What’s the best way to buy life insurance? Good question and here’s an even better one – What’s the most effective way to buy life insurance? Let’s take a look at some common options:
- Call your State Farm/Allstate/American Family agent because maybe you’ll get a multi-policy discount.
- Contact one of the enormous call center operations like eFinancial or SelectQuote.
- Respond to a postcard you get in the mail. (Don’t do this…ever!)
- Use the services of an independent broker.
Ok, let’s break these down a bit further.
– Use your Home & Auto agent
So it might make sense to use the same agent/agency that services your home and auto insurance, right? Maybe, maybe not. When you ask for a 500k 30-year term quote from your State Farm agent he or she will be happy to give it to you, AND you better like it because that is all they can put on the table. Agents that work at these P & C (Property & Casualty) agencies are known in the industry as ‘captive’ agents. Being captive means that they can only offer products and policies from the company you work for. They are not allowed to look for any other options that might work better for your situation. Typically, their life insurance premiums are not competitively priced compared to what can be found on the open (non-captive) market.
Also, you might have a health condition or lifestyle avocation which is uninsurable according to their underwriting guidelines. In that case, you are out of luck in getting the life insurance coverage you are looking for. From them, anyway.
Even worse would be if your application is submitted and you get declined because of something discovered during the underwriting process. I say ‘even worse’ because in that scenario the decline is reported to the MIB (Medical Information Bureau) which is a ding to your ‘Risk Factor’ that is seen by all other insurance companies.
— Footnote: I used State Farm simply as an example in this scenario. The same applies to all P&C companies whose agents are captive.
– eFinancial/SelectQuote/AIGDirect etc.
You’ve perhaps heard a version of this ad on the radio or TV – We found Brad, age 42, who takes medication for cholesterol and doesn’t smoke, a 500,000 dollar policy for 21 dollars a month. Call us now! Wow, sounds great, right? Well, these types of ads exist for one reason and that is to get you to call the toll-free number and talk to an agent in one of these call centers. And if you are Brad, age 42, and take a cholesterol med and everything else is perfect you too might be able to get the 21 dollar deal. Oh yeah, you only get the coverage for 10 years too. That part is never mentioned, oddly enough.
However… most of us are not Brad. Not that Brad, anyway.
If you choose to call into one of these ads you will talk with a licensed insurance agent who is being paid to sit there and take inbound calls (inbound calls are GOLD as it’s probably a person who is actually looking for information) and place outbound calls to folks who may or may not be interested in talking about life insurance but they fit into the desired demographic. (Yuck!)
Be aware that you probably won’t be asked the proper fact-finding questions to determine the best solution for your situation. Most likely not. These folks are paid to generate an application. Period.They have quotas to meet to keep management off their backs. Helping to fill a quota is probably not looking out for your best interest, right?
Also, a permanent type of life insurance (Universal Life, Whole Life) – vs term – may be a better fit for you. If so, you are not going to find that with this choice.
–Footnote: I am not in any way disparaging the agents who answer your phone call in these call centers. It’s my experience that a majority of them choose this route because of the employment benefits (employee health insurance, for example, or being a fresh newly-licensed agent offered a desk and a phone and possibly a starting salary). They can only work with the tools at hand.
– Postcard in the mailbox
Yeah… no. Don’t do this. Just don’t. Colonial Penn, AARP, Globe Life, etc…blah.
You get a postcard or letter in the mail offering ‘Guaranteed Acceptance for just $1’. Or ‘Just answer 3 health questions and your coverage begins immediately’. Something along those lines – we’ve all seen these. Again, sounds great, right? Easy peasy, no muss no fuss. Well, here’s the deal – the devil is indeed in the details.
And by details, I mean the fine print. Which is really hard to find prior to signing up. Quite frankly, the important details are generally not known even after taking out one of these policies. I’m not going to break down every single abusive act by these companies in this list but here are some of the things to watch out for.
Red flags in the fine print:
- Your coverage is a ‘graded’ death benefit. What this means is that if you should die because of illness or disease within the first 2 or 3 (depending on the company) years of the policy, your designated beneficiary will receive the amount of premiums paid so far plus 4-10%. So if you purchased a 25,000 policy and are paying $100/month in premium and die of a heart attack or a burst appendix 6 months after paying premiums your beneficiary will be paid $660 (6 months X $100 + 10%). If you step off the curb in front of a bus (death by accidental means) your beneficiary would be paid the full $25K. I cannot begin to tell you how many times I have had to explain this to folks who had zero idea this was the ‘life insurance’ they have. It’s aggravating on a number of levels.
- Your coverage will terminate at age 70 (or 80). Again, the fine print is where you find this pesky little detail. I’ve heard many times, “I have this whole life plan already from AARP.” Well no, Mrs. Jones, I’m afraid you don’t. Let me show you the dirty details of what you actually purchased. Or better yet, let’s just go ahead and call the company together. [Sidenote: AARP does not sell insurance. These policies are actually sold by New York Life. NYL pays a royalty to AARP in order to use their logo.]
- Your premium is not locked in on some of these products. Some ‘mailbox’ policies are designed to have a rate increase every 5 years. The 1st increase may not be too painful but after that, they become basically astronomical. The end result is that a person cannot afford the higher premium and has no choice but to drop the policy. The insurance company now has to pay no death claim and keeps all of the premiums already paid over the years. That’s a great deal for the insurance company – not so great for you.
+ Work with an independent broker
Are you going to be surprised if I suggest that this is the absolute best way for you to figure out your life insurance options? Of course not! If you’ve read this far it’s obvious that you are interested in learning how to get the best bang for your buck. Let me just say, we are on the same page for that goal. Here is why this is the best way to buy life insurance.
Here are some of the things to know about working with a broker:
- When I initially got licensed into the insurance business in 1993 I spent the 1st couple of years in a captive capacity. Quite frankly, anyone new to the industry pretty much must work for a single company or a captive-based group as the knowledge necessary to pass the state license exam does nothing to prepare an agent to properly understand how to help people. While this internship got me started on learning how the business works, it didn’t take me long to figure out that my hands were tied in regards to being able to properly help folks who came to me for help.
- A good broker understands that everyone has different needs and situations. There is no one-size-fits-all solution and it is my duty to find the best answers to what you are wanting to accomplish.
- Every insurance company will look at you differently. For example, one company will offer non-tobacco rates to a person who uses chewing tobacco while other companies will not. That makes a huge difference in premium. I will ask you multiple questions to determine the appropriate company for you and get the best possible rate. Why in the world would anyone want to give more money to an insurance company than is necessary?
- When I submit an application for you, I (or a member of my back office) monitor the underwriting progress on a daily basis. Some applications get approved and issued in days while others can take a couple of months. Again, everyone’s situation is different. When there is a question that needs answering we will reach out to you as necessary. You and I have the same exact goal – get the policy approved and issued as quickly as possible!
- If your situation is a tricky one (health issues, the reason for insurance, higher risk factors, etc.) I always compose a cover letter that goes with the application. This is a pro-active way to alert the insurance company to any and all mitigating circumstances that should be taken into account when the underwriter is doing his or her analysis. This can be absolutely vital to getting the best possible offer on the table.
- Understand that there is a bit of selfishness in the way I run my business. And that is, if I do a great job for you then maybe, just maybe, somewhere down the road you will tell someone, “Hey, I know a guy who can help you with that.”