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Understanding life insurance pricing: why cheaper isn’t always better

If coverage appears to be the same, are there good reasons to pay more?

Some insurance companies may have clever commercials, but do they give you the kind of protection your family needs? When it comes to protecting what’s important, sometimes cute just won’t cut it.

If you’ve done your research, you already know that the cost of life insurance premiums can vary widely from company to company—often for the same amount of coverage. Why? If coverage appears to be the same, are there good reasons to pay more? The answer starts with an understanding of how insurers determine your premium payments.

Premiums are determined by each company’s underwriters, who look at several factors including your age, your current health, and family medical history to formulate their risk. The methodologies each company uses are similar, but can vary, thus affecting the amount a company is willing to cover you for and, ultimately, the price you are going to pay for that coverage. The simple truth is, usually the younger and healthier you are, the lower your premiums will be. But that’s just part of the story.

You don’t walk into a fast food restaurant expecting the same kind of service or quality you’d get at a 5-star restaurant. On the flip side, you don’t go to a 5-star restaurant looking for an extra-value meal. The same thing holds true when selecting a life insurance company. While it may seem strange to consider value-added features when thinking about something as seemingly generic as life insurance, they’re exactly why some companies can and do charge more and people are willing to pay more. The level of service, the company’s financial strength, flexibility of products, and other attributes may increase the price, but ultimately increase the value of your policy and make it a smart purchase.

Here are 5 things to consider when selecting an insurance company:

  1. Company strength
    The policy you buy is only as good as the company that guarantees it. A company with a good track record and solid scores from the ratings services can charge more because they have a track record of paying claims made on the policies they issue. Another thing to consider is corporate governance. Publicly traded companies make decisions based on their shareholder’s best interests, namely maximizing profit over the short term. Mutual companies have no shareholders, and only have to answer to you, the policyholder. That long-term vs. short-term perspective can make a difference when purchasing a product that may not be “used” for 30 years or more. Learn more on what the rating agencies say.
  2. Agent relationship
    How much do the company’s agents actually know about the products they sell? Are they on top of changes in the industry? Will you ever hear from them again after they sell you the policy and get their commission? Or will they review your needs periodically to make sure you’ve got the coverage you need as life changes? Also, buying straight from a website may cost less, but you most likely won’t get the same level of attention or concern as your needs change over time.
  3. Customization
    No two policyholders are the same, so why would you buy a cookie-cutter policy that’s not fitted to your situation. Are you being offered a policy based on your specific needs or the needs of the issuer? The availability of additional riders and tailor-made payment plans can make a company’s policies truly customizable, offering the flexibility you want to protect those you care about most.
  4. Cash value growth potential
    Low-cost term life may seem like a smart solution for now, but it may cost you more in the long term and you may never see a return on it. A company that offers a permanent life policy gives you the ability to grow accessible cash value through the payment of premiums and dividends paid on the policy. If you are seeking consistent growth of cash value, a permanent life policy can provide that. Please keep in mind, however, that dividends are not guaranteed. Companies that provide higher dividends may have higher premiums, but because of the dividend, could actually improve your ROI. If a permanent policy premium is too expensive for your budget right now, some companies have a conversion privilege that lets you convert some or all of your term-life insurance to permanent after a certain amount of time. Learn more about term conversion.
  5. Range of products
    One-stop shopping is convenient, economical, and smart. Bundling your policies may even qualify for a discount. Take a look at what other financial products the company offers that you might be interested in, potentially saving you time, money, and hassle.

New York Life has been a mutual company for nearly 170 years, delivering on its promises to policyholders through wars, economic downturns, and all types of strife — exactly when our policyholders needed us most. Earning top grades from all four ratings agencies, New York Life offers a wide portfolio of products that can help you plan and protect your financial future. Our agents are among the most knowledgeable in the business, receiving career-long training that keeps them abreast of the latest in industry developments, empowering them to ensure you are getting the right protection as your needs change.

Contact an agent to learn more about how New York Life leads the industry in the ways that matter most.

No matter which company’s policy you decide on, make sure you fully understand what you are purchasing and meet with a financial advisor — whether it be an agent or someone else you trust — to ensure that it meets your needs, fits in your overall plans, and gives you the protection you expect it will.