Would You Buy a Life-Insurance Policy From This Machine?

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It is getting easier to buy term life insurance without undergoing extensive medical tests. But if you are relatively healthy, you may well have to pay extra for the convenience.

Buyers of no-frills term-life policies typically have to give blood and urine samples and even undergo more elaborate medical testing, while the insurance company collects reports from your doctors—a process known as underwriting.

Now, in what amounts to a radical change in the way life insurance is sold, insurers are beginning to use computers to assess applications in combination with prescription-drug and other data to determine insurablity.

On Friday, MetLife Inc.—the nation’s largest insurer by assets—more than doubled the number of states, to 47 from 23, where it offers Rapid E-Underwriting. Its rival Prudential Financial Inc. also has rolled out a computer-based underwriting program.

MetLife’s program is available to buyers 18 to 40 years old for as much as $500,000 in coverage. Prudential has a $250,000 limit on its computer-based option.

One of the furthest along in using the approach is Farm Bureau Life Insurance Co., which introduced computer-based underwriting last year, allowing customers to buy policies of up to $75,000. Last month, it increased the age limit to 60 from 55. The FBL Financial Group Inc. unit, based in Iowa, originally told agents the software would provide an underwriting decision within 15 minutes. But “close to 100% of the time, the response is nine minutes or less,” says Rich Kypta, a senior executive there.

Unlike permanent life insurance, which combines a death benefit with a savings account, term life simply pays a set benefit if the insured dies within a specified period. Even though prices of term-life policies have dropped in recent years, sales have been declining as financially strapped families cut expenses, more people relied on policies provided by employers and the number of agents declined. Those trends have led insurers to simplify and speed up the application process in hopes of boosting sales significantly.

The number of all individual life policies sold annually in the U.S. has dropped by 45% from 1985 through 2009, even as the number of households with children has increased by more than 25%. Last year, term-life sales fell 12%, as measured by annualized premiums and number of policies, according to industry-backed research firm Limra. It was the largest annual decline for the product since the firm began tracking the data in 1986.

But for consumers, the new products may well not offer the lowest premiums available at that particular insurer or elsewhere. Some companies charge buyers more for policies obtained through computer-based approaches to protect themselves when people slip through with health issues that would have otherwise been detected. Insurers say the prices vary depending on the age and health status of the applicant.

“A more-streamlined process will generally result in higher rates,” says Kent Sluyter, a Prudential senior actuary. “From a customer perspective, the incremental cost can be viewed as an offset for the convenience of not having to go through the full underwriting work-up.”

It also means consumers need to comparison-shop as thoroughly as they do with conventional term policies before they speed through these new sales processes by using online quote services.

Computer software plays a key role in the process of figuring out what kind of risk you pose. (In one variation known as “instant issue,” policies are approved on the basis of an application alone.) The holy grail of the industry is an approach that is less invasive and more cost- and time-effective than collecting blood and urine samples and sending them out for lab analysis, then for review by an underwriting department.

“Rigorous underwriting protects life insurers from taking undue risks, but it also adds considerable expense to the bottom line,” says a report by Deloitte Consulting for the Society of Actuaries that measured growing industry interest in the concept.

“The old process gave people multiple opportunities to drop out” because it took so much time, says William Mullaney, president of MetLife’s U.S. operations. “We believe e-underwriting will dramatically improve the number of people who actually complete the process from application to payment,” he says.

Indeed, for consumers, the new process is much quicker. According to MetLife and industry research, of 1,000 prospects who request a traditional application, 250 fill it out, 125 continue through medical underwriting—and just 80 end up buying a policy. The insurer’s goal has been to collapse the original six-week sales process into six or so minutes. In a telephone-based version now being rolled out, the process is down to about six days, the insurer says.

For now, MetLife is using a combination of computer decisions and human underwriting. As it improves the technology, it expects the percentage being made without human underwriters to improve significantly.

The insurer aims for a fully Internet-based approach by the summer. The insurer says it is so confident in the ability of its proprietary “decision engine” to piece together a picture of a buyer’s health that it has eliminated the option of conventional underwriting for all buyers of term-life policies between the ages of 18 and 40 who want a term-life policy of as much as $500,000. All buyers who fit that criteria are going through Rapid E-Underwriting.

Some insurers are trying other ways to persuade consumers to close the deal. At USAA in San Antonio, a financial-services company for people with military ties, members between the ages of 20 to 50 who have been approved for either a homeowners’ insurance policy or mortgage for a primary residence may be eligible for a “Simple Life for Home” policy.

Policies in face amounts from $100,000 to $500,000 are available, based on a short health questionnaire but no medical exam. The goal is to ensure people act quickly when their attention is focused on family finances and before procrastination sets in.


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Protective Life Prudential Transamerica West Coast Life Insurance New York Life

Northwestern Mutual MassMutual Mutual of Omaha

Blue Cross Blue Shield of Texas
United Health Insurance
Scott & White Health Insurance
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4 thoughts on “Would You Buy a Life-Insurance Policy From This Machine?”

  1. I have to say, while looking through hundreds of blogs daily, the theme of this blog is different (for all the proper reasons). If you do not mind me asking, what’s the name of this theme or would it be a especially designed affair? It’s significantly better compared to the themes I use for some of my blogs.

  2. How much life insurance coverage I need to buy was something that really wasn’t important to me until I got married.

    My first policy was a $250,000 30 year term life insurance policy and I thought that was plenty. It was not until we had our first son that I quickly realized that was not nearly enough.

    After his birth, I decided to increase it substantially. That was over two years ago. With us in the process of building our first home and a second son on the way, I’m left wondering even with that increase if I really have bought enough life insurance.

    Update: We now have our third son and I have increased the amount of life insurance I have on myself. Check the end of the post to find what I’ve increased my term life insurance to and my rationale.

    I know many struggle with this same decision so I wanted to shed some light how much life insurance is enough.
    First things first, life insurance is for one purpose: income replacement. While there are times where life insurance can aid in more complex estate planning strategies, a majority of the time it’s purchased to take care of your family once you’re gone. My reasoning for purchasing life insurance is that I want to leave my wife and kids without any debt and the ability for my wife to not worry about finances in the event of my unexpected passing.

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