07/01/96 UNLOCKING THE MYSTERIES OF TERM LIFE

UNLOCKING THE MYSTERIES OF TERM LIFE

At one time, if you wanted to buy life insurance coverage, insurance agents and the occasional savings bank were the only games in town. But now all kinds of financial-service companies are getting into the act, from discount brokers to direct marketers to commercial banks. The explosion of new sales channels gives consumers more choices than ever. It also means they have to make an extra effort to ensure they understand the options before they buy.
Mostly, companies are peddling variations on term-life insurance, which simply pays a death benefit to your beneficiaries if you die. But one discount broker, Charles Schwab, is also offering a universal-life policy (which features an investment account as well as a death benefit) and a second-to-die plan (or permanent cash-value coverage that insures two lives and makes a payment following the death of the second person).
Most commercial banks, which now sell about one-fifth of all annuities, aren't marketing traditional life insurance yet. But they're eager to begin. Thanks to a Supreme Court decision last March regarding Barnett Banks in Florida, the likes of Citicorp and First Union will soon be able to offer policies in most states. The court's ruling that a state cannot prevent national banks from selling insurance in towns with as many as 5,000 residents negates prohibitions on bank insurance sales in almost 20 states. It also allows banks to use regional offices to sell policies across the U.S. as state regulators permit. At least one major insurer, Metropolitan Life, has said it is seriously considering selling its products through banks.
MetLife is one of many insurers investigating alternative channels to reach baby boomers, who have shied away from traditional life insurance. ``Everyone's experimenting to figure out what will work,'' says Bob Baranoff, head of the specialty distribution services unit for LIMRA International, a life-insurance trade association. U.S. sales of all types of individual policies have fallen 30% since 1985, to 12 million last year, according to LIMRA. Unlike their parents, who purchased universal-life and other types of cash-value policies, baby boomers tend to save through 401(k) plans and individual retirement accounts. When they buy life insurance, it's more likely to be term.
Insurers and marketers are responding to consumer demand by offering a variety of low-cost term-life products. Indeed, someone shopping for a basic term policy today can turn up more than a dozen fairly comparable choices simply by dialing a handful of 800 numbers or browsing a few Web pages on the Internet.
Of course, direct marketers such as Veritas (800 552-3553) have used toll-free numbers to provide policy quotes and plans for a decade. What's happening now is more players are involved, and they're teaming up in unusual ways. Not surprisingly, the Internet is a popular proving ground.
FAST AND FREE. In June, Intuit, maker of the popular personal-finance software Quicken, announced that its new subsidiary, Interactive Insurance Services, is joining with three major carriers, MetLife, Lincoln Benefit Life, and Zurich Direct, on a Web site called InsureMarket (http:// www.insuremarket.com). By summer's end, consumers will be able to get price quotes and sign up for Lincoln and Zurich term-life plans.
Another online service, QuickQuote, has had a site on the Web (http://www.quick quote.com) for almost a year, nabbing Net surfers with free, instant quotes on level-premium policies that run 5, 10, 15, and 20 years. If you want to purchase one, you provide your name, phone number, and address, and Incline Village (Nev.)-based QuickQuote, which gets a commission on the sale, sends an application in the mail. Its services aren't limited to cyberspace. Since May, Charlotte (N.C.)-based First Union has been stuffing flyers advertising QuickQuote's services into statements mailed to account holders. Bank customers call a special 800-number to reach operators who have access to the same database as Web browsers.
As banks investigate ways to enter the insurance business, they're looking over their shoulders at discount brokerages such as Schwab and Jack White. Just as they undercut the full-service brokers with low commissions, the discounters are making insurance cheaper by offering no-load or commission-free products with prices on a par with direct marketers.
NUANCES. The problem with this proliferation of choices is that comparisons can be tough to make. For example, both SelectQuote, a San Francisco-based telephone-quote service, and QuickQuote offer a 10-year, $250,000 term policy from Jackson National Life Insurance for a level premium of $300. But what if you are 57 years old and want to convert to permanent coverage when the term's up? At this premium, on this policy, you wouldn't be allowed to do that. You'd have to opt for a more expensive ($340 annual premium) version of the same policy--or a different one. ``It's not tough to decide you want life-insurance coverage. But choosing the right type isn't as simple as it seems,'' says Elliot Lipson, an Atlanta-based, fee-only financial planner and insurance adviser.
Most sellers offer assistance in figuring out the amount and type of coverage you should get. But they may not explain the nuances--unless you ask. For example, if you're considering different term policies and you know you want to renew when the coverage period is up, comparing premiums alone is not always the best way to assess cost. Take North American's Premier Econo 10-year Term. If you bought it at age 40, with a death benefit of $250,000, the premium would be $305, guaranteed for 10 years. When the term expires and you want to renew, the new premium would be $575--provided you're healthy and you pass a medical exam. If you develop health problems, you could be switched to an annual renewable-term policy at a cost of $1,145 the first year and $1,250 the next. ``If you are concerned about not qualifying for lower rates at renewal, then you might consider a policy that offers reasonable guaranteed rates at renewal,'' says Lipson. Or, consider a policy that doesn't require medical requalification. Such a policy might be more expensive at first, but over time it could cost less if your health deteriorates.
NEW TERRITORY. When picking a policy from a quote service's list, check each insurer's financial health with a ratings service such as A.M. Best. You want a carrier with strong ratings and a reputation for treating customers well. Internet shoppers should also know that selling on the Net is new territory for insurers and regulators. SelectQuote Vice-President Steven Stark says its site (www.selectquote.com) isn't active yet because of concerns that cyberselling doesn't meet all regulations in states where the company does business.
If you're buying via an Internet service, David Blair, Ohio's insurance warden, advises you to confirm that the insurance agency, agent, and underwriter are licensed in your home state. Otherwise, if the insurer fails, you won't have access to your state's guarantee funds, which are set aside to indemnify policyholders. Or, say you buy a policy from an unlicensed agent, you make a claim, and the insurer won't pay. The usual recourse would be to appeal to your state's insurance department. But in this case, your state would not have jurisdiction. ``Even before the Internet, we had fraudulent operators, and this medium is rife for fraud,'' he notes.
The result of these burgeoning options in term-life coverage is more low-cost choices. But unless you know what you're buying, there's still no insurance you'll get the best deal.

WHAT TO ASK WHEN TERM POLICY SHOPPING

-- What are the terms of renewal when the original policy expires? For how long can it be renewed? Can I be denied lower rates at renewal based on the results of my medical exam? What will the new premium be?

-- Is the term insurance convertible to permanent coverage (whole life, universal life, variable life)?

-- Is this a level-term policy, meaning the premiums are guaranteed to stay the same for the life of the policy?

-- Are the insurer, agency, and agent licensed to sell in my home state? (Check with your state insurance office for a definitive answer.)

-- Have I been quoted ``preferred rates'' (the cheaper premiums that require superior health)? What are the criteria for preferred rates? For example, if I'm being treated for hypertension, will the insurer cover me at low premium?

DATA: ELLIOT LIPSON, FEE-ONLY FINANCIAL PLANNER; BUSINESS WEEK
EDITED BY AMY DUNKIN By Lisa Sanders