If you’ve been shopping for a life insurance policy lately, you’ve probably stumbled upon one of these names: Haven Life, Ladder, Bestow, and Ethos. Their rising popularity in the last few years is due to their two main advantages over traditional insurance companies: Speed and convenience.
One of the key reasons why people procrastinate on getting a term life insurance policy is that they dread going through all the hassle of signing up for one. Conventional life insurance providers have processes that typically take weeks and even up to a month to complete.
Answering the online application, submitting paperwork and required documents, taking the medical exam, waiting for the result, going through the underwriting process, having your application reviewed and assessed—-all these are part of it, and with thousands of applications being assessed, it takes a long time to get a policy approved.
Enter: Direct Term Life Insurance—-also known as Direct to Consumer (DTC) insurance.
Their promise: Make getting a term life insurance policy so fast and easy it will only take minutes to complete. In this article, we’ll take a deep look at what Direct Term Life Insurance is all about, it’s pros and cons, the best DTC companies right now, and advice to help you decide if it’s the best choice for your needs.
What is Direct Term Life Insurance?
It refers to Term Life Insurance that can be purchased straight from an insurance company. While traditional insurance companies will have you work with an agent to complete the purchase of a policy, Direct Term Life Insurance allows you to do everything on your own and at your own pace.
It’s like ordering something from Amazon. You can do everything online and get the product on the same day.
Direct Term Life Insurance features the ability to request quotes, make payments, changes in your policy, request copies of your policy and other documents online or over the phone.
Before we check out the pros and cons, note that this type of policy works for Term Life Insurance only (hence the term) and not with whole or permanent life policies. For better understanding, let’s take a quick look at the different types of life insurance you can get right now:
Term Life Insurance
A policy that covers you for a specified length of time (that can be renewed) for a certain death benefit amount.
Whole Life Insurance
A policy that provides coverage for your entire lifetime (as long as premiums are paid) and includes an investment (cash value) component.
Universal Life Insurance
Variable Universal Life Insurance
Another type of permanent life insurance, it differs mainly on the way the cash value is invested (it’s invested in sub-accounts) in the stock market
Final Expense Life Insurance
Type of permanent life insurance that’s geared towards paying a benefit meant for burial and other final expenses.
No Medical Exam Life Insurance
Type of insurance that doesn’t require the individual to take a medical exam, however, the death benefit amount for this type of coverage is significantly smaller and has higher premiums
Pros and Cons of Direct Term Life Insurance
What makes Direct Term Life Insurance appealing to the market? Where do they fall short? Let’s take a look at their pros and cons.
Fast and Easy Process
Perhaps the greatest advantage that direct term life insurance can offer. You can basically get a policy within minutes, using your laptop or mobile phone, in the comfort of your own home (or anywhere else, really).
You can go at your own pace, continue where you left off, and no one’s pressuring you to finish your application. The actual process takes mere minutes to complete. Instead of waiting for your policy to be approved and in-force in a few weeks, you will get it in literally just a couple of minutes.
Doesn’t require a medical exam (in most cases)
Let’s admit it, nobody likes taking medical exams. They take up time, and the procedure itself, from scheduling it to actually doing it is kind of a hassle. If you’ve ever wished life insurance didn’t require it then you’re in luck, the majority of direct term life insurance underwriting doesn’t require it. You only need to answer a couple of health questions and you’re good to go.
No third-party fees
Since you’re buying straight from the company, there’s no middle man to pay for any transactions. No handling fees or any commissions embedded in your premiums.
Selection is limited to what the insurer offers
If you’re strictly looking for term life insurance only, then direct term life insurance companies are a great option. However, if you’re thinking of getting permanent life insurance (or all its other forms), then you better look elsewhere.
Underwriting guidelines are limited to what the insurance company follows
If you’re not in excellent health status or have a physical illness or condition that makes it extra tricky to get insured, there’s a good chance of denial from these direct insurance companies. This is because their algorithm can only provide assessment using a certain set of metrics and data.
It’s not intelligent enough to factor in special cases or conditions (people with a heart murmur, aortic valve disorder, COPD, diverticulosis, atrial fibrillation, etc.,) wherein human intervention and assessment are crucial.
You might be giving up better deals that comes with working with a dedicated agent
Since you’re skipping the middleman, you could potentially be missing out on the chance to score a better policy than what you can get from DTC companies. Dedicated insurance agents have the experience and connections that could help an otherwise would-be-declined application get approved. They can also help you in making claims to your benefit, along with getting key financial advice on how you should manage your policy.
How Direct Term Life Insurance Works
You’re probably wondering, “OK, that’s impressive and all, but how do they do it?”.
The answer: Algorithms.
Specifically, Algorithmic Underwriting. While traditional underwriting requires an actual person to perform the assessment, these DTC insurance companies employ computer algorithms that make use of large databases to come up with a decision within minutes.
Life insurance companies determine a person’s premium based on the following:
- Life expectancy (set by the insurer)
Most conventional life insurance companies have stand-alone systems that require manual intervention from human operators. For example, an underwriter needs to log-in and access driving history records using System A. After that, he needs to log-in again on a different system/database (System B) to access the applicant’s medical history. And so on.
As you can see, this manual form of underwriting (which also includes the underwriter contacting third-parties to confirm pieces of information) can take a while. And we’re not even including the medical exam yet. Applicants need to schedule it a few days/weeks ahead which adds up to the overall processing time, and you still have to wait for the results of course.
But while there’s nothing wrong about the whole process, some people want the speed and convenience of a full, end-to-end process that they can complete at their own pace and time.
It’s important to note that these Direct Term Life Insurance companies aren’t actually the ones who insure their policyholders. They partner up with well-known insurance providers for the actual benefits and claims.
In essence, direct term life insurance companies serve the “front-end” side. They handle the creation, distribution, and administration of insurance products. They provide the technology to make insuring people easier, while the actual insurance companies manage the backend (invest funds and manage payouts).
Overview of the Direct Term Life Insurance Process
- The applicant submits info on the website
- The algorithmic underwriting program considers the data submitted then also collects all valid information about you from the following parties:
- Medical Information Bureau (underwriting information exchange among insurers)
- Pharmacy benefit managers (medication history)
- Public-access information
- Consumer reporting agencies
- The algorithm will assess all the information to qualify (or disqualify) the applicant. Results can be provided within minutes.
How To Get Direct Term Life Insurance
It’s as simple as visiting your preferred DTC Insurance company and completing the steps of their online process.
To give you a better idea of how it’s done, here’s the typical end-to-end process used by Direct Term Life insurance companies. Actual steps may vary but they pretty much follow the same general process.
- Get a quote
- Start Application
- Create an account
- Provide your personal details
- Answer all the health-related questions
- Provide details about the nature of your work (including income info)
- Give other information such as plans of traveling in the near future/other insurance policies in force/etc
- Provide them with authorization to gather data from their partners (MIB and others mentioned in the previous section)
- Your SSN
- After entering all required information, the page will start verifying the info you sent and proceed with the underwriting process.
- You’ll then be presented with the actual premium price for the policy amount of your choice. The last step is to enter your beneficiary and billing information.
The Best Direct Term Life Insurance Companies
So which Direct Term Life Insurance companies should be on your short-list, you ask? The following list features the top DTC Life Insurance providers you can buy a term life policy from right now.
Founded in May of 2014, Haven Life is backed by MassMutual (rated A++ by A.M. Best). You can choose from 10, 15, 20, or 30-year coverages of up to $3 Million. Here are some of its best features:
- Fixed Term Premiums – The amount for your monthly premium will never change from month 1 up to the next.
- Accelerated Death Benefit – You can access a portion of your death benefit should you become terminally ill (diagnosis of 12-24 months left to live). Note that this will be deducted from the death benefit plus interest.
- 100% No Commissions – Since everything is streamlined within the online application process, Haven Life does not require broker services (no upselling, fees, or commission)
- Instant Renewal – You can continue with your coverage without undergoing further underwriting. Note though, that you will have a higher premium rate when your original term expires.
- Completely Paperless – No more filling out all those piles of paperwork from traditional insurers
The company once claimed that they were able to deliver a fully-underwritten decision in just 429 milliseconds (less than half-a-second). On average, they say it takes around 15 seconds for their algorithm to come up with a decision. They offer policies of up to $8 Million. They work with Fidelity Security Life Insurance and Hannover RE. Here are some of Ladder Life’s best features:
- Up to $8 million in coverage
- Dynamic Life Insurance allows policyholders to increase or decrease coverage depending on your financial situation
- In the event a medical exam is required, it’s completely free
- No annual fees and free look-up period
The company is backed by North American Company for Life And Health Insurance and Munich RE, both rated A+ by A.M. Best. They offer term life insurance policies of 2, 10, or 20-year durations with up to a maximum coverage of $1 Million. Here are some of Bestow’s best features:
- 2-year term coverage for short-term needs
- You can cancel your policy at any time
- Simple and easy online process
- Customer support with licensed agents
Even though they’re relatively new in the insuretech industry, Ethos has been quite a strong contender in the direct life insurance niche. They offer 10, 20, and 30-year terms for US citizens or green card holders aged 18 to 75. Here are some of Ethos life insurance’s best features:
- Coverage starts at $25,000 and maxes at $10 million
- Provides coverage up to 75 years old
- A decent set of riders to choose from
- Flexible late payment policy (1-month grace period)
Is Direct Term Life Insurance Right For You?
The great thing about direct term life insurance is that it addresses one of the main issues that people have with getting a life insurance policy (from traditional insurance companies): It can be a hassle.
Removing that friction by making it quick and easy helped thousands of people (who would’ve probably still procrastinated) to get life insurance. In today’s day and age where everyone is all for convenience, direct term life insurance is a godsend.
Is it for everyone? No, not really. There are plenty of cases wherein the assistance of a professional life insurance agent will be crucial in getting a policy. Also, it’s not for anyone looking for permanent life coverage. So if you’re one of those people who are looking for insurance with a savings component built-in, better look elsewhere or speak with an agent.
But it does help close the gap between the uninsured and not insured. Some people are all for ease and convenience (me included), and if you’re one of those people, then direct term life insurance is something that you should definitely check out. Be sure to check out the reviews of each of the companies we recommended above.