November 3, 2017
Everywhere you look, you see announcements, signs, banners, and flashing lights promoting a momentary lowering of the cost for just about everything. Everything, except for life insurance, that is. As I was researching this topic, I took a moment to Google “life insurance sale” to see what would come up. Here is what I found when I put quotes around the words “life insurance sale” and then hit the search button: nothing. Nothing about a sale, that is. I saw articles about selling life insurance, and sales of life insurance, but nothing like “November is annual buy-one-get-one-free month at National Life of Peoria!”
So, why do we never see a sale on life insurance? There are several reasons for this. One is that carriers will simply lower the cost when they want to be more competitive, and leave it that way until they decide to change it again. It really is that simple. If I were a carrier and I wanted to attract 40- to 55-year olds, I would lower the cost on that segment of the market for a period of time, look better than my competition, and enjoy attracting clients of that age group. This happens all the time, but is simply not apparent to those who are not insurance nerds. When we analyze carriers and prices over time, we find that adjustments are constantly being made in order to attract shoppers.
Another reason that you never see a sale on life insurance is that insurers prefer that agents and brokers refrain from practices like rebating, which is lowering a consumer’s ultimate cost by handing part of the sale price back to the consumer. You see, as agents and brokers, we don’t set pricing. Nor can we change the cost of your plan once the carrier sets the price. However, in at least one state, it is not illegal to simply hand you back, say, fifty dollars so that we can induce you to do business with us. This practice is not looked at nicely by insurance carriers, and can cause us agents to become disconnected from the carrier if we do it. Why would carriers do that? Because it destabilizes the entire system. We should at all times, as agents and brokers representing carriers, remain reputable and as close to fiduciaries as possible, which means that we should act in the client’s best interests and not corrupt the way this industry works in order to make a sale.
Here is one more reason that you don’t see a sale in life insurance: since we don’t have the freedom to change the cost, we can’t run it up just to drop it and proclaim that we are “slashing” prices. By comparison, notice that auto dealers have a manufacturer’s suggested retail price (MSRP) for your car. This suggested retail price is created to leave some wiggle room, so sellers wiggle. In life insurance, there is no MSRP. There is only one price. For example, a 40-year old male wants to take out a 20-year term life policy, with $250,000 of coverage at a preferred rate class from the carrier Prudential. There is only one price across the nation for this plan, regardless of where you buy it. Even if you buy it directly from Prudential, as opposed to buying it from a broker, the cost is the same. We don’t have a margin to play with, such that if we take less for it, you can get it for less. You may begin to understand, given this bit of information, that none of us agents and brokers has a better price than the others do. We don’t. We could quote less expensive rate classes, even when it is not indicated that we should. However, that would not be acting in the client’s best interests, since final approval will show that we were loose with the truth. Think “bait and switch”, where a lower cost is shown on your quote before you get smacked with a higher cost later. That is usually avoidable.
Finally, let’s address the occasional news headline, “There’s a price war among the top life insurance carriers.” To be sure, there is always competition among the top carriers to ensure that you see one of their plans as the least expensive on a spreadsheet. Were you to go to our website and run a term quote, you would see that the cost among the top two or three carries is the same to within about $1.50, based on monthly premiums. Sometimes, the difference is less than a dollar. The “price war” – which suggests that you will save a ton of cash because the intense fighting has dropped the cost to near-zero – is actually not all that. Carriers have been at this “war” since term insurance was invented, with no signs of an armistice any time soon. Some consumers hear “price war” and think that they can get a much better price today than they’ve been paying on a policy they bought four years ago. Oops. The cost today is based on one’s age today, not one’s age four years ago. Since the person is older now, the price will be higher now – and it will be even higher later on. Even if carriers reduce the cost for a period of time to become more competitive, the reduction to a price-point less than that of the competition is slight (reread the part about the top three being very close in price).
So, how do you win the war for bargain term life insurance? Buy now, rather than waiting until you’re older. You’ll pay less that way, which is the single best reason for taking advantage of a sale in the first place!
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