Getting the best price is highly valued in our culture. It shows that you are smart, did the research, and were able to outsmart other sources by choosing the one that offered the “best deal.” However, getting the best deal doesn’t necessarily mean that you get the best product. While Costco may seem like a good idea for buying bulk hot dogs chips and cleaning supplies, is buying life insurance from Costco a good idea? Let’s find out!
Is Costco an Insurance Company?
Costco isn’t an insurance company. They are a licensed insurance agent (just like us; we also offer Protective Life) called Costco Insurance Agency, Inc. They do have a partnership with an outstanding company called Protective Life. Protective has been around since 1907 with an A+ ratings according to A.M. Best. Protective allows them to sell one custom product called Member Advantage Life UL.
Costco promises you could save 20%. This is where most clients stop reading; 20% means I get a good deal – where do I sign?
I’m curious. Would you shop in Costco if they only offered 1 brand of hot dogs, bread or water? Then, why doesn’t their offering one insurance product get you thinking? Let’s dive in a little more.
Costco Life Insurance Product Details
Member Advantage life UL is a custom Universal Life insurance policy that offers options and flexibility over the course of the policy period. So far, this sounds pretty good. The problem here is that this isn’t a traditional UL. It’s a custom UL with a term life component in the background.
This means that you can only buy the policy for 10 or 20 years, and, after your initial term benefit ends, the face amount (death benefit) will begin to decrease while your monthly premium remains level (the same). The death benefit will decrease every year after that until it reaches $10,000. (Where is the $500,000 you bought at Costco?) After that, your premium will increase every year. You can only buy $100,000 – $5 million.
You have the option to convert the policy to a permanent universal life policy anytime in your first 20 years up to the age of 70. You will not go through an exam or be asked any health questions. But you can get a convertibility option in most if not all legitimate companies such as Banner, AIG, and Prudential for the term life policy that you buy. This isn’t a unique feature that Protective or Costco created for you.
Yes, you are getting 20% off on the first 5 years as long as you have Costco Gold Star or Business Membership. But that’s like saying, “Come and eat my food, which you don’t like or need, so that you can save 20% over the one you like.”
Do you buy everything that you get at a discount whether you need it or not?
Here Are My Questions
- They only offer 10 or 20 years. What if I need a 30-year policy?
- What if I’m not in best of health? Is Protective Life the only choice I have?
- What if I need a term life policy and not UL?
- What if I want to see other companies or rates?
- How do I know if Protective life has the best rate for me?
- Can I keep the initial face amount I bought 20 years ago?
- What if I need 50k or 10M? Can they offer me that?
And the mother of all questions: Why do they offer one company and only one product?
Related: Why do you get conflicting rates?
The answer to most questions above is simple. They only offer 1 product, and that’s what you have to choose from. They are not a broker who can shop for the best prices or companies to fit your specific need. They are an Agent that only offers 1 product.
If your needs aren’t aligned with what Costco is selling, you may need to look somewhere else.
Source: Protective Life CustomChoice UL
The Case for Buying Costco’s Life Insurance
If you only want to buy UL from Protective Life, buy it through Costco. You will get the 20% off for the first 5 years that no other broker can offer. (Keep in mind that you will still need to qualify and go through underwriting process.)
The Case for Not Buying Costco’s Life Insurance
Let’s start with the most obvious question. What if you have any health issues such as diabetes or being overweight or a smoker? Protective is a great company, but they aren’t the best when it comes to individuals who aren’t in a good health.
- Are you ok with your policy’s death benefit decreasing every year after the initial period is over? In other words, if you are 30 years old and buy a $500,000 10-year plan when you reach 40 years old, your initial term period will be over. At 41 years old, your policy will be worth $277,000, at 50 years old, it will be $103,000, and it will continue to decrease until it reaches $10,000. Oh, and, once it reaches 10k, your premiums will increase each year afterward.
- Here are some other reasons:
- You may need another type of policy such as GUL or Whole Life. Costco will not present other choices.
- You will buy your policy from a call center. Good luck trying to have a relationship with a broker if you have questions in the future. You will be transferred to customer service with a different name every time you call.
- You are matched with the policy they have instead of letting someone match you with the best policy for your health situation and overall needs.
- You need to be a member, which costs $55 to $110, to actually save money on life insurance.
Costco vs. Other Carriers’ Sample Monthly Rates
50 Years Old Male $500,000 20-Year
We all shop at Costco for their price advantage, choices and outstanding customer service. However, when it comes to life insurance, they don’t provide choices or even help. Could you imagine going to Costco and asking one of their employees what type of life insurance they sell? Or, better yet, what policy they would recommend to a smoker who is also overweight and is currently on antidepressant pills?
Sure, we all have heard about how important life insurance is, especially when you have family, mortgage, and bills. But adding life insurance to your Costco cart isn’t the best option. I wish buying life insurance were as simple as buying coffee or toilet paper, but it’s not.
Every client has different needs and different health issues. There is no one policy that fits everyone.