A lot of people will never speak to an insurance agent or a financial planner. Oh well. For those people the Internet is the place they go to shop for life insurance. I'm willing to bet that for those who are shopping online, the choice is clear: term or nothing. Sure, you have your whole-lifers or those buying guaranteed UL contracts. But there are far more term quotes going on than anything else.

Online term insurance happens to be very cheap and what many people want. Whether or not this is the best type of insurance to be buying is another matter entirely and can only be answered by meeting with an insurance agent or a financial planner (or if you are really savvy, you might be able to figure it out if you do enough reading, pick up some trade journals, and start learning how to do your own financial planning).

Since many people love the idea of buying online term insurance (what else can you buy online?), I'd thought I'd spend some time discussing it. There are some pros and cons of course, as far as buying  your insurance online.

First the pros:

It cheap. You can cut out the "middle man" as they say and go through what's called a direct seller or a direct writer. This is nothing new, people have been doing this for years with their car insurance (ever hear of Geiko?)

It's easy. Fill in a few forms and you're done. You can even find companies that will issue you a policy online, right there, without a medical exam, you just pay the premium - with a credit card - and you have your policy immediately. How's that for easy?

No med exam. Many times, you don't have to fool around with a medical exam. Although this isn't an across the board guarantee, you can find companies offering $250,000 with no medical exam. I think that this is going to be an industry standard in a few years with medical exams for anything below this amount a rarity.

Now for the downsides:

You don't know what you're getting. OK, yes you're getting term insurance. But buying insurance isn't like buying dish soap. Insurance has been commoditized, for better or worse, and one of the bad things about that is that financial planning didn't just automatically get simpler just because of the Internet.

Life insurance planning is part of financial planning. And...well...life is complex - inherently so. One of the reasons why buying online term insurance can be tricky is really the nature of the transaction. You may be buying online term insurance and may not have an agent helping you through the process. When you do this, you have to know how much death benefit you want to buy, why you are buying it, if it is indeed going to be enough (most people underestimate), what inflation will do to that death benefit, how you offset that, what the payout options are, what rating you can get, can you save money by banding your insurance (again, something usually only an agent knows how to do), do these companies even offer rate banding, what are the underwriting guidelines of the companies you are looking at (i.e. are they conservative in their underwriting or are they more liberal in what health conditions they will accept?), what is the rating and comdex score of the company you are buying from, and so on.

You might have to become a financial professional if you want to go it alone. In order to answer some of the questions posed above, you might have to end up becoming a financial professional yourself to answer them (or know where to look). Are you willing to do that?

Your advice may not be coordinated. There's nothing wrong with wanting to do things for yourself. This doesn't mean that you should do things by yourself or that you shouldn't have a coordinated financial plan. Insurance is really part of a larger financial plan, and a lot of people ignore that. Is it worth buying online term insurance if you cannot get a return of premium? Should you speak to an agent first before buying online term insurance? Should you choose an online company that gives you access to agents instead of just a 100% online set up?

When buying online term insurance, be especially attentive to the ratings and comdex score. These will tell you how well off the company really is. The credit ratings can be found online and so can the company's comdex score. Both measure different things. The ratings refer to credit ratings, while the comdex refers to how a company performs and ranks as a percent of other companies by taking a composite of credit ratings. If a company is ranked 80, it means that they are more financially sound than 80% of their peers. Or to put it another way, only 20% of companies in the insurance business are better off financially than they are. This gives you an idea of who stands up above the crowd even when several companies boast similar credit ratings.

Lastly, even though I'm not a huge fan of term insurance, there is nothing inherently wrong with it. Because it is very simple - it's just pure insurance - and it's very easy to shop for. Keep an eye on the company advertising. Online term insurance companies especially love to hook people in with - of course - low rates. But, many times, and I see this especially on T.V., that low rate is actually just a teaser rate. Which means, you have to be rated preferred plus select elite in order to qualify. In other words, unless you're superhuman, forget it.

In any case, the first step in buying online term insurance is to get online term insurance quotes. Just start collecting them and if possible talk to an agent at the company. Once you have several, you can go back and refine your quotes by eliminating the ones with the lowest credit ratings, comdex scores and so on.

Comments

[insurance quotes and annuities]

Look for sites that have been recommended by media stalwarts such as CNNMoney or The Wall Street Journal.

[Wireworks]

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[Denise]

I agree with you - a better alternative to finding the most affordable policy would be the Internet. Online insurance provider sites can offer comparisons of the most affordable life insurance policies available in the market at a time. But take care in choosing a site. Look for sites that have been recommended by media stalwarts such as CNNMoney or The Wall Street Journal. Check that the site is accredited by the Better Business Bureau. Make sure that quotes are received only from reputed life insurance companies. For an unbiased opinion, choose sites that are not affiliated to a specific life insurance company. Sites that offer you the chance of personal communication with their agents are always preferred and will help you make a more well-informed choice.

Denise at AccuQuote
Disclaimer: I work for AccuQuote and this is my personal opinion.