The internet has changed the way we purchase many items and life insurance is no exception. The trend towards term life becoming a commodity was already starting but the internet gave it the final push over the cliff. What fell was life insurance rates and this has generally been good news for life insurance shoppers. Let’s take a closer look at what life insurance as a commodity means to you and how to best take advantage of this continuing trend.
First, what is a commodity? Essentially, a commodity is any product or service which becomes less distinguishable in price and or qualify from different suppliers. Toilet paper is a perfect example regardless of promises made in commercials. You can go one step further down the chain and find raw minerals and supplies such as wood pulp and copper (the more traditional use of the word commodity) but it applies equally well to any product for which there is not much advantage to purchasing from one supplier versus another. To contrast, cars are definitely not a commodity. There’s such a wide array or pricing, models, options, and levels of quality/service that cars might be the opposite of commodities.
What about life insurance? In spite of the slogans, sayings, and product statements made by life insurance companies, there has been a constant move towards commoditization in this industry. This is good news for you. One of the first things to happen when a product becomes a commodity is that the pricing band narrows. This means that the difference between the most expensive and the least expensive life insurance plan on the market becomes less over time. Why is this important? It means you are more likely to get a better rate. If you really think about it, term life insurance is pretty similar in its intent. There’s only so much variation that enters into the equation. This is very different from health insurance where you have a range of everything from basic hospital plans to full blown HMO which are based on an entirely different model. Aside from the difference between term and whole life insurance, there’s only so much a carrier can do when comparing apples and apples. Riders, of course, add an extra dimension but core life insurance protection, especially in the realm of term life is pretty similar. So why would there be price discrepancies…especially larger ones? That’s the opposite of commoditization and we can say it’s an inefficiency. Of course, to the life insurance company charging more for their product than the average cost, it’s extra profit (or masks poorer management). As you can see from our life insurance articles, our take is from the point of view of the life insurance shopper so this “inefficiency” inherently means you’re paying too much. That’s bad.
Why would anyone pay more than they should? The simple (and mostly correct) answer is that they don’t know any better. This is where the internet has truly changed shopping for life insurance to your advantage. If a captive life agent/life insurance company is only showing their products, than you’re more likely to pay more by default. There may be other carriers or plans that for one reason or another, price better for your given situation (health class, age, area, term amount, etc). You’ll never know.
The internet has leveled the “information playing field” and life insurance is all information. There’s no physical product. We immediately recognized this and provided our instant term life insurance quoting engine. By providing multiple carriers, plans, and life rates to you one site, we are helping to commoditize the purchasing of life insurance. If only purchasing cars was so easy!