I started Insurance Blog by Chris™ because I have a passion for insurance. Here at the blog, our job is to educate and inform people about the best insurance for them. Since then, we have grown into national brands with a large team of researchers helping people understand all forms of insurance.

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insu...

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Reviewed by Rachael Brennan
Licensed Insurance Agent

UPDATED: Nov 9, 2020

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What do you really know about the life insurance industry? Do you know who the largest life insurance companies are and if their reputations are supported by a strong financial foundation?

We like to be upfront and build relationships with clients who trust us for our integrity and honesty.

This is why we feel obligated to let you know some of the secrets that life insurers don’t like to advertise.

How Do Life Insurance Companies Make Money?

Life Insurance secrets
* Discover the 5 life insurance secrets that your agent won’t tell you about

Life Insurance is BIG business and as of 2017, there were a total of 781 individual life insurers.

How much money does this translate into? In 2017, life insurers took in $137.1 Billion dollars in premiums along with an additional whopping $287.2 Billion Dollars for annuity premiums and deposits.

Clearly, life insurers earn huge profits from consumer expenditures.

You work hard for your money. And, because you need life insurance to protect your family with a financial safety net, here are some life insurance secrets you need to know so you can be a savvy consumer.

RELATED: 5 Critical Tips You Must Know Before Buying Life Insurance

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5 Life Insurance Secrets They Don’t Want You To Know

We are going to tell you about 5 secrets that life insurance companies don’t want you to know.

They may surprise you…

Permanent Life Insurance Is Not a Good Investment

Many life insurance companies want their agents to focus on selling you permanent life insurance policies such as Whole Life and Universal life.

Why?

Because the companies make a lot more money, and the agents who sell these policies make a lot more commission than they do for term life insurance.

They tout the benefits of the cash value accumulation portion of the policy. But, what they often fail to tell you is that it takes 5 or more years to build up anything in the cash value portion.

In the first year that you pay premiums, much of that premium is used to pay the agent’s commission. In the following years a good chunk of your premium is applied towards covering the death benefits portion and administrative fees.

By the way, part of your premiums are used to pay administrative fees throughout the life of the policy. Most insurance companies are very secretive about the cost of these fees.

RELATED: Check Sample Life Insurance Rates by Age (No Personal Info Required)

The majority of Americans are better served buying term life insurance and investing the rest.

How much more does a permanent policy cost than a term life insurance policy?

A healthy 30 year old non-smoking male (even cheaper for a female) can buy a 20 year term policy with $500,000 in death benefits for around $246 dollars per year. Buying a lifetime Whole life policy worth $500,000 would cost approximately $5,178 dollars per year.

That’s an annual premium difference of $4,932 per year!!

Shopping Online Won’t Always Get You The Best Rates

Every company, their agents and life insurance call centers have online quote systems to entice surfers to buy life insurance online.

What they don’t tell you is that most of these online quote systems only give you a part of the story. What they don’t tell you is that the companies that pop up with quotes are only a portion of what is actually available.

Some quote systems only use a certain number of preferred companies whose rates are generally much higher than what is available elsewhere. But, you don’t know that because you likely think you are getting the best and most affordable quotes available…

You’re not!!

Another aspect is that many companies like to give sample rates to show you how cheap life insurance is to buy. What they don’t tell you is that these low-cost quotes are only for those people who would qualify for a “Preferred Best” rating which is the best anyone can qualify for.

The truth is that LESS THAN 5% of you will qualify for a “Preferred Best” rating. Each change in the rating classification means adding an additional 25% on to your premium.

Agents Are Paid Higher Commissions for Selling Certain Products

The average American consumer should be very wary of any agent who tries to sell some alternative life insurance product other than term life insurance such as a permanent policy or an annuity.

This applies to all agents, including some independent agents.

Some life insurance companies offer a higher bonus for selling these products. Making more money is a temptation that some agents, unfortunately, can’t pass up. This is to your detriment.

Agents don’t make big commissions on term life insurance and can make a lot more on permanent policies. An annuity, on the other hand, reaps even more commission for the agent.

Your agent has an incentive to sell whole-life policies. Agents and their managers typically receive upfront commissions and other compensation totaling well over half the first-year premium. That means very little of the premium goes into the cash-value account. The industry defends these commissions as fair compensation for agents’ services. Life Policies: The Whole Truth, Leslie Scism, WSJ

Neither a permanent policy nor an annuity is the right purchase for the average American who needs life insurance.

Life Insurers Rarely Have to Pay Out

Did you know the vast majority of people who have term policies will likely survive to the end of their term? But since many others don’t, you still want to have protection in place.

A policy can only be maintained in force provided the premium is paid in full, in the time prescribed. Failing to do so will result in the policy to lapsing.  Once a policy lapses, you have no life insurance coverage.

Needless to say, permanent policies have the strongest lapse rate. As many as 25% of people with these policies allow them to lapse in the first 3 years. An incredible 40% of those who own such policies will lapse within 10 years!

One thing life insurers fail to mention is that you do have the option of lowering your premiums by reducing the amount of your death benefits. This may allow you to keep the policy in force and reduce what you pay.

If you have maintained a permanent life insurance policy for a number of years, it’s a better option to surrender the policy as opposing to just letting it lapse so you can at least reap whatever you amassed in the cash value portion.

Life Insurance Companies Don’t Look Hard to Find Beneficiaries

If you die and your beneficiary doesn’t file a claim, many life insurers really don’t try very hard to track down the beneficiary to pay the claim.

In three states alone, there are about a dozen insurers who owe approximately $1 Billion dollars in claims. But, because the beneficiaries did not know they were named on the policy, they have not contacted the life insurance company to file a claim.

The life insurance companies did not make much effort – if at all – to find the beneficiary who has not been paid while the money owed sits in limbo.

Some states are now forcing these insurers to use the Social Security Administration’s Death Master File to try to locate these beneficiaries.

The lesson?

When you name a person beneficiary, make sure you tell them you have a policy and where they can find it.

Additionally, it is vital that you contact the person to let them know that you named them a beneficiary. You should also provide them with the policy number, the issuing agency and the value of the policy.

Always Use An Independent Life Insurance Agent

Not all agents are the same, but we pride ourselves with providing quality service with no hidden agenda. 

We strive to form long term relationships and to offer all our clients the most suitable life insurance product at the most affordable rates!

We have access to over 40 of the top life insurers in the industry. If you want quality and the best service the industry has to offer, then call us today at 888-603-2876. We can help!