Do you feel like you've entered The Twilight Zone when you try to evaluate life insurance policies? This guide will help you sort out everything.
When you evaluate a life insurance policy, you're likely to feel like you've entered The Twilight Zone. Insurers' "illustrations"projected values for policiescan seem surreal. For instance, projected returns for cash-value policies may be calculated based on the record stock market of the 1990s.
What to do? Don't try to analyze cash-value policies yourself; get professional help. One option: For $55, you can get an unbiased analysis of a single policy from the Consumer Federation of America. Additional analyses, requested at the same time, cost $40 each. Check out www.evaluatelifeinsurance.org .
Term policiespure insurance with no savings componentare simpler to compare, but get quotes from several companies, says Glenn S. Daily, a fee-only insurance consultant in New York. The simplest way to do that is through a Web site like www.term4sale.com or www.insure.com .
In addition, for all types of policies:
Avoid insurance agents, if possible. "They have a commission incentive to sell something, so it's impossible for them to be unbiased," says Peter Katt, a fee-only insurance adviser in Mattawan, MI. Katt recommends that consumers contact a company like Ameritas Direct (800-555-4655; www.ameritasdirect.com) which sells policies directly to consumers.
If you do use an agent, try to decide in advance how large a death benefit you'll need and what kind of policy you'd prefer.
If your insurance needs are complex, you might want to go to a fee-only consultant. "The usual charge is $200 to $300 an hour," says Katt. But over the long run, a well-chosen policy is apt to save you far more than you paid for the advice.
Screen insurers. Ask your state insurance office for complaint reports (for contact information, go to www.naic.org/state_contacts/sid_websites.htm ). And consult the financial ratings of A.M. Best, Fitch Ratings, Moody's Investors Service, Standard & Poor's, or Weiss Ratings, available online, from your agent, or your library.
Ignore pitches that liken insurance policies to bank accounts, personal investment accounts, annuities, or anything else they're not.
Skip most "riders," which are the insurance equivalents of optional floor mats in a new car. They're usually expensive and unnecessary.
Beware of tax-saving schemes that hinge on loans, which may no longer be available when you need the money. Among them: policies offering "tax-free retirement income." You're safer with an annuity.
Carol Pincus. How to save on life insurance. Medical Economics Sep. 19, 2003;80:56.