Principal Life Insurance Review
B.A. Risk Management
Life Insurance Agent
Does Principal come to mind when you think of life insurance? Probably not, they don't advertise nearly as much as brands with similar financial portfolios.
If you were a customer of principal, you wouldn't want them to since they are a mutual company. Mutual companies are owned by their policyholders. They invest conservatively taking on significantly less risk than stock-based life insurance companies. Dividends are passed through to their policyholders.
Sound like a good business model? It has worked out pretty well for Principal and over 24 million customers.
Thinking of joining the principal family? Read this review to find out if Principal is the right fit for your life insurance needs.
The Principal Life Insurance Company has all of the qualities you look for in an insurance provider – well established in the industry, reliable, financially stable, offers excellent universal life policies, and allows healthy applicants to qualify without undergoing an exam.
About the Principal Life Insurance Company
AM Best Rating
In 1879, a Des Moines Iowa based banker named Edward Temple, along with five of his colleagues, established a life insurance company called Bankers Life Association.
Initially, the company provided life insurance to a specific group of people – healthy men in low-risk occupations between the ages of 22 and 55 years. In just ten years of time, the company had policies worth $29 million in force.
Bankers Life Association grew from strength to strength in the following decades and became a formidable player in the insurance industry. In 1985, the company’s name was changed to the Principal Financial Group.
Today, Principal has a global presence and employs nearly 16,000 people worldwide. The company has assets worth nearly $696 billion under its management. Apart from life insurance, the company also offers retirement and asset management services to clients all over the world.
Principal Financial Ratings
Financial stability is a key factor based on which you can determine if a life insurance company is reliable or not. The reason is quite simple.
If a company is financially unstable, it is vulnerable to market conditions and its bottom line could get adversely affected during a downturn. In the event of a crash or a major recession, the chances of the company going under are extremely high.
A financially stable company, on the other hand, usually has sufficient cash reserves and is backed with solid assets. It can perform well – or at the very least not lose money – under adverse market conditions. This is why financial strength matters a lot – especially in the life insurance industry.
Financial ratings, given by independent rating agencies, are generally a very good indicator of a company’s financial situation and its ability to fulfill its obligations to its shareholders as well as policyholders.
Let us now take a look at the financial ratings of Principal.
- A.M. Best: A+ (Superior)
- Standard & Poor’s: A+ (Strong)
- Moody’s: A1 (Good)
- Fitch: AA– (Very Strong)
- Source of Ratings
The high ratings aside, Principal is also one of the largest corporations in terms of revenue in the United States.
It is ranked consistently high on the S&P 500, Fortune 500, and the Forbes Global 2000 lists. So, there can be no doubts whatsoever about Principal’s financial strength and stability.
Life Insurance Products Offered by Principal
Term Life Insurance
Principal offers a traditional term life policy that provides you with coverage for a specific duration. The policy’s term could be 10, 15, 20, or 30 years, depending on your needs.
The company also offers a one-year term life policy that is specifically designed to meet your short-term needs. The policy is set to expire at the end of the 12th month and needs to be renewed again.
Principal’s term life policies have a convertibility feature, which allows you to change your term life plan into a permanent plan with the same coverage amount.
The convertibility option allows you to get lifelong coverage without taking a medical test. This is a huge advantage, especially for middle-aged people. It can be better illustrated with an example.
Let us say you buy a 20-year term life policy at the age of 30. By the time it expires, you will be 50. It's possible during that time, you developed certain health problems (diabetes, high blood pressure, heart disease, and so on) that could have an adverse impact on your insurability going forward.
In such a scenario, you might find it difficult to qualify for a new term life policy or a permanent life policy, especially if it involves a medical exam. Even if you somehow manage to qualify, the insurance provider is likely to charge you a much higher rate compared to what they charge the average policyholder.
With the convertibility option, you can avoid all these problems and get lifetime protection irrespective of your age and health status at the time.
Permanent Life Insurance
Principal offers four types of permanent insurance policies – traditional, variable, indexed, and survivorship.
Universal Life Insurance
- You can change the coverage amount depending on your needs, within the limits set by the company. This is a great way to add additional coverage.
- You can increase or decrease the amount of premium you pay every month or every year, within the limits set by the company.
- The money in the cash value account remains accessible to you throughout the policy’s term. Any time you are in need of money, you can take out a loan, which you need to repay with interest.
The defining feature of the policy is the floating interest rate. Traditional universal life policies typically have a fixed interest rate.
Principal’s universal life policy, on the other hand, has a cash value account which earns interest at a floating rate.
What it means is that the policy has the potential to accumulate cash value at a much faster rate compared to a regular universal life policy. When the market performs well, your cash value account earns more interest.
The best part is that there is no possibility of getting a negative return on your investment, even if the market tanks. Principal offers a minimum rate guarantee, which means your account earns interest at a set rate, irrespective of other factors. This way, you get the best of both worlds.
Variable Universal Life Insurance
Principal’s variable universal life policy is uniquely structured for the benefit of the policyholders. It allows you to utilize the cash value in two different ways.
The money in your policy’s cash value account can be invested in stocks, bonds, mutual funds, and other such investment options. There is tremendous potential for growth in this type of financial arrangement, but it also comes with its own risks. If the market goes down, so do your returns.
The accumulated cash value can be converted into an annuity, which can be a great addition to your retirement corpus. You can receive payments on a monthly or yearly basis during your retirement years, which can help you meet your ongoing expenses.
There is no fixed premium, which means you have the flexibility of modifying the amount you pay on a monthly or yearly basis, as long as you meet the minimum amount requirements specified in the policy.
Indexed Universal Life Insurance
Principal’s indexed universal life policy consists of a death benefit and a cash value account whose growth rate depends on the performance of a stock market index.
From an investment point of view, index funds are a better option than mutual funds or individual stocks for several reasons.
Index funds are less risky than individual stocks, as they are more diversified. The problem with buying individual stocks is that if that particular company goes bankrupt during a recession or a crash, you could lose all your money.
The money you invest in an index fund, on the other hand, is used to buy stocks from a large number of companies. Now, in the event of a crash or a recession, you might lose a portion of your investment if some of the companies you are invested in go bankrupt.
However, the returns you get from other stocks tend to offset your losses and avoid the possibility of getting a negative return on your investment.
Moreover, index funds are cheaper than mutual funds which are managed by fund managers, as the fees involved are much lower.
On top of it, Principal offers an interest rate protection guarantee, which means there is a minimum assured rate of return for your investment.
Survivorship Universal Life Insurance
This is a traditional survivorship policy from Principal, which is designed to cover two individuals – typically a married couple. The designated beneficiary stands to receive the death benefit after the death of the second policyholder.
The policy is used mainly for estate planning purposes. After the death of the husband and the wife, the children can use the money (death benefit paid out by the insurance company) to settle estate taxes and other such expenses.
One of the reasons why many married couples prefer to buy survivorship policies together, rather than buying individual policies, is that the former is easier to qualify for.
Generally, individuals who apply for a life insurance policy are scrutinized much more stringently by insurance companies than couples who jointly apply for a survivorship policy.
So, if the husband or the wife has a hard time qualifying for an individual policy – due to health issues or other reasons – they can apply for a survivorship policy together and get qualified without any difficulty.
Moreover, for a couple, buying a survivorship policy together is cheaper than buying two individual life insurance policies. This is yet another reason why many couples buy survivorship policies.
Disability Income Insurance from Principal Financial Services, Inc
Principal also offers income protection insurance. This coverage is designed to provide you with a monthly benefit should you become too sick or injured to work. Disability insurance is different from life insurance in that it pays out should you become disabled. More information on disability insurance can be found at Principal.com.
Read on to learn about the pros and cons of working with Principal.
No Medical Exam Option
This is perhaps the biggest advantage of choosing Principal as your insurance provider.
If you are in good health, you can qualify for the company’s Accelerated Underwriting Program, which allows you to qualify for a life insurance policy (with coverage amount up to $1 million) without undergoing any medical exam.
All you need to do is fill out an online form and do a phone interview with a representative from the insurance company. Based on your personal and medical history, the underwriter will determine if you need to undergo an exam or not.
If you are healthy, do not smoke, and do not have any DUI or felony convictions in your record, you are likely to be issued a policy by the company without having to undergo an exam. The only comparable alternatives to this policy are offered by Protective and Sagicor.
Even if you do not qualify for Principal’s Accelerated Underwriting Program, you can still undergo a medical exam and qualify for a policy.
Quicker Approval Process
If you are a no-medical-exam applicant, you are likely to be approved within 48 hours. Even otherwise, you are likely to be approved within 15 days, which is much faster than the industry average of 30 days.
Lifestyle Points Program
Principal issues points or credits for policyholders who lead a healthy lifestyle. The more points you accumulate, the higher are your chances of qualifying for a better rate class.
No Whole Life Insurance
Principal only offers term and universal life policies. The lack of traditional whole life policies can be a deterrent for some customers.
Limitations in Online System
The online portal is user-friendly and allows you to make policy payments and manage your account. It does not, however, update or change your designated beneficiary or cancel your policy.
Similarly, after your death, your beneficiary is required to file a claim over the phone, as there is no option available to do it online.
Family Medical History
The company takes your family medical history into account while determining your insurability.
If your family has a history of diabetes, heart disease, and cancer – especially if one or more members of your extended family have died as a result of a stroke, heart disease, or cancer – you might find it difficult to qualify for preferred plus rates.