Equity

Katie Lee Caito went shopping forlife insurance earlier this year and learned the meaning of hard sell. "One agent called me at home and at work constantly, at 8 at night and on Saturday afternoon," recallsthe 34-year- old stepmother of two. "He would ask my office staff, 'Hey, babe, is Katie in?' " The Troy, Mich., resident and her husband shrugged off the pressure--and wound up buyingterm policies at a local branch of Comerica Bank, which started selling life insurance in1995. Savings over the offer from the obnoxious agent: 15 percent.

Until recently, commissioned agents were all but the sole source of individually purchased life insurance, selling98 percent of the billion Americans spend a year on new individual coverage. But Charles Schwab, which pioneered discount stock transactions, starteddirect sales of life insurance policies in May. A Supreme Court ruling in March allowed more banks to getinto the business. And price quotes are available on the World Wide Web. The convenience and low premiums are alluring--butthe new sales conduits also inject new dangers. Here is a guide.

THROUGH THE INTERNET

Robert Murray, a 37-year-old software manager with two young children, gets aroundthe Web faster than he can navigate Southern California's freeways. So he appreciated the convenience of buying a term policy through an online service launched in May by Quotesmith (box, Page66). The Quotesmith site prompts for your birth date, state and sex,and in a few seconds searches a database of more than 130 insurers for good prices. "I didn't even have to close my office door to get privacy," saysMurray. He bought a ,000 policy from Lincoln Benefit Life with 15 years of level premiums. It replaced a 10-year, level-term policy without any price increase.

Cyberspace can't handle every detail, of course. Murray had to mail inhis signature and give a blood and urine sample to a paramedic. But proponents of buying insurance online expect itwill cut at least a week off the typical six weeks between applying and having a policy in hand. The computer solution has value for those whoprize immediacy and privacy. The World Wide Web is burgeoning with sites thatcalculate insurance needs, come up with price quotes, find a local agent and even give advice on the kind of insurance you should buy (box).

That a quotehas been crunched by a computer doesn't necessarily make it the cheapest. And as elsewhere on the Web, the linebetween information and self-promotion can blur--or worse. "The Internet will be the perfect vehicle for fraud," saysDavid Blair, an Ohio insurance official and chairman of a newly formed committee of state regulators focusing on Internet insurance sales. Posting a Web page is cheap, and regulators fear that crooks could pose as insurance agents or insurers totake the money and run.

Short of theft, online insurance consumers need to guard their legal rights. To be protected bystate guarantee funds, which take over the obligations of failing insurers, a consumer must buy from an insurer licensedto do business in his or her state. Likewise, a buyer should only deal with a state-licensed agent. But a page on the Net canbe viewed simultaneously from anywhere, with no assurance that policies are being marketed only to states wherethe sellers are licensed. Utah regulators are currently investigating one Internet insurance-shopping service that lacks a Utah license.

A call to your stateinsurance department will confirm that both the agent and the company you are considering are kosher. Or you could stick to a product from a long-established organization, such as Quotesmith orQuicken InsureMarket, a new online venture of Intuit, the personal-finance software firm. Quote-smith is licensed in all 50 states, InsureMarket so far in 45 (it won'tgive you a quote if you live in one of the other five states).

CharlesSchwab isn't the first company to sell insurance by phone via a toll-free number (800-542-5433). But the discount broker's deeppockets, its 3 million customers and its big advertising plans should boost the legitimacy and raise the profile of direct sales.Other powerhouses, such as mutual-fund giant Fidelity, are considering joining the fray.

Schwab, which is licensed in 35 states and hopes to add the other 15 by year's end, doesn't offer a comparison-shopping service, nor will it pay out deathbenefits. Its policies are underwritten and issued by Colorado- based Great-West Life, the 24th-largestU.S. insurer. Premiums are competitive, especially for good risks. Annual premiums for a 10-year, ,000 term policy for a healthy, nonsmoking man of 45, for example, run --eighth cheapest in Quotesmith's database. New York insurance consultant Glenn Dailysuggests also checking out Ameritas (800-552-3553) andUSAA (800-531-8000) for competitive premiums across a wide range of policies.

At these three big direct sellers, salespeople are salaried, not commissioned, and only minimalsales charges are levied. Consumer advocates applaud. At least in theory, this "low load" approach removes agents' incentives to push high-commission policies like universal life and other cash-value insurance. Term policies, whichprovide pure death benefits without a savings component, are much cheaper. "When I was insurance commissioner in Texas, I listened in at random to phone calls at (San Antonio-based) USAA," recallsRobert Hunter, now insurance director at the Consumer Federation of America. "I hearda USAA rep saying, 'You don't need life insurance'--words you'd be unlikely to hear from an agent."

Buying term insurance direct may not save anything over commissioned term policies sold through telephone quoteservices such as MasterQuote (800-337-5433) and TermQuote (800-444-8376). Customers shopping for cash- value policies, on the other hand, can save big because with a conventionally sold policymost of the first year's premium goes into the agent's pocket. Buying direct puts almostall of the money into the policy's cash value.

Consider a universal life policy--offering flexible premiums and asavings vehicle as well as a death benefit--for a 45-year-old male nonsmoker with an annual premium of ,400. With an agent-sold policy, the cash value would be zero at the end of the first year. With alow-load policy, the cash value can be more than ,200. The insurancerating firm A.M. Best recently examined the cash value of universal life policies five years after purchase; Ameritas camein No. 1.

The best direct sellers are helpful and informative. In a 1995 customer-satisfaction survey of various financial services by Dalbar, a Boston market-research firm, USAA, the largest direct marketer of life insurance, was top in the lifeinsurance category. Richard Hubbell, a research engineer for the Navy who uses his ,000 USAAuniversal life policy as a tax-deferred investment vehicle, says he got better answers to his technical questions from USAA's phone experts than he ever didfrom local agents.

FROM THE CORNER BANK

More than 4,000 banks already competing in the insurance business and others racing to join them sounds great for consumers, since bankers might chargeless than traditional agents. "Banks have a ready-made customer base, and they don't have to spend as much prospecting for clients,"says Randy Bray, chairman of the Evergreen Group, a Des Moines, Iowa, firm that markets insurance to 80 bank clients.

But not every bank will decide topass along savings to consumers, so comparison shopping remains essential. And banks' biggest advantage may come from the public's widespread assumption that the federal government stands behind all bank products,including life insurance policies. Not so, though banks arenot required to inform consumers of this fact. Neither does a bank's financial strength improve the likelihood a policy will pay off as promised. By law, banks are only an insurance sales channel; they cannot underwrite or issuepolicies.

Thus, the financial strength of the issuer of your policy is critical. Some banks are partnering with a single insurer, as Schwab has. Otherschoose to be independent agents, representing many insurers. The policy sold to the harassed Katie Lee Caito through Comerica Bank was issued by Lincoln BenefitLife, a respectably rated subsidiary of Allstate. As with all life insurance purchases, you'd bewise to check an insurer's rating from several independent rating agencies. Ratings are available by phone for free or a modest charge from A.M. Best (800-424-2378), Duff& Phelps (312-368-3198), Moody's (212-553-0377), Standard & Poor's (212-208-1527) and Weiss (800-289-9222) and on the Internet (box).