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In keeping up with the personal finance and financial wellness information world these days, you may encounter a new term: “direct” term life insurance.
Or, perhaps, you'll see one of its variations: direct life insurance, direct-to-consumer life insurance, term insurance online, or even online consumer insurance.
Why the new terminology and what’s the difference from the long-time standard: term life insurance?
The answer is mostly about process. “Direct” is a reflection of the realities of our online world. But there are some nuances perhaps buyers should be mindful of.
A good starting point is understanding what term life insurance means. It is a type of life insurance that provides a death benefit for a specific time period. It is distinct from permanent life insurance, which offers other financial features and can last for a lifetime. Because of its basic nature, term insurance tends to be the most affordable type of insurance.
The online direct term life insurance appeal
With the advent of e-commerce and smartphones, many consumers lean toward doing their shopping online. And with the advent of sophisticated database systems and analysis, methods have been developed to do a health assessment online for basic types of life insurance, namely term life insurance. So, over recent years, more consumers looking for basic, affordable coverage do research online, get a basic idea of how much it will cost, and consider applying online as well.
And such online insurance shopping offers features including:
- Speed: Online application processes are easy and quotes are typically in real time.
- Direct: The consumer deals directly with the insurance carrier.
- Personalized: The consumer can go through the process at their own pace.
Indeed, such features led to increased interest in direct term life insurance, especially during the pandemic. In fact, 31 percent of those intending to purchase life insurance in 2022 preferred doing it through an online process, according to a survey conducted by LIMRA, a life insurance research group.1
But that changed. In its 2024 report, LIMRA noted that the figure for online process had dropped to 21 percent.
“It appears that life insurance is one of the few products that has struggled to gain significant traction in the direct-to-consumer online platform,” LIMRA noted in its 2024 report. It reported that 44 percent of life insurance shoppers would be inclined to do online research, but would rather meet with a financial professional to handle the rest of the purchasing process.
“In order for many to purchase a comprehensive life insurance policy, at least one face-to-face conversation with an agent or financial professional is required, and often more than one meeting,” LIMRA observed. “Life insurance can be complicated, and consumers need to be comfortable with their purchase. Online ecosystems have not yet been able to match an agent’s knowledge of policy options, nor can they educate a prospective client as well. And time will tell if intangibles like trust and experience can ever be matched online.”
How ‘direct’ works
Nonetheless some direct term life insurance online purchase options remain. And the process for applying for and purchasing online term life insurance is usually straightforward for the leading insurance carriers offering it.
Go to an insurance company’s online quote or coverage estimate tool and get an initial quote. You can experiment with different levels of coverage to see how much might fit your budget. (Calculator: How much life insurance do I need?)
It is at this point many people discover they would be more comfortable consulting a financial professional, as questions about individual circumstances and needs often arise. However, if you decide to proceed, you’ll need to find a carrier offering online applications.
“In the last couple of years, many newer InsurTech companies have pulled out of the direct-to-consumer market, while incumbents have pulled back or ceased online sales altogether,” LIMRA observed in its 2024 report.
You will go into the carrier’s application process, providing some personal information and answering a few health questions. It's very important to be honest when completing the application. Issuing the policy or paying its benefits depends on the applicant’s insurability, based on their answers to the health questions in the application, and their truthfulness. (Related: Lying on insurance and the consequences)
With your permission, the company will analyze health records and other information in real time to deliver a personalized rate for a term life insurance policy for you. At this point most insurers of direct term policies will require a medical exam, although in some instances that step may be waived for some applicants.
After that, it’s up to you whether or not to purchase the policy. In some cases, the insurance company may want a little more information or need to discuss coverage options further. But for the most part, the process is straightforward and speedy.
Important differences and fine print
Because the direct nature of the online term life insurance system, should you just go through quotes and price shop?
You can, although there can be important differences in value between term insurance policies for the consumer to be aware of.
- Not all insurance companies have equal financial footing or corporate structures. You want a company with financial strength and a solid reputation. (Related: Understanding financial strength ratings)
- Also, the options for converting term life insurance into a permanent policy can vary depending on the company and the terms of a specific type of policy. Often, policies sold online limit conversion options in order to offer a lower price. Conversion options help protect your ability to maintain coverage, if you have a severe health event during the conversion period. (Related: Not all term policies are created equal)
Indeed, for some people, a term life insurance policy is simply a stepping stone for building a long-term financial strategy, which may include blending different types of life insurance to accomplish different ends. For individuals considering those options, talking with a financial professional may be a good place to start, even if it’s just to start with a term life insurance policy.
Also, for those with health issues, a financial professional may be able to help shop for the best coverage.
Checking out an online life insurance estimate may be a good place to start the conversation.
Discover more from MassMutual…
The ultimate life insurance guide
4 times when term may be the answer
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1 LIMRA, “2022 Insurance Barometer Study,” April 25, 2022.
2 LIMRA, “2024 Insurance Barometer Study: Part 2,” July 22, 2024.
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