium for a fixed number of years (10,20 or 30) and if you die before the term your beneficiary gets the money (unless they weasel out of it, which is another can of worms)
The very fact that companies bundle investment products in with life insurance is an indication of the amount of misdirection involved. I suppose that this is due to the fact that there is no law requiring you to have life insurance (Law requires you to drive insured, and mortgage lenders require insurance on the house). This means that companies have to push harder to get people to buy it (especially since no one plans on dying) and they sweeten the deal by adding in an investment component
The investment component gives a lower return than a comparable straight investment, probably because it's a misdirection. The advice that I read, and made sense to me, was to buy term life insurance and invest separately. The complexity in the other products hides the fact that you are, effectively, paying more for your insurance.

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