While this question appears to be straightforward, it is not. Many factors determine the cost of insurance, and no life insurance company has the lowest rates for everyone. While no one company has the lowest rates for and everyone, almost every life insurance company probably has the lowest rate for someone. This is the biggest reason why it is so important to compare quotes before you commit to purchasing a life insurance policy. Different types of insurance companies may be more or less expensive depending upon the type of policy you are purchasing as well. Here are some general rules when looking for the least expensive company.
Smaller Companies Usually Have Less Expensive Term
This is because big companies over price their term insurance offerings. They know that their brand name will attract clients who are not interested in comparing prices, and they also know that people who are already clients for other products or services will likely purchase from the same company without looking for less expensive policies.
A big company can also command higher prices for term insurance for other reasons though. Big companies are associated with security and longevity, and people are willing to pay for the feeling of trust and confidence that the company will be financially sound in the long run. Perhaps equally important but often overlooked, term life insurance can be converted to whole life insurance, but only whole life insurance from the same company as the term was purchased from. Whole life insurance offerings are often superior for the big “fortune 500” companies. Some people are willing to pay more for the ability to convert their term to whole life insurance from their preferred whole life provider.
While large companies command a larger margin for term life insurance, smaller companies are competing for clients by charging lower prices. They also may specialize in term life insurance, and they may have a very efficient cost structure tailored to their specialty. They may not even offer whole life insurance, which means that they do not make dividend payments to clients. This allows them to be more competitive with annual premium charges while at the same time providing clients a sound financial structure which will lead to long term financial stability.
Larger Companies May Have Higher Long Term Rates Of Return
Because larger companies typically have higher profits, they may be more likely to pay higher dividends on whole life insurance policies. This means that even if the premium payments are higher, the internal rate of return is also likely to be higher (in the policy owners favor) over the long term. Larger dividends also mean that the whole life insurance policy is more likely to pay for itself sooner, which is important if it is a consideration.
People may also choose larger companies for the feeling of security and trust that the company will survive to pay a death benefit for a policy meant to be in force for someones whole life.
Reasons Prices Differ Between Companies
Different Companies May Classify The Same Person’s Risk Differently
Every life insurance company classifies each person according to their estimated risk. This risk class rating, or underwriting rating (also known as health rating), is a huge factor in determining the ultimate cost of insurance for the policy owner. Potentially the good thing for the policy owner is that if a person is on the bubble between two different risk classes, different companies may ultimately classify the same person differently. By applying to multiple companies, a person may lower their cost of insurance substantially.
Some Companies May Have Better Prices In Particular Health Ratings
While a company may not have the lowest prices for every health rating, they may for one or more particular ratings. This is another advantage to getting rate quotes from multiple companies for your likely underwriting risk class.
There is a different premium cost for every year of age. This means that every company may price a policy differently, even for people in the same risk class, for every year of age.
Must Compare Quotes To Find Lowest Rates
To find the lowest rates for life insurance there is no simple answer. One must simply compare rates from multiple providers to find the least expensive provider. Please use our rate comparison tool by entering your zip code in the box above to compare for yourself.