Purchasing Instant Approval Life Insurance May Come at a Cost
Why Humans Still Make a Difference in the Application & Underwriting Process
In the spirit of life insurance awareness month, I am sharing some thoughts on the difference between securing life insurance from licensed professional, versus obtaining coverage from an AI driven, instant approval process. Let me explain further by using an example.
SCENARIO
You start the hunt for life insurance, and the preparation begins with a simple google search of “Term Life Insurance.” Immediately you will see an array of sponsored advertisements at the top of the screen, who happen to be life insurance providers. Many of these advertisements will have certain phrases such as “No Medical Exam Approvals” or “Get a policy in 15 minutes.” These companies have built systems where, after you enter some basic information, you receive a quote within minutes—and often an actual policy delivered to your inbox the same day.
Securing coverage in an instant fashion is convenient and appealing, but does it come at a cost?
PUTTING IT TO THE TEST
To find out, I decided to do a comparison. Using the exact same data set, I obtained instant-approval quotes from multiple carriers and then compared them to traditional underwriting results when working with a financial professional.
The policy designs were identical for a true apples-to-apples comparison. Out of six providers offering instant approval, four were able to deliver what I needed for testing.
Here’s what we found:
Company 1 vs. Traditional Underwriting → 23% higher with instant online
Company 2 vs. Traditional Underwriting → 19% higher with instant online
Company 3 vs. Traditional Underwriting → 32% higher with instant online
Company 4 vs. Traditional Underwriting → 30% higher with instant online
On average, instant approval coverage cost 26% more than traditional underwriting.
To put that into perspective, using the largest gap (32%) on a $2M, 30-year term policy, the policyholder would pay $17,220 more over the life of the contract by choosing the instant-approval route.
INSTANT APPROVAL IS STILL OK
In no way am I suggesting instant approval life insurance is bad. These are insurance policies through good financial institutions that will pay claims. They can be useful for example—take a business owner securing a loan where the bank requires life insurance as collateral, and closing is just a few days away. This is a situation where these policies are valuable.
But overall, there are trade-offs.
THE DRAWBACKS OF INSTANT APPROVAL LIFE INSURANCE
Price – As shown above, odds are high you’ll pay more for the same coverage compared to going through a traditional review.
Tighter Risk Assessment – Instant-approval carriers are taking on more uncertainty, so they can be harsher in underwriting. Something as simple as family medical history, a minor health condition, or even an individuals height and weight may result in being assigned a lower health class rating—driving premiums up even further.
Limited Guidance – Speed is the goal with instant approval, not personalization. An individual may not get answers to key questions before locking in a policy, such as:
Is this really the right amount of coverage for my family?
Are there exclusions I should know about?
Does this policy include important riders or features?
Traditional Review Is Faster Than You Think – The traditional process used to mean a paper application, a mandatory medical exam, and potentially waiting on medical records—often stretching the process into months. Today, with updated technology, traditional underwriting can be done electronically, exams are frequently waived, and approvals can sometimes be delivered in just days, rather than months.
WHY PROFESSIONALS STILL MATTER
Working with a trusted financial professional can go a long way in making sure an individuals coverage fits their needs. And here’s a common misconception worth clearing up: advisors are generally not compensated until after your policy is issued—and their compensation does not increase insurance premium.
As our comparison shows, the assumption that “working with a person must cost more” simply doesn’t hold true. In fact, it can be the opposite. There can be good value working with a trusted source to make sure the coverage being reviewed is the right amount, a policy someone fully understands, and without the added costs.
LAST NOTE - I also did a four minute video on the topic we are attaching with this article below.