Like many products, when it comes to your insurance it can pay to shop around. There can be a surprisingly large difference in premium between the most competitive quotes for your business and the second tier.
It's not uncommon to find a forty percent price difference between the cheapest insurance premium and the most expensive. Now it's a different story if you were getting forty percent better protection for that extra money. But what I am talking about here is an apples and apples comparison - same policy, forty percent more expensive.
Different insurance companies don't differ only in price though. You can also find different opinions on the risk involved.
A great example of this is when we did up some life insurance for a lady who at the time happened to be pregnant with her first child. She had a fairly common pregnancy-related condition.
The first insurance company that we looked at postponed the business. They wanted her to reapply for coverage after the baby was born, but there was nothing that they could do for her until then.
So we took the application to a second insurance company. The second company not only was able to issue a policy right away, but they did it at preferred rates.
Now why this is interesting is that we have two opinions that are on opposite ends of the spectrum. The first company declined the business. A more favourable opinion would have been if the insurance company issued the policy, but charged an extra premium to take into account the perception of extra risk in this case. An even more favourable opinion would have been to offer a policy at standard rates.
But the second insurance company went even better than that. Not only were they able to issue her a policy, they were able to do it at preferred rates. She is paying less than the average person in her peer group.
Same situation. Completely different opinions. It pays to shop around.
This turned out to be a good read on the situation by the second insurance company. Since we did up that policy the lady has gone on to have baby number two, and Mom and both kids are completely fine.
Health isn't the only thing that insurance companies can perceive differently. I just started working with a fellow who happens to be a pilot.
Generally speaking, insurance companies hate pilots. The perception is that this is a high-risk activity. Pilots can usually get insurance, but they have to pay extra for it.
That's what happened in this case. The pilot already had some existing coverage, but he was paying extra for it.
So we shopped the policy around. And we were to find him a policy at standard rates. I'd have to check on the exact numbers, but I think this meant a cost savings of roughly $150 per month for the same insurance protection.
Another example is cigar smokers. Some companies make people who enjoy the occasional cigar pay smoker rates for their insurance. Other insurance companies are more generous.
Broadly speaking, whenever we are looking at a situation where a person is asked to pay higher than standard rates for their insurance protection, we want to shop around. In fact, some insurance companies even specialize in the cases that other insurance companies turn away.Another situation in which it makes sense to shop around your insurance protection is if you have some existing term insurance. Insurance rates have come down nicely over the last few years.
A quick example of this is a case that I was working on last week. We did up some insurance for a lady about two years ago. She can get a new policy today that is actually cheaper than the one that she already has.
This is interesting because one of the things that determines your insurance premiums is age. Obviously, she is now two years older. But even so, the new policy is cheaper than the one she bought two years ago.
Even if you don't save a bucket full of money with a brand new policy, it can still make good sense to re-examine your existing insurance policies. Let's say that you bought a Term 10 policy seven years ago. Three years from now you will still have coverage, but the policy will be renewing at higher rates. Perhaps substantially higher rates.
Assuming your health has not deteriorated in the meantime, you can likely get a new term policy at prices comparable to your existing policy. The attractive thing about this idea is that rather than facing a renewal premium in just three years, a new term policy will push the renewal out by another decade. In other words, your insurance premium will be roughly the same now, but you are no longer facing the price hike in three years.
Shopping around for your insurance doesn't necessarily entail a bunch of legwork on your part. Many insurance brokers are not limited to one company. They can shop the market for you. And, as we have seen, it pays to shop around.
The opinions expressed are those of Brad Brain, CFP, R.F.P. CLU, CH.F.C., FCSI. Brad Brain is the President of Brad Brain Financial Planning Inc. in Fort St John, BC. He can be reached through www.bradbrainfinancial.com. Follow Brad on Twitter @BradBrain.
