With so many life insurance carriers out there, you’re probably wondering the difference between them all. For the most part, life insurance is life insurance. It’s there to cover your burial and other expenses you don’t want to leave behind, at the most basic level. However, it is important to understand what you are getting yourself into whenever you sign an insurance contract. Beyond the obvious “good” vs “scam” carriers, there’s a wealth of difference between even the legitimate insurers. With that said, let’s go over those differences.
Price
The obvious difference between most carriers is price. No carrier is going to be able to offer the exact price another carrier has. However, that doesn’t necessarily mean that the price differentials are extreme. Between competitive carriers, assuming a healthy person, the price difference is usually negligible. Don’t get me wrong. There are some rip-off carriers out there, but the top 10-20 carriers don’t have more than a couple of dollar’s difference between them. However, the price is heavily effected by your health, as all carriers have unique criteria for what they will accept.
Health Criteria
This is the most important difference between carriers. All carriers (with the exception of guaranteed issue for seniors) have health questions, and depending on the way you answer those questions makes the difference between being offered preferred, standard, and substandard classes (level, graded, modified for final expense) or even no coverage at all. These classes effect the monthly payment drastically. If you have a clean bill of health, both personal and family history wise, you’ll most likely be offered a preferred class. If you have health issues, things become complicated.
Based on your health condition(s), one carrier might offer you preferred, whereas another carrier will offer no coverage at all, and the next carrier offers substandard at a select rating table. It’s the same process with simplified issue whole life insurance (a.k.a final expense), where some carriers will offer level, graded, modified, or no coverage. The health status of a potential insured affect what carriers will accept and is unique to each carrier’s underwriting.
That’s why it is important to work with an independent life insurance agent that knows the ins and outs of his carriers and can determine which ones are going to give the best deal to their clients.
Rating Table
A rating table is the number in the substandard class an insured is placed at. Rating tables typically go from substandard 1 to substandard 16, with a huge difference in monthly payment depending on which spectrum of the table an insured lands at. The higher the table rating, the more expensive the insurance policy will be.
Riders (A.k.a. Add-ons or Options)
Riders are otherwise known as add-ons or options for insurance policies. They increase the value of the policy for the insured. However, riders also increase the monthly payment of the policy, so it is wise to balance the consideration of riders with what your budget will allow. Not all carriers offer the same riders, so it is important to understand the offerings available in your contract. For instance, the Return of Premium rider, which pays back all policy premiums at when a policy ends, is only available through a select few carriers. For more Information on Riders, follow this link.
Plan features
Some whole life insurance plans are participating, while others are not. Participating whole life is when the carrier pays out non-guaranteed dividends in the form of checks, paid up insurance, reduced payments, etc. Some plans have the ability for conversion to different types of life insurance. For instance, term insurance can later be converted to whole life insurance with some carriers.
Ratings
The standard rating service for life insurance carriers is A.M. Best. Their ratings are for financial strength and go from A++ all the way down to D-. It’s best to go with companies that have a financial strength of A- and higher if you don’t want to deal with a bankrupt carrier.
Differences Between Level, Graded, and Modified Issue Policies in Final Expense Plans.
There are 4 different kinds of final expense policies a person could buy in terms of health class. These include level, graded, modified, and guaranteed issue. A level premium means you get first day coverage, so that if you were to pass away the next day, your beneficiaries would receive the full death benefit.
A graded benefit is for people with a lot of health issues and is more expensive than level coverage. It is typically set up to pay a portion of the death benefit during the first 2 years of the policy. This amount is anywhere from 20 to 40 percent if you pass in the first year, and 50 – 70 percent if you pass in the second year, receiving the full benefit in the third year and forward. Some carriers extend this wait to 3 years before paying out the full benefit. A modified benefit is similar to graded, but more expensive and different payout terms in the first couple of years of the policy. Guaranteed issue is what you get if no other carrier will insure you at any level.
10-20 pay plans vs regular plans
Some life insurance plans are set up so that your policy gets paid up faster. These are usually called 10 pay, 20 pay, and pay to 65 plans. This offers a piece of mind or a goal to shoot for so that the monthly payment isn’t a necessity for a long time. The caveat here is that these plans tend to be more expensive than the level pay plans.
Non-med term vs regular term.
Non-med term is a term life insurance policy that doesn’t require a paramed examination. There is usually a set amount of how much death benefit a person can buy (typically 250k to 350k) before a paramed exam is required. Non-med term plans can sometimes be more expensive than regular term plans.
What is a Paramed Exam?
A paramed exam is required after applying for a fully underwritten life insurance policy without the non-med distinction. What happens is a paramed specialist visits your home and takes a measurement of your vital readings. This includes a urinalysis (pee in a cup), blood draw with a needle to take your blood reading, height and weight measurements, and some medical questions. This exam is required for some policies based on the face amount and at the insurer’s discretion. It is best to take this exam in the morning because an 8 hour fast is typically required.
Conclusion
With so many life insurance carriers and insurance agents vying for your business, it can all be overwhelming. It’s hard to judge the good from the bad. That is why it is important to work with an independent agent that has access to the best carriers and isn’t tied to just one.
Blue Crush Insurance
