Beware Of The Life Insurance Bait And Switch Tactic

When I became a father, one of the first things I did was call up my life insurance provider to review how much life insurance I have and go through the various term life insurance options.

My carrier reminded me that my existing $1,000,000 term life policy is set to expire in 2022. I'd purchased the policy over 10 years ago when I was thinking of getting married. I figured, given I had about $1,200,000 in mortgage debt from buying a single family house, it was best to cover that liability so my future wife wouldn't be financially burdened if I passed.

As soon as I became a dad, I suddenly had 22 years to consider before my son graduates from college. Therefore, I decided to get a quote for a $2,000,000, 25-year term life insurance policy.

It came out to $181/month with my existing provider. I thought it would be best to lock down a quote before anything unhealthy happens. Premiums skyrocket once you have any type of significant medical condition.

Unfortunately, because of the size of the quoted policy, I was required to get my blood drawn, piss in a cup, and do an EKG. I hate getting blood drawn. It's frankly one of the main reasons why I didn't want to get a $1,000,000+ policy in the first place. But life insurance isn't for me, it's for my family, so I proceeded.

Life Insurance Test Results

The lab technician came to my house and did her thing within 40 minutes. I filled out some forms and checked a box to know whether my blood comes back as HIV positive. What fun it is to wait for potentially life-changing results.

Then I totally forgot about the life insurance application process for a couple weeks until I got a call from my insurance provider to give me the results. Here's what he said in a nutshell:

We got your test results back and I wanted to say congratulations for doing so great! You were top-rated for 19 out of 20 categories we assess for. For one category you were slightly below top-rated. Your cholesterol came in at 4.6 versus <4.0. You were so close, but due to the results, we cannot give you the Preferred ULTRA rate that we initially quoted. Instead, we can offer you the Preferred PLUS rate instead. The cost of the Preferred PLUS rate for a 25Y/$2M policy is $226/month.

Bait And Switched

Beware Of The Life Insurance Bait And Switch Tactic

Damn Gina! Because of not being top rated on 1 out of 20 categories (5%), I have to pay a 25% PREMIUM on my original quote?

This seems outrageous. I felt bait and switched. I told them I wasn't happy with this new price, and then they told me this:

We can do a full body check up in two years, and if your cholesterol goes down to below 4.0, we will honor the original $181/month price. But in order to do so, you must sign up for the policy today at $226/month. Further, we will be contacting your general practitioner to get your medical records for the past several years.

Great, another blood test in two years. Hmm, why do I feel completely unsatisfied with the answer? It's almost as if I was scammed because I had to go through the uncomfortable process of giving blood.

If I didn't have to go through the process and just got a phone call a week later saying the price had increased due to their background check, I wouldn't be too annoyed. Then the agent went on:

We will beat any and all providers. Thanks for your time and we'll be in touch after we have received all your health records.

Don't Expect To Get The Best Life Insurance Quote

Just like how car dealers advertise the lowest price on a car to lure you in, life insurance providers will quote you the lowest life insurance premium price to get you to commit to the application process. But when want to buy a car, you don't have to give any blood to go for a test drive.

If my insurance provider said a 25-year/$2M policy cost $226/month, I may not have bothered with the blood work. Or more likely I would have gone with a smaller policy to get the figure under $200/month. At $226/month, that adds up to $2,712 a year or $67,800 in life insurance premiums I'd end up paying over 25 years.

Additional Life Insurance Quotes

Here are some quotes I got for smaller policies from my existing provider. They said I can always lower the amount and pay less in the future, but I can't increase the amount. With their new quote, they are basically charging me for the price of a $2.5M, 25-year term policy.

Amount: $1M
Cost: 25 term years – $92/month, 20 years – $62/month

Amount: $1.5M
Cost: 25 years – $136/month, 20 years – $91/month

Amount: $2M
Cost: 25 years – $181/month, 20 years $120/month

Amount: $2.5M
Cost: 25 years – $224/month, 20 years – $149/month

Amount: $3M
Cost: 25 years – $269/month, 20 years $179/month

If you're looking for life insurance, just expect the premium you are quoted could be higher by 20% – 40% after you do the blood work, if needed. If the premium doesn't rise, consider yourself lucky!

The silver lining about the process is that I didn't have to leave my home, I got free blood work done, and I know I'm in top shape for 19 out of 20 health criteria they look for (they wouldn't tell me the categories). Now I can focus on lowering my cholesterol to live a healthier life.

Always Shop Your Quote Around

Because I shop for life insurance once in a blue moon, I didn't know whether $226/month is a good or bad price. All I knew is that it was 25% higher than what I was originally quoted.

In addition, because I've been with my provider USAA for almost 20 years, I just trusted them to give me the best quote possible. After all, members have either served their country in the military or are children of those who have served.

To find out whether my USAA quote was competitive, I went onto PolicyGenius to get various 25-year/$2M quotes and compare the results to my original $181/month quote.

PolicyGenius is a life insurance marketplace that uses technology to get you the most custom quotes based on all your variables in one place. I've met both of the founders multiple times and really like the pricing discovery they are providing for consumers in an incredibly opaque industry.

More Life Insurance For Less Money

The process on PolicyGenius took me less than two minutes. They came back with 8 quotes, with the following two as the lowest and most appropriate: $170.04/month from Pacific Life and $172.62/month from AIG.

Later, my wife also went onto PolicyGenius to compare life insurance quotes. She ended up purchasing a new, better policy through Policy Genius. Now she has more life insurance coverage for less money. Talk about a win, win!

I'm also glad that my original $181/month quote wasn't too far out of line. Now I plan to either go with one of these two providers or use the quotes to have my current provider lower their price since they did say they will beat any price.

PolicyGenius quotes

One Last Life Insurance Twist

There's one good thing about being born before the internet was created. It's hard for life insurance companies to know everything about you.

When I was living in Taipei in the early 1980s, I suffered from asthma. The air was terrible back then, and it still is now. One day I woke up with red spots all over my body and I couldn't breath. I was rushed to the hospital, given an IV, and stayed there for at least one night. When I woke up the next morning, my entire body had turned red!

Not being able to breathe is a scary feeling, and I'm fortunate I haven't had an asthma attack for over 30 years. A stronger immune system and a cleaner environment must have everything to do with it.

I was curious to know how my life insurance premium would change if I said I had asthma 31 years ago with no asthma attacks since. Here is the second set of results from PolicyGenius:

Best life insurance premiums after asthma

Suddenly, my $226/month life insurance policy doesn't look so bad! I assume USAA did all the due diligence they could to find the lowest price possible while still being able to make a profit.

They wouldn't tell me what the other 19 variables were they were checking for. So I'm wondering whether I was supposed to tell them about my asthma attack from when I was 9 years old.

Protect Your Family With Life Insurance

I'm always going to believe that getting life insurance is the right thing to do if you start a family. Just make sure you get the appropriate amount of life insurance for the right price.

The internet has helped create better pricing discovery so we don't get ripped off. Stay healthy my friends!

Related: Life Insurance Needs When Having A Baby

Update: I ended up telling a USAA agent that I had an asthma attack and was hospitalized 31 years ago, and she said nothing changed in my quote. They want to know whether I still have asthma now and they are only looking at my medical records from the past five years.

Further, it's important to know that typically if you don't die within 24 months of when you get your life insurance policy, life insurance companies don't have grounds to deny payment unless they go bankrupt. Double check with your carrier.

Readers, what are some other examples of bait and switch you've experienced when attempting to buy something? Should vendors be more clear? Why do you think life insurers are so opaque when it comes to their underwriting criteria? Should we disclose more health information if the insurance providers do not ask?

75 thoughts on “Beware Of The Life Insurance Bait And Switch Tactic”

  1. I’m so glad you mentioned Policy Genius. Last month I was thinking about getting a life insurance policy and had no idea where to start until I read an article you wrote about how much life insurance to get that mentioned them. I tried out their free quote tool from the homepage and was surprised how easy it was. I did it while watching TV haha. I was able to get a policy that didn’t require a health exam too. They just used my medical records and health questionnaire. I should have signed up years ago, but fortunately I’m still here so it all worked out okay. My new policy just activated last week. First new years goal – check!

  2. Late to the party on this one, and about to write a post on my blog about it – but curious your thoughts…

    I’m a 35/female flat out denied coverage by all but one insurer because of my history of depression and anxiety (I did go on a short disability for PPD after the birth of my first child) — for some reason one agency is willing to give me a policy (they’re probably the smart agency since they can charge me an arm and a leg and they know I’m really NOT high risk for having a history of depression since they have all my bloodwork and everything else came back normal!)

    I hate paying extra to a company to be covered but as you (and my CFP) note this is for my family, not for me. Needless to say, I’m really depressed about this situation agh rs my insurance shouldn’t cost this much, and I’m pissed that seeking treatment for mental health challenges = you’re high risk. I’d think NOT being treated would make you MORE high risk. Anyway, what policy do you think I should get? Looking into laddering and getting some more information. We’ll probably buy a house with a 30 year mortgage in the next few years and the house alone will be $1.5M-$2M (plus interest) so I wonder if this is even enough… at what point does it make sense to self insure?

    $800,000: 20-Year Level Premium Term:
    $891.00 / year

    $1,500,000: 20-Year Level Premium Term:
    $1,560.00 / year

    $800,000: 30-Year Level Premium Term:
    $1,091.00 / year

    $1,500,000: 20-Year Level Premium Term:
    $1,965.00 / year

  3. cave.canemX

    I’ve held off on commenting on this topic, but have done enough research that I feel annoyed. My FA convinced me to purchase whole life insurance at $2M, and my payments are a little over $3K a month. This is ridiculous. He used the strategy of “risk management” and “cash value”, which is all non-sense now that I’ve looked into things a lot more. I’m better off changing to term life insurance, and investing the rest (BTID, as they call it). I’ve had it for a little over a year, and the cash value has only grown to $2,464, and I’ve paid over $36K in the last 12 months… makes ZERO sense!

  4. PLEASE do an article on whole and/or variable life insurance being utilized as investment tools. I personally am a fan of the tax free loan aspect of the cash value during retirement. I don’t even care about the 1.5M death benefit I have although its a nice bonus, but not the reason I own this vehicle. ALSO the government cannot tax monies inside of life insurance upon your death, as it is not subject to the death tax, nor is the death benefit subject to income taxes.
    Many Many multimillionaires and billionaires utilize whole and variable life insurance as one of their investment vehicles, and borrow out money tax free and sometimes paying themselves back with interest..

    Lastly, there are certain protection that these plans provide in cases of divorces and ex-wives.

  5. Sam, I’m also a USAA policy holder for Bank and property/casualty insurance. They usually give discounts for bundled policies. Did USAA offer to lower your other contracts premiums if you take the term life insurance?

    1. Nope. I’m also a multi account holder in USAA too. It is a wake up call to get more healthy, b/c my premiums went up even further after this post. So I’m gonna pass! Get fitter. Eat better. And try and make as much money as possible until my $1M term policy disappears in five years. Goals!

  6. 1) Sam, you likely never had asthma. Plenty of people can have an episode of wheezing secondary to illness or environmental exposure. To truly have asthma, you would typically have repeatable symptoms over time (I’m a recovering pulmonologist). Your childhood hospitalization wouldn’t/shouldn’t have an effect on actuarial tables. The potential increase would be based on the insurer thinking that you have current and actual asthma, putting you in a higher risk category.

    2) I’ve been a USAA member for 27 years. They have never, ever been the least expensive option for the majority of their products, whether it be loans, or any type of insurance. Their customer service has been outstanding, in my opinion. In addition, companies like USAA bank on customer loyalty, and will increase premiums over time knowing that most customers won’t complain and wil stay with them out of inertia, thus increasing profits.

    3) All insurance companies live and die by actuarial tables. It makes sense, even if it seems somewhat arbitrary, but trying to project outcomes in 25 years and likelihood of a payout can certainly be affected by many factors. I dont think it’s surprising that simply having a slightly elevated cholesterol put you into a higher risk category- slightly higher now at a young age could snowball over 25 years if you aren’t careful. Much like how you approach financial risk stratification and not knowing exactly what will happen with future markets, life insurers need to conduct their own risk stratification based on historical data of lots of people and how they die over time.

    4) Be glad you’re healthy- I’ve recently been denied life insurance by USAA and others, and have to rely on a veteran’s life insurance plan of $400k and a 20 year term $500k policy I bought back when I was healthy 12 years ago. It can cover my mortgage and pay for college for my 2 high school age boys, but that’s about it.

    1. Thanks for your thoughts. It’s a wake up call for me to lower my cholesterol and eat healthier.

      I told USAA about my asthma attack on 31 years ago and they said it’s fine. They’re just looking for records over the past five years.

      What happened to your health that caused you to get denied completely? How old are you now? Getting denied seems pretty harsh.

      1. I’ve unfortunately had multiple different health crises that led to me retiring from the military, including ulcerative colitis (leading to a permanent ileostomy), a clotting disorder with a high risk of stroke, and diabetes. I think the biggest issue is that I’ve had several dangerous clots already, including a pulmonary embolus. While I could theoretically buy disability insurance, it would be both prohibitively expensive and likely useless, as the only things it would cover would have to be completely unrelated to my current health issues, like a car crash. I’m 48, and thankfully I’ve got my veteran’s life insurance policy and another term policy that lasts for another 8 years or so, but I’m worried that it’s not enough. Even worse would be if I were to have a stroke that doesn’t kill me, but permanently disables me. We’d be financially hosed… Sounds morbid, but my family would be far better off (financially at least) with me dead than permanently disabled….

  7. I’d recommend playing more tennis and cutting back on anything with cream, and switching to extra virgin olive oil to lower the cholesterol. I have term life insurance thru work and it’s about 5x my salary so way more than enough to pay off my mortgage and then funds left for my son’s college. i don’t remember the cost per pay period but it’s fairly cheap. But I may increase the coverage some more.

  8. My business partner and I each have $1 million 20 year term coverage with the company as the beneficiary. The design of that is to help cover some of the cost of buying back the shares in the business from the spouse of the deceased. Company pays the premiums and they are pretty expensive – $2,605 a year for mine – but also a deductable expense.

    I have $1.25 million personally with wife as beneficiary and we have $1M on her with me as beneficiary. Mine costs $925/year and hers costs $421.20/year. Both those 10 year term policies are up for renewal early in 2018 so I am debating what to do. Might drop to $500 on me, $250 or $0 on her as we are FI and the cash would just be a buffer during the first year while settling equity buyout from the company.

  9. I have 3 life insurance policies, wife has one, all through SelectQuote and this has never happened. I take out a $500,000, 30 year policy every 5 years, and have a 10 year policy too. I am 42 and pay around $400 – $500 a year, les for 10 year, though I started them a few years ago

  10. Steve Adams

    I like to get the blood work etc done. It’s like a free physical and always seemed more thorough then the 30min Doctor checkup with no structure.

    I’ve laddered a bunch of policies and been happy to match my debt and commitments to my life insurance. Even though I don’t technically need the insurance it’s a low cost way to make the event of my early death would be completely stress free on the money standpoint. This way I can invest in less liquid projects and be comfortable that the downside is managed.

  11. Hi Sam,

    Great article. It’s crazy how much insurance companies can get away with and I’m surprised they don’t have to provide any transparency on their underwriting criteria. As a 27 year-old guy I haven’t really considered life insurance since at this point in my life I’m too busy partying and chasing girls =). However, its probably something more people my age should take more seriously, especially while we can get in at lower premiums.


  12. Ten Bucks a Week

    Pull the trigger on something, life changes so fast. I had a medical issue that occurred recently, so the only policy I will have is what I got when I was 19! I got the super best rate on that one of course, how much healthier could I be than back then? I was an unpaid intern at a financial company and was able to run all the quotes so I handpicked exactly what I wanted. $300,000 seemed like a lot back then, but definitely not anymore. Fortunately I supplant with what my employer provides.

    Moral: if you want it buy it while you still can.

    1. Chuck Sarahan

      You may be a good candidate for credit life insurance if you are about to enter into a mortgage.

  13. Brad -

    Have you thought about laddering policies? Overlapping a few to provide the highest coverage for the years with the highest needs, then letting it taper off some (cost-wise too) over time? Sometimes that saves money, and sometimes it doesn’t. Might be worth researching.

    We can’t really compare apples-to-apples because of age, health, location, etc., but my $750k term policy is $69/month. Three of those would meet your needs at the same cost. But if you shorten the term on one, it’s rate goes down. Then shorten even more on the third and it should be even lower.

    Maybe you do a 10, 15, and 25 or something? Assuming you might have less debt and higher net worth to cover an unexpected early death over time?

    Just a thought.

    1. Your policy sounds like a pretty similar cost to my policy, so that’s reassuring.

      If I take out a new 25-year term policy, I’m kind of like laddering since I have another 5 years left on my current policy.

      It’s a good idea Brad. I may just skip this policy, and just get another policy in 5 years when my current one runs out. I’m assuming my wealth will be higher in 5 years than today, knock on wood, which means I would need less insurance in the future. I’ll also be motivated as heck to stay in shape.

  14. 34 year old male in good health.

    I got a thirty year, $2 million term-policy for $155/mo

    Seemed reasonable. I worked with a broker who told me that essentially no-one qualifies the teaser rate so we made our assumptions on the mid-tier when shopping around.

    Life insurance is a STEAL compared to disability insurance. That is a racket.

    1. Yup – I pay $2,970/year for disbility coverage that would pay out $6,700/month. Got this coverage when I was 38.

    2. Are you talking long term disability or short term disability? My supplemental LT disability insurance is pretty cheap at just under $300/year.

  15. This is exactly why you need a good agent…. Every company is slightly different in regard to what they think is acceptable as far as cholesterol and other health issues. You can very easily apply with a company that has looser guidelines and forward your results over for review. If you are healthy enough, you can get the premier rates. Either way though, any agent or quoter that uses preferred plus/premier as the quote they show should be slapped. Especially without showing the other rate classes. Telling people to expect a higher price than is quoted, isn’t even close to realistic though. A good independent agent will tell you the price you should be qualified for based on your height/weight and medical history and which company is most likely to give you a favorable outcome. Also, if there is anything questionable, they will write a cover letter with your application which can help with your approval.

  16. Sam, What are your thoughts on Whole Life insurance plans as both an insurance policy and an investment vehicle for passing wealth on to your heirs? The annual cost might be substantially higher, but that expense will inevitably be recuperated. Furthermore, you may be able to borrow against the plan to ease cash flow constraints.

    This might be a discussion topic for another article.

    1. I too would love to hear thoughts on this. I have both permanent/whole and term life insurance. I think the answer is dependent on a person’s income. If you are eligible for other tax advantaged retirement savings then whole life insurance may not make sense. However, if you’re a high income earner who either cannot contribute to a Roth (even backdoor) or just wants additional saving options then whole life insurance makes sense. Just be sure to choose a manageable premium level that you can maintain even if your income takes a hit. I just went through a job loss but will be ok with my whole life premium for a year without needing additional income.
      Have you already made a decision on what to purchase?

  17. Dave @ Married with Money

    Ugh that’s the worst. I need to switch my life insurance around too, so this information is quite timely; thanks.

  18. SF based PAC Life holder

    As a quick data point, I just went through the process on a term policy also w originated quotes thru Policy genius and placed with PAC Life Like you, qualified for their highest preferred quote status, and post blood work and home visit, they honored the same price. $45/Mon for 20yr $1M policy. Age 37, avid runner, very healthy

    Btw, first time poster but absolutely love this blog, exceptional content. Thank you!

    1. Your policy almost exactly mirrors mine and my wife’s.

      Mine: $500k 20 yr $23/month Pacific Life
      Yours: $1M 20 yr $45/month Pacific Life

      Looks like prices scale linearly with increases in coverage amounts.

      I guess location isn’t as big of a factor as age and health. (I am also a runner, and healthy. Wife was 37, I was 36 when we initiated the coverage)

  19. Money Miser @

    Let’s hope your life insurance provider doesn’t know about your blog or you might just see your future life insurance quotes permanently increase due to asthma!

    I haven’t been too concerned about life insurance yet. Having no debt nor children certainly helps, and I know my wife would be fine financially if I were to pass (she earns more than I do anyway). We have basic life insurance from our employers health coverage, but it’s only 2x salary which would only last for a year or two before being used up.

    Maybe once I’m older I’ll concern myself with life insurance. I had no idea they did such extensive testing but I suppose it makes sense.

  20. I had a recent experience with State Farm which I would call a bait and switch. I just wanted some quotes for term life. They gave me some. Once I started the underwriting process (blood draw, etc.) they started charging me premiums (even before I had decided.) They said, well you can cancel. Underwriting came back, premiums rose significantly (not surprising to me–I have an autoimmune disorder which the agent said wouldn’t make any difference) and then I had to call back and say I didn’t want the policy. Second hard sell. And took couple months to refund the 2 premium payments I had made. Really poor way to do business IMO. Never again. Cancelled all State Farm insurance I had (car,home) after that.

  21. Just for the sake of more information for you…

    My wife and I each got a 20 year term life policy from Pacific Life. For $500k each.

    We each equally contribute to the family income and were looking for enough to put the kids through school and keep them happy/healthy if something should happen to one of us.

    We are both healthy and in our late 30s. Surprisingly, after doing the blood tests and answering some questions (no, I don’t engage in dangerous activities. I have no plans to bungee jump or jump out of an airplane.) we qualified for the prime rate. We pay $560 per year for both of our plans together. Or, $280 each, or $23 per month.

    Assuming the costs would increase linearly (which yours appear to be close to) that would amount to a $2.5M policy costing us approximately $116 per month.

    I wonder if your residence affects your cost? We live in Pennsylvania.
    We also are a few years younger, although not much.
    And this is for a 20 year policy, so there’s an extra 5 years when you are 60-65 that we are not getting coverage for, which I’m sure would have a higher chance of death, which you are locking in the $180 a month for. I wonder what it would cost us for a 5yr $500k policy when we are 60…

    1. Thanks for sharing. Prices don’t move in a linear rate as we age. It’s why many are you to lock in a quote at a younger age.

      Think about ensuring a 95-year-old man versus ensuring a 48-year-old man. Price will be way more than double, if not uninsurable.

      Price will be way more than double, if not uninsurable for the 95-year-old.

  22. I had a “fun” experience with an insurance company. It was for annual renewable term life. I just wanted to renew my policy. The rates went up which I expected when I turned 50. At the time, the insurance was through the firm I worked for. It was for about 2.5m. Anyway, they said due to the amount and my age, I needed to go through “their process”. They sent a nice lady to my home. They asked me a million questions. I answered them. I had some stomach issues which had improved and my cholesterol was a bit high – 213 overall but I had a good CHL of 60 so my ratio was OK. Well, the phone calls and letters from the insurance company were never ending. I kept giving them what they wanted but they always wanted more. Finally, I said screw it because I had a $1,000,000 life ins policy outside of work and I was able to keep my $1,000,000 policy at work no questions asked. I still have a $500K policy although I am getting close to the stage where I can decrease that. Make sure children’s education and the mortgage are handled. Then, make certain cash flow is sufficient. Lastly, remember that the expenses do go down if you are not there! Except for child care costs if your kids are very young.

  23. This is important information. In hindsight if you knew this was a possibility you could have asked your doctor to have the blood tests performed ahead of time (like during a yearly physical). Then you could have corrected your high cholesterol through statins. This would have saved the monthly premium on the life insurance and you would have been healthier overall. We get our life insurance through our employers. This is another benefit of working for a company even if you are financially independent.

  24. Sam, you are entirely self insured and should not be spending anything on this type of insurance, in my opinion. I dropped a multi-million dollar term policy after reaching similar status and circumstances.

  25. A good broker will never use bait and switch and will do all this leg work for you. I do say though that people do need to research the way you have, because knowl edge is power.

  26. Chuck Sarahan

    One other piece I forgot to add. Don’t shop by price alone. Check out the financial stability of the company. Insurance is not like banking. There is no federal regulator as a backstop. All you have state regulators which can be good to poor. If the company fails and you are owed money, you want to be paid. A $2M policy is ripe for a reduced benefit.

  27. Chuck Sarahan

    A few things come to mind when reading your excellent article. First, did you try to break up the $2M policy into 4 separate $500K policies? It might be cheaper but you may have less hassle. Second, did you consider whole life? It will cost more but you have a savings component that will diversify your assets. Third, are you a member of some society that offers life insurance e.g. Knights of Columbus as a social benefit? Fourth, how about being a member of some professional society that offers life insurance? I have found this to be typically cheaper than go it alone attempts.

    When I was 27, I took a $200K whole life policy. After twenty years of paying $2K a year, I now pay nothing to keep the policy in force. It is also still growing in value. When I retire, I can turn the policy into an annuity if I choose. Another benefit was that the agent who sold me the policy only gets paid for five years. After year 1, I had a small but growing savings kitty. That would not be possible with a commercial provider. You have got to know how the agent gets paid and for how long. Especially critical for whole or universal life.

    I supplement my whole life with a term policy from a professional association. To ensure coverage. My kids are out but if something happens to me, my wife will be taken care of which is main concern.

    1. Whole life is a disaster, particularly for someone with a $200k policy. That’s a classic financial blunder. At a 6% return in the market for the last 20 years, you’d have $74k right now. I’m sure your cash out value is much less than that right now.

      1. A 6 pct return on a low risk product that would have paid out a hefty sum income tax free if an early death, sounds like a good deal to me. Your idea of a disaster is different from mine I guess.

        1. 6% is if you invested in the stock market rather than whole life. You’ll be lucky to be beating inflation if you cash out a whole life policy after 20 years.

          1. Paper Tiger

            Donnie, that is why they call it insurance and not an investment. You are correct in that if it goes 20 years you would have made more money by investing instead of buying insurance. However, if you have a wife and 3 young kids and drop dead after 10 years, your family will be thanking you for not making everything about an investment and caring enough for them to provide some added protection so they can provide more for themselves without you.

        2. Chuck Sarahan

          Well said. My agent chose the option of using the dividends to buy more life insurance so my policy is almost up to $260K. That option also increased my cash value. Wish I had purchased $400K instead of $200K.

  28. robert clayton

    I would definitely shop around. I am also have had USAA for over 20 years for my home, auto, umbrella, and banking, but every time I shopped for life insurance with them they are definitely not the cheapest. USAA policies do cover one thing that every other policy doesn’t cover, and that is death in combat. Since you are not in the military this isn’t a huge need for you.

    What USAA did to your rate increase is just industry practice. I despise the practice, but that is how this sales process works. I would guess less than 5% actually qualify for the super preferred rate, so don’t beat yourself up. I would also look seriously at a 20 year policy you might save a significant amount of money, and knowing you your child’s college will be taken care of well before he attends.

  29. My question is why do you need life insurance if you are financially independent? If you have assets to cover your family for a few million dollars, which it seems you do, then why spend the money on an additional $1 or $2 million dollar policy.

    I personally have $3 million in life insurance policies but still have a large mortgage and am not financially independent. As my net worth grows I will reduce the policy amount. Once I have reached independence, the policy will likely be cancelled. This may still be another 10 years, but is the plan.

    1. I was thinking the same thing. I had a policy for years but finally cancelled it once I realized I didn’t need it. If you can self-insure why pay the premiums.

      1. Also wondering the same thing – do you have a certain threshold net worth in mind that would justify considering yourself to be self-insured? Once I reached a certain point (which I’m guessing you’ve far surpassed), I now feel like life insurance is unnecessary, and the real winner would be the insurance company, not my estate. I’d rather invest the same amount that would go to insurance premiums into assets would pass to my heirs in the event of an early death.

    2. I was thinking the same thing. I’ve always looked at life insurance as income replacement if you are no longer around to earn an income. I wouldn’t consider passive income in that analysis because you don’t need to be around to earn it. Then I remembered that Sam probably has a decent amount of non-passive income again now that he’s been running the blog, and that income would go away if he were to pass. So maybe that is his logic behind wanting to get additional life insurance.

      If you are truly generating 100% passive income then I agree that life insurance seems like a waste of money. I suppose an argument could be made that a small policy could be useful if there is an expectation that semi-passive income like rental properties would be too much to manage for the surviving spouse and would need to be sold. Then that rental income stream would go away and life insurance could cover that dip.

  30. The worst part of these stories is years later when folks die and the insurance company denies to pay their $2,000,000 claims because of their fraudelent applications and failure to disclose their full medical history.

    1. Alejandro Paschalides

      Yes, I would not have written the childhood asthma bit in this post for this very same reason.

        1. It’s 2 years generally. It’s called the two-year contestability period (if that’s what you were referring to). If you die within 2 years of getting the policy, your insurance company has a right to investigate and deny a claim on any legitimate basis including application errors. After 2 years of getting the policy, they can’t do anything and have to pay the face value regardless of discrepancies or errors.

          1. Ah yes, you are right. Thanks for the reminder. I totally wrote about the two-year period in another post and how it is important not to die within two years after getting policy just in case.

            Hmm, I was looking for more reasons to save money.

    2. Thanks for your comment. Do you have life insurance? If so, how much did you get and what is your premium? What is your health history and how do you send your life insurance spreadsheet of all your health issues since birth along with the research they do from your primary provider?

      I’ve been on the fence about getting life insurance, so you’re comment actually might end up saving me over $60,000 in insurance premiums! If I decide to pass on getting a 25 year life insurance policy, I really want to thank you for helping me save so much.

      1. In reply to your questions, since I don’t currently have dependents or earned income, we don’t buy life insurance—we have enough net worth as a couple to be OK if either dies early. My philosophy is that, unless the insurance company is naive (or you are willing to commit fraud) it’s cheaper not to buy insurance —insurance companies just swap dollars—plus take profits (and agents get commission). Regarding tracking and reporting medical history, my previous experience was that the applications were very detailed, requiring an affirmative “no” to about any possible condition so it was easy to be honest.

        1. Got it. You are definitely a life insurance company’s dream customer. :) Maybe your thoughts will change once you go through this experience and decide to get life insurance to protect your family.

          I plan to call USAA and tell them about my asthma attack 31 years ago. Do you think that would be OK? I think I remember when I was 11 years old, I had some heart palpitations as well, but maybe it was because I was nervous before a final exam, I don’t remember. Do you think I should tell thr. about this experience as ? I’m just wondering when the line ends. Thank you for your advice.

          1. Regarding how many childhood memories to disclose, I would try to answer the specific questions on the actual application (the same dilemna sometimes comes up with real estate disclosures where the advice is to answer the questions—but not to volunteer anything not asked or do anything like reviewing old records that may stir up memories—only the truth [as best remembered)]).

            Regarding asthma and heart, I would see if the application asked “ever treated for”, “diagnosed with” and specifically address that question as stated (and let any vague memories rest).

            As a matter of principle, I think in an insurance contract, it is fair that the underwriter knows what I know about the risk (and we both act in good faith) and that would guide my advice.

            Back to the basic question—do your heirs depend on your life (earnings) or would they be OK without an extra $2,000,000 if you kacked. Some might say you would be better off investing in skills for your wife (to thrive after your death) than paying premiums to life insurance company.

            And back to your original “bait and switch” experiences, my worst have been with mortgage lenders and brokers—always a moving target. If you have ironed that one out it might be a good article.


  31. Mr. Freaky Frugal

    I did the same thing when I had a young family. The insurance company sent someone over to draw blood. My very young son was curious and wanted to watch so I let him. He said “Does that hurt?”. I told him it feels like somebody is pinching me.

    Much later, when he went to college, he had to get some blood drawn for tests. I asked if they hurt. He said “It feels like somebody is pinching me.” :)

    I think it’s personally reasonable to only answer the questions that the insurance company asks. Of course, if they asked you and open-ended question like “Is there anything else that’s illness or medical related we should know about?”, I would disclose.

  32. Sam – can you explain why you need this life insurance? My understanding is that it’s useful as a way to fill a wealth gap (e.g. mortgage) if the income doesn’t come in anymore. But it seems that now that you that house you don’t have a mortgage to worry about, and probably even less in 25 years.
    Could you please explain what’s the rationale?

  33. Why do you bother with life insurance and how did you pick that amount? Don’t you have enough assets to provide for your family if you were to die?

  34. Charleston.C

    The concept of insurance is great, because you can share and average out cost to cover expenses that is otherwise not affordable. Or at the very least free up a large sum of money because it wouldn’t make sense for each of us to have $2,000,000 sitting in a savings account as a rainy day fund.

    In practice, the insurance industry is a scam if you ask me. I am very skeptical of the different categories insurance companies make up to create variable premiums. Your example of cholesterol is the perfect case. A metrics that fluctuates in as little as 3-4 weeks, will cost your $45 a month for at least 24 months, assuming you improve and the target for cholesterol level doesn’t change (and none of the other criteria are worsen?). For all I know, in 2 years the insurance company can say a change of company policy no longer allow for check up to lower prices, or because you will be 2 years older the quoted rate of $181 is not valid for consideration, or perhaps the premium for Preferred Ultra rate 12 months from now is more than $226/month, so they can’t make any adjustments. Hypothetical scenarios of course, but meanwhile you are stuck paying $1080 above advertise rate for the first 2 years at the very least. Then there’s the fact that one singular instance of asthma like symptom from 30+ years ago could double someone’s premium, which sounds like highway robbery to me. What else can insurance companies use as an justification (or excuse) to charge people more? That will be a mystery until it’s used as a reason to raise premium.

    If someone familiar with the insurance industry takes a difference stance would like to offer their opinion, I’m open minded to have my perceptions changed. The distrust I have extends beyond life insurance, since health insurance, home owner’s insurance, car insurance etc. all fit a similar pattern of undisclosed pricing practice.

    1. The very smart thing about insurance companies is that they won’t provide transparency on what they Rate you on. This way, if I get my cholesterol to the most excellent range, they can still charge me the same rate or higher in two years because of some other variable that I have no idea what they’re rating me on.

      Life insurance as a great business, with huge company valuations, and relatively good stock performance. W buffet is a huge investor so I many others.

      I hope this post helps readers see the yin yang side of finance.

      1. That’s a good point regarding the various, unforeseen variables.

        I was actually surprised they told you about the parameters in the level of detail for the one category that they did share.

  35. We haven’t had any bait and switch policy plan because we get our life insurance from our employers. There is an option for us to pay extra and get a better plan, but we don’t feel the need to at this point.

    I didn’t know life insurance was so expensive. But like your said, it’s necessary, especially when we have a family.

    1. I was the same as you, as in I have my life insurance with my employer because that is easy (I also maxed it out). But lately, my thinking has changed. By doing so, I am at the mercy of my employer. You have your life insurance as long as you are employed. If you lose your job now or in future, you’d not only don’t have a life insurance any more, but you’d have to pay higher premiums because you may be older, have health issues, or some other reason.

      You want as much control over this stuff as possible. One of the same reasons we all don’t count on getting SSN benefit when we retire and plan our retirement just based on our savings because SSN benefit is not in our control and we are at the mercy of the government’s ability to manage it. If you get it, it’s a bonus; but if you don’t, it doesn’t matter. Get your own life insurance while you are young (relatively speaking) and healthy, so that’s one less thing to worry about.

      1. Thank you for your feedback, Cartman! I’ve never really thought about that aspect of life insurance before. You’re right. When we depend on our employer for all or most of our benefits, the risk increases, especially when the job is precarious. I will definitely need to give this more thought! :)

  36. FullTimeFinance

    Reminds me of how they give a teaser rate for auto and home and gen many of them jack it up the next year. It’s important to shop around. Unscrupulous sales policies are everywhere.

  37. This is the same exact thing that happened to my father in law. He was extending his life insurance policy due to a new business adventure that he wanted cover and they pulled the rug out from underneath him. Nevermind that he’s one of the healthiest people that I know but they was some small thing in his blood work that caused him to pay extra. He was not happy and shopped around and found someone even cheaper.

  38. Oh my goodness! It drives me nuts when companies do things like that. It’s always under the impression that you can get this amazing deal, but if you try, you have offer them everything but your firstborn to get that price. It’s incredibly frustrating to say the least.

    I personally am the type of person to put everything on the table when it comes to those types of things. I probably drive my husband insane with this in these situations, because things that happened when you were 9 may not be truly important. But I have a guilty conscience and will feel like i’m lying if I don’t put it out there. But I’m not sure that means it’s lying or wrong to not tell about something like that. If you haven’t had issues since then, plus you are very aware of what caused it at the time, then I don’t think it really causes any impact on the current issue of getting insurance.

    We are due (past due) to get our life insurance increased, and this story is making me not look forward to it at all.

  39. Ugh. I hate the way insurance works. I know it’s a necessary part of life but it’s so morbid. My favorite joke about how the Omen was how the mother was a jackal and the father was an insurance sales man.

    The bait and switch seems invitable but since you pretty much aced that health test, 25% increase seems criminally high.

  40. Dumb question:
    If you’re financially independent, why do you need life insurance?

    This seems right up there with: “I’m financially independent but I’m still gonna lease cars…”

    1. I don’t think this is a dumb question and is still worth asking.

      It might depend on one’s net worth and ability to continue to generate and/or maintain a level of income. If you pass away and there is no one to properly manage your assets (assuming an estate plan had not been executed or at least been done poorly).

      Overall, whatever amount one might decide can also provide a level of security or cushion.

      1. I’m guessing the answer is estate tax. Sam, what about estate tax and mitigation strategies for the next post ?

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