Picture it: You’re in Costco, buying a 96-pack of toilet paper, more steaks than any one family should eat in a lifetime, a bulk package of t-shirts, and...life insurance?
That’s right. Did you know that your favorite big box store, that has everything from books to lawn furniture to groceries, also sells life insurance, health insurance, home insurance, and car insurance? It’s true. Costco is known as an affinity group, and it’s one of many places where you can buy insurance.
But while Costco might be the place to load up the minivan for your post-apocalypse survival prep (or at least a decade’s worth of mayonnaise), should it really be the place where you buy financial protection for your family? Probably not. Here’s why.
The problem with Costco life insurance
Costco is a big store, but when it comes to insurance, they offer four options: life, health, home, and auto.
There are some benefits to buying insurance from an affinity group like Costco. The carrier may offer a better rate than competitors, and they probably offer an expedited application process.
However, the insurance options are generally very restrictive, and you won’t be able to get the same advice and guidance you’d get by going through an independent agent or broker.
Costco offers life insurance through Protective, a reputable company with great customer service. But the Protective policy offered to Costco members is a universal life insurance policy. Universal life insurance is a type of permanent life insurance – you keep the policy for as long as you pay the premiums, with no expiration date. Permanent insurance policies build cash value over a number of years, and universal life insurance has the added benefit of allowing you to use gains from the cash value to pay for the premiums.
While having your life insurance policy last forever may sound good, permanent life insurance policies, like universal and whole life insurance, aren’t the best option for most people. Life insurance is meant to protect your dependents against debt and financial hardships that they wouldn’t otherwise be able to cover. Older people have few dependents, most big expenses like mortgages and college costs are paid off, and savings and investments over the years typically allow them to self-insure. There’s usually no need to be paying for life insurance in your golden years.
Universal life insurance in particular, with its varying premiums (thanks to policyholders being able to pay them with the cash value), adds an additional layer of complication. Consider Costco’s universal life insurance policy. A sample quote for a 20-year, $250,000 policy for a 40-year-old male in excellent health quotes a rate of $24.29 per month for the first five years, and $29.35 a month following that.
A comparable Protective term life insurance policy for the same applicant is $28.91.
There are a few things to break down here. First, the term life insurance policy is usually cheaper, but notice that the Costco policy is cheaper during the first five years. That’s just one of this policy’s quirks; it runs as described above for 20 years, after which it can be converted to a "traditional" permanent policy. But while the premiums stay level, the death benefit will decrease every year. After the death benefit reaches $10,000, then the premium will begin to increase every year.
Oh, and since you need to be a Costco member to even get a policy, it will cost you an additional $55 to $110 a year depending on the membership level you choose.
That’s why PolicyGenius recommends a straightforward, affordable term life insurance policy. Your premiums won’t increase, your benefit won’t decrease, and there are no hidden fees.
Other Costco insurance products
The other insurance products that Costco offers are more standard.
Ameriprise car insurance offers discounts you would expect for things like safe driving, insuring multiple vehicles, and so on, and you can get a Costco membership discount on both. Ameriprise also offers renters insurance, umbrella policies, and specialty insurance (i.e. flood insurance).
Similarly, health insurance is facilitated by CBC and features familiar carriers like Oscar, Blue Cross Blue Shield, and more.
Even though these options are more standard, though, doesn’t mean they’re the right choice for you. Remember, all of these insurance purchases require a Costco membership. That might not be an issue for anyone who is already a member, but for those who aren’t, it’s likely not worth the cost of admission for services you can get elsewhere.
When you buy insurance through an affinity group, you’re also giving up two main advantages of shopping with an independent broker: expertise and choice.
A universal life insurance policy might be right for you, but it might not be. If you buy through Costco, though it’s your only choice. The benefit of using an independent broker is their ability to help you get the best policy. You’re able to compare policy rates and have an expert ensure that you’re getting a policy from a carrier that’s best for your individual scenario.
In the end, you’re better off using Costco for your bulk purchases of 800 AA batteries. When it comes to insurance, stick with a broker or agent who can give you the attention you deserve.