For Life Insurance, Online Doesn’t Mean Cheaper

With Life Insurance Awareness Month well under way, now is a good time to repeat what many agents already know: With life insurance, online does not mean cheaper.

When people go into a store to purchase a product, they often have researched to see how much the same product costs on the Internet. To make it even easier to compare, online retailers’ mobile apps include scanners. Often, consumers find that the very product they’re looking for in a store can be delivered to their door free of charge at a lower price.

But the idea that everything is cheaper online because warehouses are centralized and middlemen are eliminated is a common misconception.  Buying life insurance often illustrates this.

Typically, buying life insurance involves a rigorous underwriting process, so insurers can see the type of risk they’re taking on by issuing a policy.  But online, life insurance companies often use something called “simplified underwriting.”  To save time, it usually means no medical exam is required. Instead, a limited number of health questions are asked, and those responses are verified.

This means that the steps are fewer and policies are issued more quickly. But for a healthy, young individual, this could mean paying more for a policy than he would have if the life insurance was fully underwritten.

Consumers should understand the effects underwriting can have on price. After all, it’s an area in which awareness is lacking. LIMRA’s Insurance Barometer Study, which is conducted every year with Life Happens, finds that just seven percent of consumers believe life insurance would cost more when purchased on the Internet. And it’s likely few would take into account the possible effects of simplified underwriting.

Today, not many Americans are buying life insurance online. But many people–especially younger people who spend a lot of their time on the Internet every day–tell LIMRA they would like the option to do so.

Awareness comes in many forms. Americans recognize they need more coverage, but they do not know about all the factors at play that can determine the price of a life insurance policy. Most consumers know that tobacco use can affect the price, but fewer are aware that a person’s driving record and credit history also influence what they will pay for coverage.  (See Chart.)

When awareness increases, consumers are more likely to purchase products to protect themselves, their families, and their financial security. And that’s what Life Insurance Awareness Month is all about.

For more facts about life insurance, visit LIMRA’s Life Insurance Awareness Month page.