Today’s life insurance landscape includes both established and still unestablished insurance companies. This creates a unique market for consumers: can startups offer more competitive policies, and will the businesses survive long enough to provide a payout if needed? How do their policies compare to tried and true term life insurance policies — and how are established companies staying current and innovative themselves?
In essence, the pros and cons of buying life insurance from startups or established companies come down to risk.
Pros of buying life insurance from a startup
Faster sign up
The process of purchasing life insurance has evolved with technology and ultimately become faster and easier. From online screening services to the convenience of uploading and sharing documents rather than mailing or faxing them, there are a lot of ways companies, especially innovative startups, are finding ways to bring in new customers.
Skip the Medical Exam
One of the most significant conveniences that the modern signup process offers is replacing an in-person medical examination with the ability to share medical records. Consumers can now give their consent to securely share access to their medical records with brokers or directly with their preferred insurance company. This helps the insurance companies make informed decisions without incurring the expense of covering an exam, and helps consumers get faster access to the most competitive rates possible.
Related: Why are Practice Questions Important for Medical Exam Preparation?
Competitive Rates
Insurance startups tend to offer lower rates to attract new customers. These relatively lower rates may also come with relatively higher risk, but it can be worth considering startups for short-term and/or supplemental life insurance coverage.
Cons of buying life insurance from a startup
Instability of Young Companies
The biggest concern for those considering buying life insurance from a startup should be financial stability. The overwhelming majority of new businesses fail, and nobody wants that to happen to their insurance company when they need to collect on a policy. However, there are ways that insurance companies can bolster their financial stability. For example, many startups have financial backing from larger entities, and/or offer policies that are issued by larger companies.
Guaranty Associations Only Cover So Much
If a policyholder’s insurance company goes out of business when it’s time to collect a payout, there are guaranty associations in every state (and also in Puerto Rico and Washington DC) that will pay a portion of the death benefit. However, the maximum benefit each will pay usually falls around $300,000. This may not be enough for a high earner who needs the recommended amount of coverage, which is generally ten times their annual income.
The Bottom Line
Life insurance startups can be brilliantly innovative, but with innovation comes risk. Consumers will have to closely evaluate the terms and conditions of policies offered by the insurance startups to make sure they are getting the right coverage at the right level of risk.
Established life insurance companies are also adopting easier signup procedures and finding ways to keep their rates competitive, and will likely continue being a better option for primary life insurance coverage to provide essential security for dependents, however, a life insurance startup might be worth considering for supplemental life insurance.
Ultimately, the safest startups to buy life insurance from are those with the strong financial backing and/or partnered with more established companies.
