It used to take at least a couple of weeks to get approved for a life insurance policy. Now, with online tools, it can take a couple of minutes.
Companies like Haven Life and CUNA Mutual Group, through its TruStage product, are now offering online approval for term life insurance policies that can get you coverage in the amount of time it takes you to make coffee in the morning.
But without a health exam and other procedures, how does it work? Two words: big data. Companies that offer online life insurance utilize large data sets that are analyzed to reveal patterns and trends for human behavior to make assessments about you, your habits and your health. “For example, [let’s say] we can find out through big data that you go to the gym regularly or that you run 10k races once a month — we can find out even what your finishing times are,” says Dr. Steven Weisbart, senior vice president and chief economist at the Insurance Information Institute (III). “Maybe we can infer certain things about your health status from that information that blood tests or urine tests or something might reveal, but only after several days, if not weeks, have elapsed.” The type of food you buy, your driving record and other data about your habits might play into this as well.
If you’re considering buying term life insurance online, here’s what you should know.
You need to shop around between companies
Prices are going to vary from person to person and from company to company. An extremely healthy person will likely find cheaper term life insurance by going the traditional route of submitting to a physical complete with EKG and bloodwork, but it'll likely take weeks to get approved. A “less healthy” person, however, might find cheaper insurance by going the streamlined online route since there’s a less rigorous checkup process. No matter your health status, one thing is for sure: Different companies are going to offer you different prices for the same types of policies. According to Haven Life, by one example, rates for a healthy 35-year-old woman for a 20-year level-term $500,000 policy can vary over $12.51 a month between companies — adding up to a difference of over $150 a year. Sites like PolicyGenius and NerdWallet offer quote comparison tools to help you decide.
There’s usually less available advice
Before buying online life insurance, it’s important to understand your entire financial picture. Whenever something is simplified, information is inevitably left out, and obtaining life insurance through an agent often means access to counsel you might not automatically get online. Some advice will likely be left out that could help you better decide how much insurance to buy, which policy to choose and how to express your beneficiary, says Weisbart. You’ll likely need to do more research (information on sites like the Insurance Information Institute can help here) in order to be prepared.
It’s likely you’ll need more life insurance than you think
Whether you’re buying online or not, it’s important to know this: Term life insurance is sold in terms of a single-sum death benefit, but it’s usually bought to replace a person’s income if they were to pass away early. If someone was, for example, making $50,000 a year, they would ideally want a policy that would pay their survivors the single-sum equivalent of that salary for a certain number of years. A policy for $50,000 or $100,000 would last the survivors just one or two years. The answer to “How much insurance should I buy?” is different for everyone, but a good general rule of thumb is 10 times your income, particularly in a low interest rate environment, says Jack Dolan, media relations vice president at the American Council of Life Insurers (ACLI). Weisbart says replacing a person’s income and other expenses the survivors will incur will, for many, be at least a quarter or half million dollars. One big benefit of term life coverage over permanent (also called whole or universal) life is that it's significantly cheaper.
You need to make sure the company will be around decades from now
Life insurance policies are often written to cover decades at a time, so it’s important to be as sure as possible that the company you’re buying from will still be around if and when a claim is submitted. To check up on the companies you’re considering, search for them and their ratings on Standard & Poor’s (a financial services company), A.M. Best (a rating agency focused on the insurance industry) and Moody’s (for bond credit ratings).
You should pay annually to circumvent unnecessary fees
Because of monthly utility bills, credit card payments, rent checks and more, it’s generally easier for us to wrap our minds around payments that are due once a month. But when it comes to life insurance, online or not, that could end up costing you. Companies generally allow consumers to choose between paying their premium once a year or in quarterly or monthly installments. But some companies charge what amounts to a high interest rate if you choose to pay more frequently than once a year. For example, let’s say the annual premium is $120. That’d measure out to $10 a month, but the insurance company might charge you $15 a month just because you chose to pay monthly, says Weisbart. That’d be $180 per year in extra charges — in this example, a 50 percent increase. The cheapest option will almost always be scheduling your payments for once a year.
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