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Why are some life insurance policies more expensive than others?

One company would charge nearly $30 a month, another only $7 and I asked for the same amount of whole life insurance at my current age. What makes the more expensive one better - and is it better if you're really covering yourself for same basic fees and services. Could someone explain in laymens terms?

Public Comments

1. Generally speaking, an insurance company's rates are based on their own claims experience. So one company might be much cheaper for say smokers, or people over 40 if their own claims experience has been lest costly. Whereas a different carrier who has taken a beating from smokers or folks over 40 will have higher rates for those classes. Also, there is an excellent chance that you DID NOT get two quotes on whole life. You probably got one whole life and one term quote. I have been an agent for 15 years, big difference between term and whole life. The source you got the quote from may have misunderstood your request. Also, even among policy types of the same class (that is term, whole life, universal life,etc) there can be major differences in policy structure that lead to more cost. One may build more cash value than the other, or one may have guaranteed increased face amount options at future dates (meaning that regardless of your health later on, the policy allows you to buy more coverage..) There are many reasons for the disparity. However, to go from $7 to $30.... something is fishy. I have never seen a whole life policy for $7 unless you were insuring an infant, etc.
2. Judging by the prices you mentioned, I find it very hard to beleive that your quotes were all based on whole life insurance, unless you were looking at a very small amount. It's tough to find a term policy for $7 a month, let alone a whole life policy. The differences in price can be cuased by various things. Companies base their rates on claims experience and also, like any business they base their prices on the expectation that you will be buying other products, so they are cheap on some products to reel you in and then their other products aren't as cheap. Also, some companies have different marketing budgets as well. For example, in Canada, Sun Life Financial is one of the biggest companies in Canada and they spend TONS of money on marketing and brand recognition so when people think of insurance Sun Life comes top of mind. It is for this reason that Sun Life is more expensive than most, becuase their policy holders are chipping in to cover costs of marketing in their premiums. Also, there are different types of whole life policies as well, some of them have limited pay options so they will cost more per month, but they are paid off within a certain time period rather than paying your entire life for them. You're best bet is to go directly to a broker who has access to multiple companies. They will be able to shop around for apples to apples comparisons and will know the good companies from the bad.
3. Same reason some jeans are more expensive than others. Each company can set their own rates. One company might be cheapest for a 30 year old male smoker, another for a 40 year old female asthmatic, and a third for an accountant. Companies all use different pricing strategies. There's no short cut, you do NOT get a "better" company by paying higher rates. All that matters, is their financial strength rating (check am best or ask the agent), and the coverages.
4. There are many reasons that some life insurance policies are more expensive than others. Here are some of those reasons: 1. Loss experience of the insurance company. 2. Return on the insurance company's investment portfolio. 3. Type of life insurance policy. 4. Amount of coverage offered. 5. Your personal factors considered in underwriting your application - such as your age, health, family health history, gender, occupation, hobbies, among others. 6. Policy Fees charged by the insurer, broker or agent. 7. Exclusions, terms and limitations applied to the life insurance policy. Just because one policy is more expensive, it doesn't mean it's better than any other policy. You may want to consider the following: 1. The AM Best Company financial stability rating issued for the insurance companies you are considering. 2. Are the life insurance rates guaranteed to remain the same for your entire lifetime? 3. The customer service rating of the insurance company. 4. Are there any complaints on file with the Department of Insurance in your State for the insurance companies you are considering? Make sure you have a life insurance agent you trust who can get all of your questions answered and help you decide the right type of life insurance coverage to meet your needs and fit your budget. Best of luck to you.