It’s time to rethink bundling your life insurance with your home and auto.
Over the years, I’ve made it a point to educate people in Birmingham and Alabama on what makes a good life insurance company. Things like financial strength, aggressive underwriting, and competitive premiums are all important factors when you’re selecting an insurance company to protect your family or your company. While there is always room for disagreement on who the best life insurance carriers are, there is simply no reason why a buyer would want to use their property and casualty (P&C) company for their life insurance. That’s a strong statement, but a true statement and one worth repeating. Before I go any further, let me say that there are excellent property casualty companies in the market today. I know many of the local insurance agents in my city and most of them are good people and are genuinely out to provide quality service and protection of assets. But when it comes to insurance in general, there are property and casualty companies and there are life insurance companies. While that line is increasingly becoming blurred, there is still a world of difference between the two. Life insurance companies are in the business of covering your life and P&C companies are interested in covering your assets like your home and auto—along with selling the occasional life insurance policy to an unsuspecting buyer. And why wouldn’t they? It’s a great business model and one that insures you’re more than likely to be a client for a long period of time. But are you better served by having your life insurance alongside your home & auto insurance? No.
To prove this to you, I’m going to pick on the top three carriers here in the state of Alabama. For the purposes of the article, I’m going to refer to the Big Three as: Big Neighbor, Big Hands, and Big Alf.
Each week in Birmingham, I have the opportunity to compete with “Big Three” agents for life insurance and the results are usually the same: if the conversation comes down to price, quality of the carrier, amount of coverage needed or options, I win. When beaten, the Big Three agent will usually utter the following statement in an attempt to get the business: “well sir or ma’am, OUR company is financially strong and will be there when you need us.” Trying to create doubt in a consumer’s mind is a common sales tactic, as you can many times sway the outcome one way or another. But what the Big Three agent is really saying is, “if I’m beaten, it could only be by a company with inferior financials.” The reality is that reputable life insurance companies fight for their credit ratings. Losing a good financial rating can be the death knell for an insurance company —both life insurance and property and casualty companies alike.
A credit rating is a life insurance company’s ability to pay policyholder claims. There are 4 major insurance rating agencies and each company has it’s own formula for rating. The important thing to know is that a company with an A+ rating is going to have strong or superior financials and is properly structured to pay claims. Because of the need for strong financials, life insurance companies are generally some of the oldest companies in the US and have weathered numerous recessions and downturns in the market. Clients need to be reassured that a life insurance company will be around in 20 years. In my own selection process, I only quote using A+ rated life insurance companies with a strong track record of slow, conservative growth.
So how do the Big Three compare to a reputable life insurance company in terms of their financials? Most reputable life insurance options that I would recommend with an A+ rating will compare favorably with Big Neighbor and Big Hands and would actually be superior to Big Alf (they were downgraded to a rating of A after the 2011 tornado outbreak in the state).
So what am I getting at? If your home & auto agent tells you that you should pay more premium for their life insurance because, “we’re going to be there,” they’re feeding you a sales tactic that couldn’t be further from the truth.
One of the largest differences in shopping your life insurance with a reputable life insurance company, as opposed to a home and auto insurance company is the likelihood of a favorable outcome in underwriting. Life insurance companies have been underwriting lives for close to two centuries in some cases. It’s what they do and based on experience in underwriting millions of lives, you can expect to be underwritten more aggressively than your home and auto company can. To wit, life insurance carriers will many times underwrite cases that a home and auto company won’t touch. Over the past few years, I’ve helped hundreds of people in Birmingham get insurance, in many cases for the first time. For example, type I diabetics, cancer survivors, and heart disease, among others, are all cases that various life insurance companies may consider. But most P&C companies do not want those types of risks on their books and may either decline someone with a serious health risk or ask the applicant to pay an extra premium on top of the standard rate. When your insurance company asks you to pay more than their standard premium, that is known as being, “rated.” Most insurance companies will have seven to ten sub-standard categories. Every time to you move down from one category to another, you will pay an extra ~25% on top of the standard premium. It’s not uncommon for a highly-rated case to pay in excess of 250% more than a person would pay at standard. For example, a recent client of mine has colitis and a heart valve disorder. He had three separate insurance policies, all of which were rated with other carriers. I was able to consolidate to one reputable life insurance company that would offer him standard rates. This allowed him to save more than 50% on his monthly insurance premiums while locking in more coverage for a longer term, as well.
When I’m working with a client here in Birmingham, there are many times where I will show the client a carrier’s underwriting requirements for a specific category. My goal is to educate clients on the underwriting differences between companies and how that affects premiums. For example, every insurance company has requirements for how much you should weigh based on your height. Your weight is just one category that underwriters will use to determine how you’re underwritten and the premium that you will pay. For example, Big Neighbor will offer preferred best premiums for 5’ 10” males up to 185 lbs. For the person who weighs 186 lbs, they automatically drop to the next rate class which would be preferred. How does a weight requirement of 185 lbs compare to a reputable life insurance company’s requirements? Protective Life, for example, will underwrite a 5’ 10” male at preferred plus rates up to 195 lbs. How does one interpret that? That means that statistically, based on weight, far more 5’ 10” males will receive a higher premium than Protective Life. Just so you know, the difference between an insurance company’s best class premium and second best class could mean close to a 30% difference in premium.
Here’s the thing, P&C companies don’t want to be competitive when it comes to life insurance. Life insurance for the Big Three is an ancillary product, or something sold in addition to your home and auto policy. It’s similar to McDonald’s offering you fries and a drink with your hamburger. McDonald’s is a hamburger company. But it makes good business sense for them to sell you the value meal, doesn’t it?