Schwab Branches to Life Insurance

Charles Schwab & Co., hoping to do for life insurance what it did for securities, announced Monday that it has begun offering life insurance using the same cut-rate, direct sales methods it pioneered in its discount brokerage business.

San Francisco-based Schwab is launching the campaign with a pilot program targeting Los Angeles, San Diego and Sacramento, but it plans to take the program nationwide next year through its network of more than 230 branch offices.

The idea is to eliminate the complexity and high-pressure sales techniques that many people associate with life insurance, the company said in a statement.

“We are very excited about the opportunity to help individuals cut through the costs and difficulties traditionally associated with buying life insurance, just as we did for investors over 20 years ago with the advent of discount brokerage,� said Charles R. Schwab, the company’s founder and chairman.

The move is likely to be closely watched within the life insurance industry, which is finding its markets under attack by banks and other financial service firms.

Insurance industry spokespersons could not be reached for comment on Schwab’s move.

Schwab’s insurance is being marketed through a toll-free number staffed by licensed but noncommissioned insurance salespeople. The policies are underwritten by Denver-based Great-West Life & Annuity Insurance Co.

David McDonald, a Great-West vice president, said the policies, offered exclusively through Schwab, can cost from 25% to 70% less than competing policies sold through commissioned agents.

To begin with, Schwab will offer three types of policies: 10-year term insurance with a death benefit only and two types of universal life policies offering both a death benefit and an interest-earning feature that creates cash value.

“Life insurance is a fairly complicated product, but the people who Schwab will reach will probably be upscale and sophisticated, so I don’t believe they will be selling to the uninitiated,� said Harry Snyder, co-director of Consumers Union in San Francisco.

“If there’s good disclosure, people know what they’re buying, the price is right and the company is solvent, this can be positive,� he said.

Some banks and brokerages currently offer life insurance products, but they are mainly sold in the traditional way, through commissioned salespeople.

Cut-rate insurance is also offered by discounters that sell direct over the phone and expect consumers to conduct their own research.

Schwab’s program apparently falls in between. Great-West’s McDonald said the telephone salespeople handling the policies for Schwab would be able to explain the products and help customers choose among them.