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Why buying life insurance is still so hard — and how you can make it easier

·4 min read
Why buying life insurance is still so hard — and how you can make it easier
Why buying life insurance is still so hard — and how you can make it easier

The long wait times, the medical exams, the awkward conversations with strangers — applying for life insurance can have you wishing you never even tried to get coverage in the first place.

Does it really have to be so difficult in 2021?

In the past few decades, technological developments have disrupted most other areas of the financial-services sector. These days, you can buy auto and homeowners insurance online with just a few clicks of a button.

So why not life insurance?

Read on to find out what the holdup is and what can be done about it.

What’s the issue?

Group of multicultural friends using smartphone outdoors.
View Apart / Shutterstock

While there are some companies already disrupting the life insurance market, a report by Munich Re Automation Solutions, a provider of digital underwriting services for the insurance industry, indicates the sector isn’t anywhere close to where it needs to be.

“A generation of consumers, well versed in researching, buying and reviewing products online, has entered the market for life insurance — but they are facing a buying experience that does not align to the expectations of ‘digital natives,’” says the report.

Especially with the millennial generation, consumers are far less likely to seek out services that don’t offer quick, digital sales processes.

Evidence from aggregator sites shows that prospective buyers of all generations are 50% more likely to purchase the offers that appear most quickly, the report says.

If life insurance doesn’t find a way to appeal to this mode of shopping, especially among digital natives, the report finds, this trillion-dollar industry will soon find itself caught in the generational gap.

What’s standing in the way?

medicine, healthcare and people concept - doctor with clipboard talking to male patient at medical office in hospital
Syda Productions / Shutterstock

The biggest barrier the insurance industry faces is the need for medical underwriting.

Life insurance (like all other types of insurance) is structured around risk mitigation. Every company has its own underwriting manual and process, but generally before you can get approved, you’ll need to:

  • Submit an application.

  • Do a phone interview with an underwriter.

  • Take a medical exam, including taking basic measurements, and a blood and drug test.

  • Get your doctor to address any medical concerns that come up through the exam.

  • Allow the insurer to check whether you’ve recently applied for other life insurance policies, what prescriptions you’ve filled over the last five to seven years and your driving history.

From there, they’ll basically calculate your life expectancy based on your health profile. And once that’s done, they’ll assign you a rate.

This whole process generally takes a few weeks to complete.

Why are things done this way?

Intelligence (BI) and business analytics (BA) with key performance indicators (KPI) dashboard concept.StartUp Programming Team. Website designer working digital tablet dock keyboard.
everything possible / Shutterstock

The challenge insurance companies face is that the more information they have, the easier it is to correctly and fairly assess risk in the underwriting process.

If they all switch over to a more streamlined process that doesn’t involve collecting as much data, the concern is they won’t be able to accurately assign insurance rates.

While that could result in your paying higher rates, which isn’t great, it would be downright disastrous if these companies set rates for claims they couldn’t pay out when the time came.

What can be done?

Young man smiling as he reads the screen of a laptop computer while relaxing on a comfortable couch at home in his jeans
stockfour / Shutterstock

To find a happy medium between risk management and customer experience, Munich Re suggests using analytics and artificial intelligence to automate the underwriting process.

By instantly comparing an applicant's basic information to that of millions of others, computer systems can make sophisticated risk assessments that no human being, not even a doctor, can match.

Change takes time and money, but as the report by Munich Re indicates, it may not be a choice for insurance providers for much longer.

Some companies have already adopted more technologically advanced underwriting processes, allowing you to get a free quote in seconds and to get approved in a short minutes – in many cases without a medical exam.

What about my other insurance needs?

Couple doing accounting on line with a phone bank app sitting on a couch in the living room at home
Antonio Guillem / Shutterstock

Other lines of the insurance sector — such as auto, homeowners and health — are also taking advantage of the capabilities afforded by digital technology.

And that means greater choice and lower premiums for you, the consumer.

By shopping around for the cheapest policies, you can potentially cut your car insurance costs by more than $1,000 and knock down your homeowners insurance bill by hundreds as well.

And with new, more generous federal subsidies for Obamacare plans set to take effect, you should definitely shop around for a health plan to ensure you're paying as little out-of-pocket as possible for the coverage you and your family need.