New York -- The life-insurance industry is at it again -- making it hard for you to buy policies at the lowest price. It fights any laws, state or federal, that would induce more price competition. Now it's trying to muzzle the very few agents who help consumers buy life insurance and annuities for less.
Take R. K. "Rick" Nelson of Northbrook, Ill., who bills himself as a discount insurance broker. He builds his business on a little-known fact about many insurance companies: They offer at least two versions of their policies -- one at a higher price, one at a lower price.
The higher-priced policies pay the agent a full sales commission. As you might expect, these are the versions most widely sold.
But for anyone shopping for coverage in the $1 million range or higher, the agent will probably offer the discount version. You might also be offered a discount for switching from term insurance to whole-life, or for switching from one insurance company to another.
Discounted policies pay lower commissions, no matter the size of your coverage. Normally, an agent earns 50 percent to 70 percent of your first-year premium. Discounters earn 25 percent to 35 percent.
In two states, California and Florida, agents also are permitted to rebate -- which means paying part or all of the sales commission back to the client. Nelson pays rebates to residents of those states.
Most insurance agents and many of their companies hate Nelson's discount philosophy. Last year, in fact, Transamerica Occidental Life, Metropolitan Life and Prudential revoked his right to sell their policies. In a letter to Nelson, Prudential complained that "your advertisements regarding rebating and discount insurance are contrary to the position and best interests of the Prudential."
Nelson is suing the three insurers (none of which cared to comment for this column).
The irony, Nelson says, is that those companies still provide discount coverage for their agents' richer customers. The agents simply keep it quiet.
Fortunately, many other insurers still work with Nelson, who offers discounts or rebates to all his clients. He currently does business in 10 states -- Arizona, California, Florida, Georgia, Illinois, Indiana, Michigan, Missouri, Iowa and Wisconsin. Call him at 800-879-LIFE.
Another price-cutting life-insurance agent, who is now under pressure to surrender, is Peter Katt of West Bloomfield, Mich. Katt charges $125 an hour for insurance advice and recommends policies that pay him no sales commissions. If you're buying an especially large policy, Katt may save you money by meeting you in Florida or California, signing the application there and rebating the sales commission in full. He works with clients in all states.
His home state, however, is suddenly trying to shut him up.
Michigan forbids rebating. In the past, the state ruled that Katt's rebates were legal, because they were given out of state.
But after strenuous objections from competing agents, the insurance department changed its mind. Acting Insurance Commissioner D. A. D'Annunzio ruled last March that Katt may not advertise his rebating services in the state. He can't even mention rebating to Michigan residents. Nor can he refer them to another rebater in Florida. Katt will soon file a suit, charging Michigan with infringing on his free speech.
The gag rule has a loophole. People in other states can still call Katt, at 313-360-4468, and learn about his services. You would be wise to do so, if you need a big policy for estate-planning or business purposes.
For the average policy, Katt advises that you call one of two companies that charge no direct sales commissions: USAA Life in San Antonio (800-531-8000) or Ameritas Life in Lincoln, Neb. (800-255-9678).
The American Council of Life Insurance calls rebating unfair to the average consumer, because most of the price breaks might go to the wealthiest buyers. But that's exactly what happens today, with the discount policies insurers offer.
Next argument, from the ACLI's Gene Grabowski: Discounting "diminishes the inherent value of the policy, because you're buying it too cheaply." Personally, I value lower-priced policies more than I value expensive ones.
The real truth is that the insurance agents don't want price competition. And they're using compliant state insurance departments to get their way.