Direct term life insurance is something you’ll hear about online, as well as in radio or TV ads. The “direct” means the insurer is selling their product to you directly. But that’s not how life insurance used to work. Let’s take a look at how things used to work, how direct sales work, and the pros and cons of each. Here’s what we’ll cover:
How It Used to Be: Life Insurance before Direct Sales
How It Can Be: Direct Term Life Insurance
Direct Term Life: Pros and Cons
Shopping with an Agent: Pros and Cons
Fully Underwritten Polices vs. No Medical Exam Policies
Decision Time: What Should You Do?
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When you wanted to buy a policy, you called a life insurance agent. The agent would gather some information about you and your needs, and search for policies that fit those needs and your budget. While some agents were only contracted with one particular insurer and could only offer that insurer’s products, other independent agents had access to more. A lot more, in fact…
Did you know there are about 2,000 companies offering life insurance products in America? You’ve probably never heard of most of them, but don’t worry – you don’t need to. That’s the job of your independent life insurance agent. They learn the hundreds (if not thousands) of policies and carriers available, and guide you toward the ones that best meet your needs.
It was a pretty simple process because all it required you to do was work with an agent. Your agent did all the heavy lifting for you in terms of comparison shopping and answering your questions.Get a Free Quote Now
Thanks to the internet and rise of online shopping, insurance carriers realized they could sell direct to the public without an agent. Some carriers set up their own websites specifically to sell direct to consumers without an agent’s help at all. You don’t need an agent to shop these websites – but you can only buy the policies offered by that particular carrier.
The phrase “direct term life insurance” refers to a term life policy bought through one of these websites, directly from an insurance provider. Examples of insurers with direct-to-consumer websites include Fidelity, Ethos, and Haven Life. On these websites, you can complete the entire buying process from start to finish. But before you get too excited, take a moment to look at the pros and cons of each buying method below…Get a Free Quote Now
At first, it may sound like a good idea to buy direct term life insurance straight from the insurer. It’s fast and convenient, yes. But there are several big caveats – namely, the difficult of comparison shopping and the lack of options.
Pro: Complete the process 100% online.
Pro: Complete the process on your time.
Pro: No sales pressure from an agent.
Con: Can be hard to get help if you aren’t sure how to complete the process.
Con: Can be hard to get help if you aren’t sure how much coverage you need.
Con: Comparison shopping requires starting the buying process at multiple direct-to-consumer websites and comparing quotes from all of them. It’s time consuming and annoying to have to re-enter the same information in multiple quoters.
Con: No easy way to know if you’re buying a policy with the features and options you want.
Con: No easy way to know if you’re buying the policy type that best meets your needs. Is a term policy even the best choice? Or should you be looking at permanent policies, too?
Con: No impartial person to offer advice and advocate for you if there’s a problem during underwriting.
Con: Non-med policies (the bulk of direct sales) often come with higher price tags that fully underwritten policies, which you need an agent to buy.
Con: Some policies require a medical exam after the fact, which means your price could change later.
An agent can help you with more than you probably realize. Unlike direct term life insurance websites, your agent works for you. It’s their job to make sure you’re buying the right type of coverage and in an amount that meets your needs. For example, you might not have the in-depth knowledge needed to figure out which policy type best meets your long-term needs, or whether you should consider a critical illness, return of premium, or long-term care rider. Yes, you have to talk to someone in person or over the phone….but doing so could save you a lot of money and set you up better for the long-term.
Pro: Save money with one-stop comparison shopping (as long as you work with an independent agent/broker).
Pro: Save time with one-stop comparison shopping (as long as you work with an independent agent/broker).
Pro: Ask questions and a real person will give you unbiased answers.
Pro: Your agent will guide you through the application and underwriting process.
Pro: Your agent will advocate for you if there’s a problem during underwriting, or the offer comes back substantially different from what you were quoted.
Pro: Can advise you on things like riders and policy types and only quote you policies that meet your needs.
Con: You have to make a phone call or visit an agent in person.
Con: You have to conduct business during the agent’s normal business hours.
There’s another issue we need to cover to help you understand your choices.
Traditionally, life insurance policies had a long underwriting process. Getting a policy meant taking a medical exam to help the insurer evaluate how much of a risk you represent. Using information like your age, height, weight, blood sample, and urine sample, the insurance company’s underwriter would assign you a rate class. That rate class would determine the rate they actually offered you (as opposed to the quote you got, which is just an estimate).
Even before the pandemic, this process was beginning to change. Medical exams are inconvenient for some people, and scary for others because they do involve having blood drawn. So insurers began offering no-exam policies that simply required applicants to answer questions about their health. The trade-off? Those policies are often more expensive because they don’t give the underwriters enough information about you to fully determine how much risk you represent. To average out their risk, the insurers need to charge more than they would with full underwriting.
And because most of the direct term life insurance policies you can buy online are non-med, they’re almost always more expensive than fully underwritten life insurance.
So while direct term life insurance is more convenient, you’re going to pay more in the long run for that convenience. It’s a trade-off you need to think about and decide what’s more important: convenience or cost?Get a Free Quote Now
If you’re 100% certain that term life is the right policy type for you – and you’re 100% certain that the amount you’re applying for meets your family’s financial needs – direct term life insurance could be a good fit for you.
But if you’re not sure – or if you prefer to shop around and see if there’s a better deal out there – we recommend working with an agent. Why not start here with us?Get a Free Quote Now
At LifeQuote, we only sell life insurance. We don’t do auto insurance, homeowner’s insurance, or any other type of coverage. We specialize in one field so we can put all our knowledge and energy to work helping you get this one choice right.
For 32 years, we’ve helped people just like you protect their families by shopping for the best and most affordable policies for them. That’s why we only show you quotes from companies rate A, A+, and A++ as rated by A.M. Best. We want you to have complete trust in your new policy, and this is just one of the ways we serve our clients.
We encourage you to get a free quote and start the process. We’ll be here to help if you need us!Get a Free Quote Now