Instant Coffee, Instant Stain Removal, and now…Instant Life Insurance

Among recent developments in the trendy fintech space is the evolution of instant life insurance. Answer a few questions about your health, family medical history, driving history, and employment and you can literally have an online quote for term life insurance within five minutes. No medical exam, no blood or urine tests, no insurance agent phone calls, no waiting periods, and not a quote that then begins a lengthy underwriting application process – a quote for you to immediately purchase life insurance. Moreover, not just a few thousand dollars of insurance – just provide your bank account or credit card and you can be issued up to $10 million of life insurance within a few minutes of initiating the process. That’s it – you’re done.

Haven Life was among the first companies to offer this ‘accelerated underwriting’ life insurance in 2015 and over the past five years, several competitors have come on the scene including Ladder, Ethos, Bestow, and Fabric. All provide a user-friendly interface and experience that is simple to follow. In most respects, the questions and the online process of these sites are very similar. Some of the companies will ask for your drivers’ license number to check for motor vehicle violations. Some will get your permission to check a national database maintained by insurance companies that tracks your previous life insurance applications or to check another database that tracks medical prescriptions. While the application process among these companies is slightly different, none of them take longer than 5-7 minutes from A to Z. In fact, Bestow gives you a quote estimate with just a few seconds – after you provide your height, weight, gender, and birthday – and then asks a few more questions to determine if any adjustments to this estimate are appropriate before providing a real quote.

It is worth noting that some of the instant insurance providers may require a medical exam if your answers suggest that you need one. Bestow is the only one that promises no medical exam but other providers indicate that a mere 1% or so of applicants require a medical exam to get coverage.

Coverage options vary by company with Bestow providing death benefits up to $1 million versus Ladder and Ethos that will insure up to $8 million and $10 million, respectively. There is also generous term flexibility with most of these companies providing policies up to 30 years (Bestow and Fabric only provide terms up to 20 years). Notably, these fintech companies are not actually the underlying insurers – they simply contract with large, financially strong insurance companies like Banner Life (Ethos), Fidelity Life (Ladder), and MassMutual (Haven) to do the insuring.

There are a plethora of benefits of these instant insurance providers.

1. Simplicity and Speed – The ease of the process and the ability to get 7-figure life insurance coverage during the time of a commercial break should reduce the impediments and excuses for anyone with an insurance need to get insurance.
2. Flexibility – With several of the providers, you can increase or decrease coverage if your needs change.
3. Customer Service – No pushy, commissioned agents. Instead, salaried customer service representatives who are available via online chat or phone to answer questions rather than sell more coverage.

So what’s the downside or drawback of this instant life insurance? Pricing. Potentially. Because of the simplified underwriting process that’s driven by algorithms rather than by medical exams and blood tests, the insurance companies assume more risk. This added risk gets pushed back to the insured in the form of higher premiums. Some personal finance websites report that the premiums can be as much as 25% higher than traditional agent-sold policies. In my experience of testing these sites, the monthly insurance premiums for a $1 million policy were as much as 40-80% higher from instant insurance compared to the traditional underwriting route. That differential is enormous over the course of 20-30 years. Of course, it is worth noting that

1. the quotes from the instant insurers varied dramatically; and
2. the online figures from traditional insurance companies are simply quotes and not offers. The underwriting process provides the potential for premium increases from the initial quote dependent on the results of blood tests or medical exams.

Furthermore, higher rates with accelerated underwriting are not always the case. For some, the premium will actually be cheaper with the instant insurers. Several consumer finance bloggers report lower premiums from providers like Ladder and Bestow relative to the agent-sold traditional insurance route. There is no way to know without going through the process with one or more of these companies and comparing the quote to the final offer of a traditional provider.

For all those parents who have delayed purchasing necessary life insurance because of the perceived hassles or time drain, there is really no excuse any more  Given the limited time commitment of the instant insurance providers and the remarkably simple process, I recommend that everyone in the market for term life insurance at least give one or two of them a try in parallel with going through traditional underwriting.