LIFE INSURANCE BUYING AND SAVING MONEY

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How should I choose what type of life insurance to buy?
How do I pick a life insurance company?
How can I assess the financial strength of an insurance company?
How should I choose a life insurance agent?
How can I save money on life insurance?


How should I choose what type of life insurance to buy?

You should consider term life insurance if:

• You need life insurance for a specific period of time. Term life insurance enables you to match the length of the term policy to the length of the need. For example, if you have young children and want to ensure that there will be funds to pay for their college education, you might buy 20-year term life insurance. Or if you want the insurance to repay a debt that will be paid off in a specified time period, buy a term policy for that period.
  

• You need a large amount of life insurance, but have a limited budget. In general, this type of insurance pays only if you die during the term of the policy, so the rate per thousand of death benefit is lower than for permanent forms of life insurance. If you are still alive at the end of the term, coverage stops unless the policy is renewed. Unlike permanent insurance, you will not build equity in the form of cash savings.

If you think your financial needs may change, you may also want to look into “convertible” term policies. These allow you to convert to permanent insurance without a medical examination in exchange for higher premiums.

Keep in mind that premiums are lowest when you are young and increase upon renewal as you age. Some term insurance policies can be renewed when the policy ends, but the premium will generally increase. Some policies require a medical examination at renewal to qualify for the lowest rates.

You should consider permanent life insurance if:

• You need life insurance for as long as you live. A permanent policy pays a death benefit whether you die tomorrow or live to be 100.
  

• You want to accumulate a savings element that will grow on a tax-deferred basis and could be a source of borrowed funds for a variety of purposes. The savings element can be used to pay premiums to keep the life insurance in force if you can’t pay them otherwise, or it can be used for any other purpose you choose. You can borrow these funds even if your credit is shaky. The death benefit is collateral for the loan, and if you die before it’s repaid, the insurance company collects what is due the company before determining what’s goes to your beneficiary.

Keep in mind that premiums for permanent policies are generally higher than for term insurance. However, the premium in a permanent policy remains the same no matter how old you are, while term can go up substantially every time you renew it.

There are a number of different types of permanent insurance policies, such as whole (ordinary) life, universal life, variable life, and variable/universal life.

How do I pick a life insurance company?

	Roughly 1,000 life insurance companies sell life insurance in the U.S., but many are members of groups of companies and so aren’t really competitors with each other. Having separate companies enables a group to offer its products through separate distribution channels, to more efficiently meet the regulatory requirements of particular states, or to achieve other organizational goals. There are an estimated three hundred company groups. Moreover, not every group has a company licensed to operate in each state. As a general rule, you should buy from a company licensed in your state, because then can you rely on your state insurance department to help if there’s a problem. And if the insurance company becomes insolvent, your state’s life insurance guaranty fund will help only policyholders of companies it has licensed. To find out which companies are licensed in any state, contact that state’s state insurance department. There are several other points to keep in mind when selecting a life insurance company:
	Product – most, but not all, companies offer a broad range of policies and features, so choose a company that offers the product and features that meet your needs. Identity – life insurance company names can be confusing, and different companies can have similar names. Life insurance company names often use words that suggest financial strength (such as Guaranty, Reserve, or Security), financial sophistication (such as Bankers, Financial, or Investors), maturity (such as First, Pioneer, or Old), dependability (such as Assurance, Reliable, Trust), fairness (such as Beneficial, Equitable, or Peoples), breadth of operations (such as Continental, National, or International), government (such as American, Capital, or Republic), or well-known and respected Americans (such as Jefferson, Franklin, or Lincoln). Be sure you know the full name, home office location, and affiliation (if any) of any company you are considering (for an example, click here). Financial Solidity – life insurance is a long-term arrangement. There is no guarantee for life insurance policyholders similar to that provided for bank accounts by the Federal Deposit Insurance Corporation (FDIC). Select a company that is likely to be financially sound for many years, by using ratings from independent rating agencies. Market ethics – some life insurance companies subscribe to the principles and codes of conduct of the Insurance Marketplace Standards Association, a nonprofit organization that promotes ethical conduct in life insurance marketing. Advice and service – for many people, life insurance is a strange, complex product, so that it helps to deal with a representative with whom you can communicate and who is attentive to your needs. This might be connected to the selection of a life insurance company because some agents represent only one or a very few life insurance companies. See How do I select a life insurance agent? Claims – you may want to check a national claims database to see what complaint information it has on a company. Also, your state insurance department will be able to tell you if the insurance company you are considering doing business with had many consumer complaints about its service relative to the number of policies it sold. Premium and cost – The premium is the amount you pay the company for the life insurance contract with all of its benefits. Even for a given death benefit and type of insurance (e.g., term life), the premium can vary widely among companies, either because some companies’ policies have features that others don’t, or because some charge more than others for the same coverage. So the first step in comparing policies is to make sure you compare similar insurance plans, based on -Your age -The type of policy and policy features -The amount of insurance you are purchasing The premium for the policy isn’t the same as the cost of the protection portion of the policy. One policy might have a higher premium but also offer more benefits (for example, it might pay policy dividends) than another. Or both might promise dividends, but in different amounts at different points in time. In each case, the higher-premium policy might have a lower cost of protection. How can you tell what a policy’s cost is? Companies should tell you a policy’s Net Payment Cost Index and its Surrender Cost Index. Use the Surrender Cost Index if you’re thinking of keeping the insurance only for a specific period of time; use the Net Payment Cost Index if you expect to keep the policy indefinitely. Generally, the lower the cost index, the better.

Life Insurance FACTS AND STATISTICS

Life Insurance

	LIFE/HEALTH INSURANCE The primary business of life/health insurance companies is no longer traditional life insurance, but the underwriting of annuities — contracts that guarantee a fixed or variable payment over a given period of time. Nevertheless, the sale of such life insurance products as whole life and term life policies remains an important part of the business. Life insurance is essentially an investment of savings that offers a tax-free sum to the beneficiary at some point in the future. Life insurers invest the premiums they collect primarily in government and corporate bonds, but also in mortgage loans (mostly commercial). Besides annuities and life insurance, life insurers may offer other types of financial services such as asset management.
	INVESTMENTS, LIFE/HEALTH INSURERS, 2001-2005 Amount ($ millions) Percent of total investments Investment type 2001 2004 2005 2001 2004 2005 Bonds $1,520,471.5 $2,049,337.8 $2,145,896.5 72.10% 75.94% 76.71% Stocks 90,806.7 97,891.5 94,573.0 4.31 3.63 3.38 Preferred Stocks 21,881.8 32,187.3 25,652.5 1.04 1.19 0.92 Common Stocks 68,924.9 65,704.2 68,920.5 3.27 2.43 2.46 Mortgage loans on real estate 236,873.7 266,049.1 276,446.8 11.23 9.86 9.88 First liens 236,186.5 264,913.7 275,122.2 11.20 9.82 9.83 Other than first liens 687.2 1,135.4 1,324.6 0.03 0.04 0.05 Real estate 22,230.6 19,533.9 19,072.4 1.05 0.72 0.68 Properties occupied by company 6,272.4 5,825.7 5,375.0 0.30 0.22 0.19 Properties held for income production 13,646.1 12,306.0 12,789.0 0.65 0.46 0.46 Properties held for sale 2,312.1 1,402.2 908.3 0.11 0.05 0.03 Cash, cash eqivalent and short-term investments 70,917.6 74,656.0 61,947.5 3.36 2.77 2.21 Contract loans 103,153.0 105,565.8 106,440.7 4.89 3.91 3.80 Other invested assets 50,897.4 69,716.5 77,711.4 2.41 2.58 2.78 Receivables for securities 3,709.3 2,500.1 3,005.5 0.18 0.09 0.11 Aggregate write-ins for invested assets 9,582.1 13,402.6 12,488.8 0.45 0.50 0.45 Total 2,108,696.4 2,698,653.2 2,797,582.5 100.00 100.00 100.00 Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.
	LIFE/HEALTH INSURANCE INDUSTRY: SELECTED OPERATING DATA, 2003-2005 ($ millions) 2003 2004 2005 Premiums and annuity considerations (1) $500,234.2 $531,160.4 $518,526.9 Net investment income 142,912.9 145,544.9 148,985.9 Net gain from operations (2) 39,113.2 41,146.1 40,171.4 Federal and foreign income taxes (3) 7,890.5 10,002.6 9,016.2 Net realized capital gains/losses -4,668.3 1,039.8 3,184.6 Net income 26,554.4 32,183.3 34,339.8 Dividends to stockholders -10,958.9 -12,995.8 -21,692.3 Capital and surplus (end of year) 223,771.1 237,014.2 239,742.7 (1) Life and accident and health policies and contracts. (2) After dividends to policyholders and before federal income taxes. (3) Incurred (excluding tax on capital gain). Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.
	LIFE/HEALTH INSURER FINANCIAL ASSET DISTRIBUTION, 2001-2005 ($ billions) 2001 2002 2003 2004 2005 Total financial assets $3,224.6 $3,335.0 $3,772.8 $4,130.3 $4,380.7 Checkable deposits and currency 36.8 35.3 47.3 53.3 53.8 Money market fund shares 173.3 159.8 151.4 120.7 118.6 Credit market instruments 2,074.8 2,307.8 2,488.3 2,661.4 2,773.7 Open market paper 59.3 74.0 55.9 48.2 37.7 U.S. government securities 307.2 409.4 420.7 435.6 455.9 Treasury 53.7 78.5 71.8 78.5 81.1 Agency- and GSE (1) -backed securities 253.5 330.9 348.9 357.1 374.8 Municipal securities 18.7 19.9 26.1 30.1 31.7 Corporate and foreign bonds 1,342.4 1,449.3 1,620.2 1,768.0 1,859.8 Policy loans 104.1 105.1 104.5 106.1 105.8 Mortgages 243.0 250.0 260.9 273.3 282.7 Corporate equities 811.3 708.9 919.3 1,053.9 1,154.1 Mutual fund shares 88.3 76.6 91.7 114.4 131.2 Miscellaneous assets 40.1 46.8 74.7 126.6 149.4 (1) GSE=government-sponsored enterprise. Source: Board of Governors of the Federal Reserve System.
	PREMIUMS BY LINE Annuities, contracts that guarantee a fixed or variable payment, now account for 51 percent of the life/health business, followed by life insurance products (26 percent) and accident and health products (22 percent). Traditional life insurance policies continue to be an important part of the life insurance business. These policies can be sold on an individual basis (referred to as "ordinary life") or to groups, such as employees of the same company. Ordinary life insurance can be "term," which provides financial protection for a specific period of time, or "permanent," which provides long-term financial protection and builds up a cash value that the policyholder can use during his or her lifetime. There are several types of permanent policies, including whole life and universal life. Most group policies provide term coverage. A more specialized product, credit life insurance, is designed to repay the balance of a loan in the event a borrower dies before a loan is repaid. Industrial life refers to policies with a low face value with premiums collected by an agent on a weekly basis. The accident and health sector consists of individual and group products that provide coverage for sickness or accidental injuries. Accident and health, i.e. health insurance, is also written by property/casualty insurers and health insurers. Credit accident and health protects a debtor if the borrower becomes disabled and cannot repay debts.
	LIFE/HEALTH INSURANCE INDUSTRY PREMIUM BY LINE, 2001-2005 ($ millions) 2001 2004 2005 Lines of insurance Net premiums written Percent of total Net premiums written Percent of total Net premiums written Percent of total Annuities Ordinary individual annuities $140,805.4 29.4% $167,472.0 31.4% $162,760.5 30.7% Group annuities 109,599.3 22.9 104,537.3 19.6 110,084.3 20.8 Total 250,404.7 52.3 272,009.3 51.0 272,844.8 51.5 Life Ordinary life 95,093.7 19.8 107,489.9 20.1 108,711.2 20.5 Group life 28,248.6 5.9 27,678.3 5.2 29,088.3 5.5 Credit life (group and individual) 1,632.8 0.3 1,150.7 0.2 1,258.0 0.2 Industrial life 337.6 0.1 208.9 (1) 129.4 (1) Total 125,312.7 26.2 136,527.8 25.6 139,186.9 26.3 Accident and health Group 73,665.0 15.4 85,495.9 16.0 79,303.4 15.0 Other 28,201.7 5.9 38,674.1 7.2 37,343.7 7.0 Credit 1,551.7 0.3 1,156.5 0.2 1,135.4 0.2 Total 103,418.4 21.6 125,326.5 23.5 117,782.5 22.2 Total, all lines 479,135.8 100.0 533,863.6 100.0 529,814.2 100.0 (1) Less than 0.1 percent. Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.
	CREDIT LIFE INSURANCE Credit life insurance, a form of decreasing term insurance, protects creditors such as banks. The borrower pays the premium, generally as part of the credit transaction, to cover the outstanding loan in the event he or she dies. The face value of a policy decreases as the loan is paid off until both equal zero. When loans are paid off early, premiums for the remaining term are returned to the policyholder. Credit accident and health, a similar product, provides a monthly income in the event the borrower becomes disabled.
	CREDIT LIFE, AND CREDIT ACCIDENT AND HEALTH INSURANCE DIRECT PREMIUMS WRITTEN, 1996-2005 ($000) Year Credit life Credit accident and health 1996 $1,903,407 $1,702,375 1997 1,969,079 1,897,056 1998 1,998,488 1,798,194 1999 1,971,462 1,724,729 2000 1,849,655 1,675,327 2001 1,632,806 1,551,697 2002 1,251,275 1,331,639 2003 1,046,474 1,119,672 2004 1,150,233 1,156,579 2005 1,257,714 1,135,355 Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.
	DISTRIBUTION CHANNELS Life insurance was once sold primarily by career life agents, captive agents that represent a single insurance company, and by independent agents who represent several insurers. Now life insurance company products are also sold directly to the public by mail, telephone and the Internet. In addition, in the 1980s insurers began to market annuities and term life insurance through banks and financial advisors, professional organizations and workplaces. A large portion of variable annuities, which are based on stock market performance, and a small portion of fixed annuities, are sold by stockbrokers.In 2004 affiliated (i.e. captive) agents accounted for 36 percent of new individual life insurance sales in 2004, according to research by LIMRA.
	LIFE INSURANCE DISTRIBUTION (NEW INDIVIDUAL LIFE PREMIUMS), 2004 (1) (1) Based on LIMRA International estimates. Source: LIMRA International, Product Research.
	WORKSITE LIFE INSURANCE COMPANY SALES BY LINE OF BUSINESS, 2005 (1) (1) Worksite marketing is the selling of voluntary (employee-paid) insurance and financial products at the worksite. The products may be on either an individual or group platform and are usually paid through periodic payroll deductions. (2) Short-term and long-term disability. Source: Eastbridge Consulting Group, Inc.	Worksite sales of life and health insurance in 2005 were $4.4 billion, up from $4.2 billion in 2004.
	TOP TWENTY U.S. LIFE/HEALTH INSURANCE GROUPS AND COMPANIES BY REVENUES, 2005 ($ millions) Rank Group Revenues Assets 1 MetLife $46,983 $481,645 2 Prudential Financial 31,708 417,776 3 New York Life Insurance 28,051 153,952 4 TIAA-CREF 25,917 399,161 5 MassMutual Life Insurance 22,799 138,365 6 Northwestern Mutual 19,221 133,057 7 AFLAC 14,363 56,361 8 UnumProvident 10,437 51,867 9 Guardian Life of America 9,377 36,880 10 Principal Financial 9,010 127,035 11 Assurant 7,498 25,366 12 Thrivent Financial for Lutherans 6,190 54,932 13 Lincoln National 5,488 124,788 14 Pacific Life 4,840 86,977 15 Conseco 4,327 31,557 16 Western & Southern Financial 4,314 29,021 17 Jefferson-Pilot 4,220 36,078 18 Mutual of Omaha Insurance 4,051 16,441 19 Torchmark 3,126 14,769 20 Unitrin 3,048 9,198 Source: Fortune.
	LEADING INSURERS, LIFE INSURANCE SALES THROUGH BANKS, 2005 (1) ($ millions, weighted premiums) Rank Company 2004 2005 1 Nationwide $22.8 $33.1 2 Transamerica 36.6 29.3 3 Hartford 24.8 29.0 4 Liberty Life 13.7 15.1 5 AIG/American General 13.2 15.0 6 MetLife/Travelers 17.8 13.5 7 John Hancock/Manulife 16.8 12.6 8 Allstate Financial 31.7 11.9 9 Lincoln National 6.1 10.6 10 Great West Life 11.9 10.1 (1) Ranked by 2005 weighted premiums, which discount 90 percent of single premium (one-time payment) products to approximate the expected value of premium flows to life insurance companies each year. Source: Kehrer-LIMRA.
	TOP 25 LIFE INSURANCE GROUPS BY INDIVIDUAL TERM LIFE INSURANCE ISSUED, 2005 Term life policies issued in 2005 Rank Group Number of policies issued Total amount of death benefits ($000) Average death benefit amount 1 American International Consolidated 407,005 $151,893,644 $373,198 2 State Farm Consolidated 336,728 66,177,556 196,531 3 Citigroup Consolidated 275,331 76,079,901 276,322 4 Liberty National Consolidated 265,015 7,187,770 27,122 5 Direct General Group Consolidated 251,990 2,529,210 10,037 6 Old Mutual Consolidated 160,441 31,371,886 195,535 7 American Family Corp. Consolidated 152,643 14,997,655 98,253 8 Northwestern Mutual Consolidated 116,105 70,757,571 609,427 9 AEGON USA Incorporated Consolidated 113,996 37,482,389 328,804 10 Zurich Insurance Group Consolidated 103,584 25,324,592 244,484 11 Allstate Insurance Consolidated 97,730 45,565,970 466,243 12 New York Life Consolidated 94,169 46,318,853 491,869 13 Protective Life Insurance Consolidated 85,829 39,961,794 465,598 14 JP Morgan and Chase Group Consolidated 83,360 22,574,000 270,801 15 Prudential of America Consolidated 83,148 53,730,230 646,200 16 Metropolitan Group Consolidated 82,706 48,606,983 587,708 17 UnumProvident Life Consolidated 69,296 5,618,460 81,079 18 Banner Life Insurance Consolidated 66,433 38,500,706 579,542 19 USAA Consolidated 63,086 29,609,953 469,359 20 Axa Insurance Group Consolidated 58,204 34,578,917 594,099 21 Lincoln National Consolidated 49,365 23,503,961 476,126 22 Wellpoint Inc. Group Consolidated 48,311 430,313 8,907 23 Great West Life Assurance Consolidated 42,493 3,991,318 93,929 24 American National FNCL Consolidated 36,394 4,986,083 137,003 25 Mutual of Omaha Consolidated 33,612 8,079,784 240,384 Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.
	TOP 25 LIFE INSURANCE GROUPS BY INDIVIDUAL WHOLE LIFE AND ENDOWMENT INSURANCE ISSUED, 2005 Whole life and endowment policies issued in 2005 Rank Group Number of policies issued Total amount of death benefits ($000) Average death benefit amount 1 Liberty National Consolidated 1,010,514 $18,045,231 $17,857 2 American International Consolidated 564,661 22,670,635 40,149 3 Gerber Life Insurance Company 557,754 4,690,886 8,410 4 ING America Insurance Holding Group Consolidated 298,557 20,458,582 68,525 5 UnumProvident Life Consolidated 289,469 8,062,072 27,851 6 State Farm Consolidated 287,503 17,410,414 60,557 7 AEGON USA Incorporated Consolidated 270,423 26,599,190 98,361 8 Unitrin Group Consolidated 209,952 2,033,148 9,684 9 Metropolitan Group Consolidated 182,992 35,879,181 196,070 10 New York Life Consolidated 176,704 27,118,662 153,469 11 Northwestern Mutual Consolidated 127,570 27,061,790 212,133 12 Mutual of Omaha Consolidated 117,543 3,328,102 28,314 13 Allstate Insurance Consolidated 112,319 14,516,798 129,246 14 Conseco Consolidated 95,970 2,206,071 22,987 15 American Family Corp. Consolidated 84,138 4,107,434 48,818 16 Zurich Insurance Group Consolidated 77,619 5,923,855 76,320 17 American National FNCL Consolidated 74,713 3,096,425 41,444 18 Boston Mutual Insurance Consolidated 70,433 1,349,882 19,165 19 Physicians Mutual Consolidated 70,123 113,682 1,621 20 Memorial Group Consolidated 63,527 223,562 3,519 21 Western Southern Life Consolidated 61,302 2,892,092 47,178 22 Protective Life Insurance Consolidated 61,219 20,211,088 330,144 23 Security Mutual Life Insurance Company of NY 54,814 1,943,503 35,456 24 American Financial Insurance Group Consolidated 46,094 197,390 4,282 25 Prudential of America Consolidated 45,275 9,789,420 216,221 Source: National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data, LLC. Copyrighted information. No portion of this work may be copied or redistributed without the express written permission of Highline Data, LLC.