Life Insurance: How are you buying it?
Buying life insurance, it used to be simple and easy. It was just a question of finding an agent and he would quote you a price.
Buying insurance online directly from the insurer without the help of an agent or representative should reduce the price of term insurance. it's clearly not the case. This indicates how consumers are exploited. We need alternate ways to get insurance outside the traditional insurers...
Now consumers have a lot of choices when it comes down to buying insurance. The consumer can buy the insurance directly from the insurer without the intervention of an intermediary. The consumer can buy the insurance through an intermediary which is not licensed and where the unlicensed intermediary is just a provider. The last choice for the consumer is to use a licensed intermediary.
You would think that having all of these choices available would create a competitive environment particularly for the term market. However the reverse is happening. Is this because insurers are using this multitude of choices to confuse the consumer while using the opportunity to charge a higher price for lesser coverage?
1. Different ways to issue a life insurance policy
A) Guaranteed issue: A Guaranteed issue life insurance policy is issued without medical exam or underwriting. Basically you fill an application and for the moment you are a Canadian resident, you are approved. Because of this, the insurance is limited to something low such as $25,000. One important feature of this type of policy is that the death benefit will NOT be paid in the first two years of the policy. The premium paid + interest is instead paid back. If there is an accident benefit attached to the policy and the death was the result of an accident, the accident benefit is paid out immediately.
B) Simplified issue: A Simplified issue policy is still issued without a medical exam, but the application will contain health-related questions. How many questions can the application contain before it is not considered a simplified issued anymore? The answer would be purely arbitrary. However in average, a Simplified issue application should not contain more than 3 health related questions. The death benefit provided by this type of policy issue will be limited to an amount between $75,000 to $150,000 depending on the insurer.
C) Traditional issue: A traditional issue insurance policy will be issue with or without medical example. The application will contain all of the health related; usually 15+ question unless a paramedical is required which means that the insured will be asked the health related questions during the paramedical if this option is selected which is usually the case if the application is done electronically.
The underwriting requirements for a traditional issue policy will be determined by the amount of death benefit. These requirements could be just answering the health questions of the application for low death benefits to blood, urine, paramedical, EKG… for higher death benefits.
2. Different ways to get insurance
A) No-Intermediary: When you buy insurance without any intermediaries, there is no one between you and the insurer. Most people are familiar with this way of purchasing insurance for guaranteed issue insurance. You can’t open the TV or mail without seeing this type of offer. However you can also get traditional issued insurance. In this case you are you own agent and you are responsible for your own underwriting and understanding the product and how to answer the questions on the application including the health questions. The question you should be asking yourself is: “Am I getting a good enough rebate to act as my own agent” The answer may surprise you if you look at our comparative table for MANULIFE.
B) Intermediary without a licence
If you could rent insurance, this would be it. In this category of insurance, you have the existence of a master insurance contract and you don’t own that contract. The master insurance contract is owned by the employer in the case of group insurance. You quit your job and you’ll lose your life insurance unless there is a conversion option to individual insurance in the master contract.
In the case of association insurance, you have an association that negotiates a master contract with the insurer which allows the association to offer life insurance to its members using the insurer’s name. The best example is Alumni insurance for a university and we will compare Dalhousie Alumni insurance offering Manulife.
You also have organization/institutional insurance. The best examples are banks with mortgage insurance. The bank negotiates a master contract with the insurer and offer the mortgage insurance to its clients who have secure a mortgage through the bank.
C) Intermediary with a licence
1. Agent contracted directly with the insurer. Often referred as the Direct Channel Distribution, under this channel, the agent signs a contract directly with the insurer. The two most known direct channels are Manulife Direct Channel and Great West Life.
This channel offers little value to the consumer. They are known to be the worst channels in regards to continuity of service as the Direct Channel is full of orphan policies. It is also full of conflicts of interests since signing a Direct Channel contract with one insurer results in sales quotas that the agent must fulfill to retain his level of bonus. As a result, the objectivity of a Direct agent will always be suspect. This channel is also known for producing a high number of agents that commit infractions because of the commission grid offered by this channel which fosters an environment based on greed. By offering a level of bonus that is on par with the bonus received by an MGA conditional to sales quotas that is high, this channel creates the conditions leading to the issue of large insurance policies fueled by commission rebating.
2. The other channel consists of agents using an intermediary to contract with an insurer. This intermediary is the MGA channel. The MGA signs a contract with an insurer known as the master contract. The agent then signs on with the MGA and is added as an Annex to the master contract.
This is the best channel for agents since the agent will get the same level of commission bonus whether or not he places with insurer A or insurer B. This lessens the impact of sales quotas. We also, for the purpose of distribution, consider a branch to be an MGA. The branch applies to the captive agent who is not allowed to sign on with an MGA unless that MGA is owned by his sponsoring insurer.
2. Different ways to get insurance
How should you purchase your insurance? You would think that if you decided to do the work yourself and buy the policy directly from the insurer without the help of an agent me, since the insurer would not have to pay commission to any agent, the policy bought directly would be cheaper. Is this the case or are insurers using the abundance of choices to introduce higher profit margins?
We will answer this question by looking at what Manulife is offering. You can buy Manulife term five different ways. You buy the policy directly on a guaranteed, simplified and traditional basis. You can buy term through as association such as the Dalhousie Alumni Association or you can buy term through a licensed agent. Let’s compare these different options.
Who is selling you insurance? Agents/Brokers/Advisors?
D) What is better?
How should you purchase your insurance? You would think that if you decided to do the work yourself and buy the policy directly from the insurer without the help of an agent, since the insurer would not have to pay commission to any agent, the policy bought directly would be cheaper. Is this the case or are insurers using the abundance of choices to introduce higher profit margins?
We will answer this question by looking at what Manulife is offering. You can buy Manulife term five different ways. You can buy the policy directly on a guaranteed, simplified and traditional basis. You can buy term through as association such as the Dalhousie Alumni Association or you can buy term through a licensed agent. Let’s compare these different options.
I have to state that we were disappointed by the results of the comparison. The insurance issued traditionally through a licensed intermediary was the cheapest when it should have been the more expensive. Insurance where there was no intermediary was more expensive despite the fact that the insurer did not have to pay a commission to an agent. In addition, the insurance issued through an agent is subject to preferred underwriting which is more expensive. Also since the risk is segmented, the standard class would not benefit from the lesser risk of those who are preferred risk. The insurance issued without an agent does not have preferred underwriting and therefore the standard class would include the best risk decreasing the overall risk of the standard class which should have lowered the price.
CONCLUSION: We see no cost benefits from buying the insurance directly from he insurer without the help of an agent. So buying the insurance directly is in the end; no choice at all. This is wrong and we hope that some day, other organizations will be able to offer more competitive pricing to the DIYers (those who want to do it themselves).
Finally, the Alumni insurance is a lot more expensive at $101.25 but this premium is only good for years and would probably double up on renewal. This is bad insurance…
E) Misleading advertisement?
We are warning consumers against the misleading information provided by Manulife. If you buy the Term 5 Dalhousie insurance, over a period of 10 years, we estimate you will pay $5,000 for your term coverage for the scenario that we ran. This is a lot of money. The renewal premium is not shown in any of the quotations provided by Manulife. Manulife as show on the image here uses misleading word such as “preferred rates” for the Alumni term products. Preferred rates apply to preferred underwriting and result in the opportunity to get much lower rate. Using the term preferred rate outside that context is misleading…
Commission are you getting the real story?
A client met an agent in reference to his insurance needs. The need analysis revealed a need of $500,000. Instead he was convinced to buy a Universal Life for $50,000. In this transaction the advisor revealed a commission of $550. Did the client get the whole story?
First the client should have bought a Term 10 policy of $500,000 for the same premium of $1,000. The commission to the agent would have been $300.
The advisor did not disclose the bonus. His bonus was 130%. This means his commission bonus on the Universal Life was $715.
By selling the Universal Life, the advisor met his sales quota and now qualifies for moving up on his commission bonus scale to 150%. This 20% increase is worth $110.
This 20% increase is retroactive to all sales previously made to the beginning of year. Based on the sales quota of $30,000 premium, the retroactive bonus is worth $6,000.
The advisor now also qualifies to a trip paid by insurer disguised as a conference. Value of trip: $6,000
The advisor also qualifies for “cash for marketing”. Value is $1,000.
For selling the wrong product and for committing an infraction, the advisor has:
In the end, it comes down to choosing the right advisor and we can help you do this through our ADVISORIGHT program
Can I sell my insurance policy?
Life settlements are not viatical settlement. Viatical settlement is a life settlement as it is a type of life settlement. Life settlements include any benefits secured and based on the value of the death benefit of a life policy instead of its cash value. In includes loans and the receipt of a sum in cash.
Life settlement may or may not result in a change of ownership. For example a loan against the death benefit would result in a policy assignment instead of a change of ownership with the beneficiary receiving the death benefit less the outstanding loan balance.
All life policies have a Fair Market Value which is always higher than the cash value of the policy. For example a T100 policy with no cash value could easily be worth $50,000…
There are billions dollars worth of life insurance policies lapsing every year and the insurers are buying back these policies through their surrender at LESS than Fair Market Value.
Insurers have convinced the provincial governments except Quebec and Nova Scotia to create a monopoly giving the rights to insurers to be the only one allowed to buy back life insurance policies therefore giving these insurers control over the value of life policies.
It is legal to sell your life policy everywhere in Canada. However the problem is to find someone other than the insurer to buy back the life policy because of the prohibition for buyers to organize a market for such policies.Use our calculator to determine the FMV of your life policy. Don't trust your insurer! Your policy could be worth a lot of money!×
Who can get paid to service my insurance policy?
In all provinces except Quebec, anyone who is NOT licensed can get paid to service your policy!
This means that a financial advisor who has committed fraud and who was sanctioned by having his license cancelled can still continue to receive the commission of service associated with your policy and be listed as the servicing advisor.
If an advisor dies, the estate of the advisor can continue to receive the commission of service and be listed as the one who will service your policy. This means the trustee of the estate who can be the wife, uncle, parent, child, friend or anyone really can be responsible for the service or your policy.
A NUMBER corporation linked to organized crime can receive the commission of service associated with your policy and be listed as the servicing advisor!This is why we have instituted the program AdvisorRight where we only recommend advisors that gurantee continuity of service through a licensed advisor. AdvisorRight ×