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TD Life Insurance – did you compare?

In the last 5-10 years the banks have entered into the life insurance business in  three ways. They are using different distribution methods such as through existing brokers, setting up their own sales force, or offering it through their website.  The idea of getting insurance through a website is particularly attractive to many consumers, and TD Life Insurance is certainly at the forefront of the banks in that respect.  In fact, this is what their website says about it:

Many people see life insurance as expensive and hard to understand. We’re going to change that. In providing insurance products directly to you through trained, licensed and salaried staff  rather than commissioned sales agents, our goal is to reduce the cost of your insurance and make it easier for you to choose just the insurance you really need.

So a bank is going to fix what the life insurance companies can’t?  I’m a bit of a skeptic on this one :). They seem to be intimating that not dealing with a commissioned sales rep is easier and cheaper.  Well, lets look at this premise by comparing their products and services against my own as a commissioned life insurance broker.

  TD Life Insurance Other
No agent visit Check Check (we have a no agent will visit process)
Licensed and experienced representatives Yes. This seems to indicate that their representatives are licensed the same as a traditional insurance agent. Yes. Licensed in most provinces. 25 years of life insurance experience personally, including experience with pricing insurance. Our associate broker has 40 years of life insurance experience.
Commissioned No. Reps are on salary. Yes. Reps are 100% commissioned.
Buy online No – you need to speak to a licensed rep by phone. No – you need to speak to a licensed rep by phone.
Product line Term 10, 20, and 100, only TD Insurance products. Full range of insurance products including 5,10,15,20,25,30 and 40 year term, whole life, Term to 100, Universal Life, disability insurance, critical illness insurance. From most of the competitive companies in Canada.
Pricing: $500,000, Male Nonsmoker age 45
Source: TD Insurance website for their premiums.
Our online quoting system for other premiums.
Term 10: $60
Term 20: $100
Term 100: $452
Term 10: $47, 18 companies with lower premiums.
Term 20: $88, 16 companies with lower premiums.
Term to 100: $394, 6 companies with lower premiums. Plus 7 companies with Universal Life premiums lower than the Term to 100, starting at $414. Plus 2 companies with guaranteed whole life policies (including cash values and paid up values) with premiums lower than the Term to 100, starting at $443.

It’s the pricing and product availability where the perceived benefits start to fall apart. You can purchase life insurance over the phone through TD or through an independent broker. Both offer experience, trained reps. Both offer Term 10, Term 20 and Term to 100. But an independent broker has access to a wider variety of products in the open marketplace with companies competing for your business. And that’s reflected in the premiums – despite one’s automatic assumption that the removal of ‘commissioned’ reps implies lower premiums this is in fact not the case.

The reasons are simple but non-intuitive. First, by not comparing prices, insurance companies that market direct to consumers don’t compete on price. Secondly, the idea that commissions are an expensive part of your life insurance premiums is false. Over the lifetime of a 20 year term policy, commission might amount to only 5% of your annual premium. Remove that 5% and you have to replace it with two things – salaried employees and the overhead (office space, phones, employee benefits, parking) and marketing (TV, radio, and magazine ads). The ability for an insurance company to accomplish all of this for less than 5% of premium is debatable. In fact, in every single case where I have ever seen a direct to market life insurance product offered, it has always been more expensive than alternatives available through an independent broker.

So what are the advantages of TD Life Insurance? Not cheaper rates. Not the ability to skip an agent visit. Not a broad product line. What you get is a rep who is paid by salary instead of commission. Is that a benefit? Perhaps it is, but in order to get this benefit it is going to limit your product choices and cost you higher premiums when compared to an independent broker who is paid by commission. Non-commissioned life insurance products are available, but it’ll cost you more money.

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