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Mail-order ​Insurance

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February 13, 2012 by Milton Jones

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“Buying insurance through the mail is only slightly less risky than getting a mail-order appendectomy,” my former mentor was fond of saying.

Rex Alan Smith (R.I.P), a respected New York Life agent, was viewed as a true professional. Among other things, he taught me to take a dim view of the kind of insurance that was usually sold through the mail, and these days via the Internet.

“It’s not that there isn’t some good insurance sold that way,” he would point out (clearing his throat with his characteristic harrumph). “It’s just that the average buyer can’t distinguish between the junk and the good stuff.”

Many things have changed in the 40 years since I heard that, but the junk is still out there. And, of course, we have the Internet and the broadcast media.

One of the most common stories goes like this: “If you are over 50, and have been denied insurance, you can qualify for this guaranteed coverage from Mutual of Tupelo for only pennies a day … ”

A lot of funeral expense policies are sold this way. They are perfectly legitimate, but are often a poor value. A recent example I saw was a $10,000 final expense police for a premium just north of $50 monthly. The good news was that the lady didn’t have to answer any health questions.  The bad news was that the policy was a “Graded Benefit” type, which only paid $750 if she died in the first year; $1,500 in the second year, and only reached the full value from the third year and thereafter.

Is this a worthwhile policy? Yes, if you are in really poor health. On the other hand, if you can pass the physical for regular coverage, you may get a much better premium and full immediate benefit.

I have often had the experience of someone telling me that he had a $100,000 policy for only $5 a month. I asked him if I could take a look. Sure enough, it was only an Accidental Death benefit policy. Nothing wrong with that … except that he didn’t understand that his family couldn’t collect a nickel if he died with cancer, heart attack, or other natural causes.

I’ve said this before, but it’s worth repeating: the more complex the issue, the more valuable is the middleman. You may be able to save something buying direct, but you may not be getting the most appropriate product.

Yes, like the man said “beware of bargains in parachutes, bungee cords, toilet paper, and life insurance.”

Of course, you’ve heard the cliché about the company giving a lifetime guarantee on their parachutes. If it fails, just bring it back for a new one.

Life and Health Insurance is one of the most regulated businesses on the planet. But it’s still a jungle out there. You would be wise to buy from someone who knows what you’re doing.

P.S. I don’t recommend writing your own will, either, since — like a parachute — it’s nearly impossible to return for a new one.

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