What are the advantages of ‘direct’ term life insurance?
By Allen Wastler
Allen Wastler is a former financial journalist with over 30-years of experience, including time at CNBC, CNN, and Knight-Ridder Newspapers.
Posted on Jul 31, 2020
In keeping up with the personal finance and financial wellness information world these days, you may encounter a new term: “direct” term life insurance.
Or, perhaps, you'll see one of its variations: direct life insurance, direct-to-consumer life insurance, term insurance online, or even online consumer insurance.
Why the new terminology and what’s the difference from the long-time standard: term life insurance?
The answer is mostly about process. “Direct” is a reflection of the realities of our online world. But there are some nuances perhaps buyers should be mindful of.
A good starting point is understanding what term life insurance is. It is a type of life insurance that provides a death benefit for a specific time period. It is distinct from permanent life insurance, which offers other financial features and can last for a lifetime. Because of its basic nature, term insurance tends to be the most affordable type of insurance.
The ‘direct’ advantage
With the advent of e-commerce and smartphones, many consumers now prefer to do their shopping online. With the advent of sophisticated database systems and analysis, there are now ways to do a health assessment online for basic types of life insurance, namely term life insurance. That means consumers looking for basic, affordable coverage can do it online and get a basic idea of how much it will cost.
And such online insurance shopping offers features including:
- Speed: Online application processes are easy and quotes are typically in real time.
- Direct: The consumer deals directly with the insurance carrier.
- Personalized: The consumer can go through the process at their own pace.
For those looking for quick, affordable coverage for family or other purposes, direct term life insurance makes a viable option. In fact, 29 percent of those intending to purchase life insurance in 2019 preferred doing it through an online process, according to a survey conducted by LIMRA, a life insurance research group. “Online application processes have clearly gained traction among the general population and will likely see a spike in usage in 2020 due to COVID-19 health risks,” the authors of the LIMRA study said in their report.1
How ‘direct’ works
The process for applying for and purchasing online term life insurance is usually straightforward for the leading insurance carriers offering it.
Go to an insurance company’s online quote tool. (MassMutual’s is here) and get an initial quote. You can experiment with different levels of coverage to see how much might fit your budget. (Calculator: How much life insuance do I need?)
If you decide to proceed, you will go into the application process, providing some personal information and answering a few health questions. It's very important to be honest when completing the application. Issuing the policy or paying its benefits depends on the applicant’s insurability, based on their answers to the health questions in the application, and their truthfulness. (Related: Lying on insurance and the consequences)
With your permission, the company will analyze health records and other information in real time to deliver a personalized rate for a term life insurance policy for you. At this point most insurers of direct term policies will require a medical exam, although in some instances that step may be waived for some applicants.
After that, it’s up to you whether or not to purchase the policy. In some cases, the insurance company may want a little more information or need to discuss coverage options further. But for the most part, the process is straightforward and speedy.
Important differences and fine print
Because the direct nature of the online term life insurance system, should you just go through quotes and price shop?
You can, although there can be important differences in value between term insurance policies for the consumer to be aware of. Not all insurance companies have equal financial footing or corporate structures. You want a company with financial strength and a solid reputation. Also, the option for converting term life insurance into a permanent policy can vary depending on the company and the terms of a specific type of policy. Often, policies sold online limit conversion options in order to offer a lower price. Conversion options help protect your ability to maintain coverage, if you have a severe health event during the conversion period. (Related: Not all term policies are created equal)
Indeed, for some people, a term life insurance policy is simply a stepping stone for building a long-term financial strategy, which may include blending different types of life insurance to accomplish different ends. For individuals considering those options, talking with a financial professional may be a good place to start, even if it’s just to start with a term life insurance policy. Also, for those with health issues, a financial professional may be able to help shop for the best coverage.
Checking out an online term life insurance policy quote may be a good place to start the conversation.
1 LIMRA, “2020 Insurance Barometer Study,” May 22, 2020.
Provided by Lenox Advisors courtesy of Massachusetts Mutual Life Insurance Company (MassMutual)
The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.
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