Should low income earners pay more for their life insurance?

Technically, yes!

It is a grim fact that men classified as having ‘low income’ will die on average 6.5 years younger than higher earners.  And for women, this gap is 4.7 years.

This means that low income men and women are at higher risk for life insurance… in the same way that smokers are higher risk for life insurers… and low earners (technically) like smokers should pay more for their life insurance cover.

I started thinking about this issue when a report from Otago University caught my eye.

According to this report, the life expectancy gap between rich and poor in New Zealand is not only significant, it’s widening! Over the 20-year period from 1981 to 2001, life expectancy for high earning men increased by 2.1 years and by 1.4 years for women.

So, do we believe that life insurance companies in New Zealand will at some point introduce a question on the Life Insurance application form along the lines… “How much do you earn?”

Nope, never!  (And nor should we.)

Yet… (believe it or not) it does happen in some countries… South Africa being a case in point.

If you apply for life insurance in South Africa, you will typically be asked to declare both your level of education and monthly income on the application form.  If your level of income and/or education is low, you’ll be quoted a higher price for your life insurance!

Talk about kicking someone when they’re down!  Tough place Africa.

The Sydney Morning Herald recently reported that a team of scientists at Boston University claimed to be able to predict – with 77 per cent accuracy – which of us will live to 100. (Also see NZ Herald)

The scientists did this by comparing the DNA of more than 1,000 centurions with that of the general population, finding a “genetic signature” that was linked to “exceptional longevity”.

What would happen if at some stage people are able to be “longevity tested”? What would happen if you knew that, failing an accident or a natural disaster, you’re likely to live to be 100?

And in particular, how would it affect your application for life insurance???

Standard life insurance premiums are based on the expectation that your lifespan will be that of the average person… in New Zealand that’s 82.2years if you’re female and 78.0years if you’re male. When you apply for life insurance, the insurer will ask you a range of questions to assess if you’re likely to die earlier than an “average” person of your age and gender.  If you are, you’ll be charged higher (loaded) premiums.

But Life Insurance companies typically don’t have processes to check if you’re likely to live longer than average… with a view to reducing your premiums.

So if you turned up at an insurance company with a favourable DNA test, you’d still pay the ‘standard’ rate.

Not fair, is it?

Pinnacle Life received notification of a complaint recently that was made to the Advertising Standards Authority.

The complainant (Tom of Auckland) took issue with Pinnacle Life’s assertion that Pinnacle’s 20% lower premiums are due to the fact that they operate “more efficiently” than the other insurers.

Tom’s complaint was based on his view that Pinnacle Life’s lower premiums have little to do with better efficiency, and instead, provided these two reasons for Pinnacle’s lower premiums…

• Pinnacle Life pay little if any commission to brokers to provide advice to clients…  so they save on commission costs and
• Pinnacle Life doesn’t underwrite people applying for life insurance… it relies on the work done by previous life insurers, thus avoiding significant costs.

Both of these points are, of course, nonsense…

Let me explain.

• Firstly, Pinnacle Life spends proportionally more on advertising, so commission costs are simply replaced with increased promotional costs.
• Secondly, Pinnacle Life underwrite every application received. Any suggestion that Pinnacle Life doesn’t undertake its own underwriting is simply a myth.
• Finally, here’s why Pinnacle Life’s premiums are the lowest in the industry… over 60% of policies are issued without touching a human hand (other than the insured person), and without filing a single piece of paper. It’s called ‘efficiency’ Tom.

Unsurprisingly, the Advertising Standards Authority rejected Tom’s complaint.

Being obsessed with soccer and life insurance, it was inevitable that I would blog some of the perils of being associated with a football mad spouse, or being caught up in a football debate. For the record, the FIFA world cup 2010 official body count stands at 79. Here are some of the events that lead to these fatalities.

• A Thai gunman shot and killed two of his countrymen when they make a racket at Italy’s first goal in the Italy  – Ghana game.
• In Ecuador, a soccer fan was terrified by his own power committed suicide after he correctly predicted that Ecuador would lose to Poland.
• Six deaths reported in Haiti, where two armed gangs battled over an electrical generator needed to watch the World Cup.
• A woman in China died after plummeting from the 17th story of her apartment building last Sunday, after an argument with her boyfriend, who wanted to watch the World Cup in the early morning hours. The boyfriend says she jumped. He swears
• An 18 year old Parisian reveller died after he fell off the top of a subway car he was riding.
• A 20 year old French woman from Lens died when her car crashed, as she leaned out the window in celebration.
• And a man is feared drowned in Lyon after he jumped off a bridge into the River Saone with a group of friends.
• Eleven Chinese people have died of what is now being called “World Cup Syndrome,” which consists of watching a match and keeling over and dying, usually of a heart attack. China remains the nation with the most World Cup deaths, all the more strange since the Chinese team did not even qualify.
• The deadliest event of the entire cup took place in Burundi, where seven people died after police hurled a grenade and opened fire into a crowd of celebrants who were setting off fireworks.
• In Thailand, yet another fan expired of heart failure while watching the final.
• And in Montpelier, the fifth French World Cup death was reported, when a young man was stabbed in the neck during an outdoor viewing of the France-South Africa game.
• In Italy, a 77 year old man fell while trying to attach a flag to a pole prior to the final game.
• A 30 year old member of the Italian crime gang Camorra was shot to death by a rival gang member’s riding motorbikes, as he came out of hiding to celebrate.

Without doubt, the number one killer during the World Cup is heart attacks, followed by murder, with over-zealous revellers (PC for intoxicated fans) a close second or third.

The only good news in all this, is that all the fatalities mentioned above, are insurable events.

Couldn’t help commenting on this Herald article that talks about the upcoming tax changes for life insurance.

In the article, Sovereign Insurance announced that three parties will shoulder the increased tax burden…  the consumer will take one third (15% increase in premiums), the broker will take one third (commissions reduced from 230% to 200%), and Sovereign itself will soak up anything that’s over.

Well, I have to say, I couldn’t get the math to work.  Watch this…

Selling a policy before the tax change…

• Assume a policy with premiums = $1000.00 pa
• Commission paid @ 230% = $2,300.00

Same policy after tax change…

• Premiums increased by 15% to $1150.00 pa
• Commission paid @ 200% = $2,300.00

Somebody… help!

Two further TV promos currently running for Pinnacle Life.

http://www.youtube.com/watch?v=uJvcVlMVoxY&feature=related

http://www.youtube.com/watch?v=eLT3ZVqy9CU&feature=related

We’ve taken some interesting calls regarding these ads… look forward to yours.

Ok, I always thought that getting a lot of sleep was one of the ways to a long and healthy life.

Not so, according to this report on BBC.

The bottom line is this… scientists at the University of California have established that sleeping for 6 or 7 hours a night is better than 8 or more hours, if your goal is to live longer.

As a person working in life insurance, my ears pricked up when I heard this. You see, if you think about it, this study says that people who sleep longer than average are more likely to die younger than average and this means they are a higher risk for buying life insurance.

And how do insurers deal with higher risk applicants?  Higher premiums of course.

So how about a new question introduced onto life insurance applications asking how long you sleep for on average each night. Less than 8 hours means you get offered life insurance at the standard price. Eight or more hours and you’ll get an instant loading on your insurance premiums.

Hmmm.  Makes you think.

Ok, we admit we’ve been rather quiet on this Blog lately.

There’s a lot to catch up on, starting with the fact that Pinnacle Life is now advertising on TV.

If you’re a regular TV watcher, you’ll see the PINNACLE LIFE ads on TV3, Prime and some of the SKY channels.

Here’s the first of three ads, right off YouTube… click here to view

Feel free to let us know what you think…?

We heard this morning that the internet domain name www.insure.com traded hands for a cool NZ$21million, and this is regarded as the highest amount ever paid for a domain name, bettering www.sex.com by $5.3million. I needed to check the facts and found this reference…  and another one here…so we presume it’s entirely true.

Surprised?

We’re not.

Especially since the word ‘insurance’ is reputably the most expensive adword (paid search term) on Google.

But what does this all mean. Does it mean people are more interested in insurance than sex?  Yeah… right!

Clearly there is an assumption by businesses around the world that insurance lends itself to the internet and that there is money to be made in this way. It certainly puts paid to the theory (repeatedly trotted out by those regular, old fashioned, overpriced life insurance companies) that life insurance must be sold… and that people don’t buy life insurance.

I mean, come on… you think someone’s going to buy the domain name www.insure.com for $21mil if no-one buys life insurance online?

We’ve been saying for some time that life insurance is the next big thing on the internet.

Looks like someone’s paid $21mil to prove it.

We appreciated receiving this comment from Carl…

Your radio advert seriously undermines your bragging about using plain English – the grammar is “plain wrong”.

I quote “..while this may work out good for your family…”. This is terrible English. Things can’t “work out good”; they might work out “well” or even “very well”.

This may seem petty and trivial to you, but it irritates the heck out of me every morning on my way to work and I can’t picture myself buying anything from your company as a result.

So there! Now I feel a bit better.

Reply…

Oops… obviously can’t please everyone.

We can understand how ads can be irritating. I’ve been hearing a jingle on radio each morning from an IT support company and feel the same way, I’d never buy services from them – even if my email jammed and they were the last IT company standing.

In fairness, Pinnacle Life’s style of English is conversational and colloquial… it has a personality.  It’s not written as you would expect a technical report or legal document to be written, because then it would be cold and sterile.  But the language we use is technically very accurate and unambiguous. And we’ve eliminated the typical insurance jargon and legal-speak.  So non-lawyers and people in everyday jobs can understand what they’re buying, without the need for a financial adviser to hold their hand.

(See… who else would dare to start their sentences with ‘But’, ‘And’ and ‘So’.)

Additionally, our radio ads are designed to be somewhat provocative.

Still, we absolutely get what you’re saying and we’re thrilled you took the time to share your frustration.

There… now I feel better… that worked out quite good:-)

Carl… give it a go… take a look at http://www.pinnaclelife.co.nz, reflect on the incredible pricing, read through a sample policy document… and just maybe you’ll be converted…

Cheers
Ed