Prior to working in the life insurance industry I had no clue what to look for when it came to buying life insurance. Truth be told, I was fairly newly married with no kids and had adequate coverage through my employer. As I progressed in my life insurance career, I moved into a back office support role and was amazed at how much goes into a decision to buy life insurance.
Over that time I got to see sales representatives who did things the ?right? way and those that were solely driven by commissions. Buying life insurance is difficult enough not to have to deal with greed on top of it, but it?s the nature of the beast and sadly, isn?t relegated solely to this industry. That said, while purchasing life insurance is going to be different for each individual, there are some basic tips you want to follow when you?re looking to buy life insurance.
Tips to Buying Life Insurance
This list is not meant to be exhaustive, but merely a good starting point that should help you as you?re in the middle of buying life insurance.
Know your situation – I covered this to a certain extent in my discussion on when is the right time to buy life insurance. Simply put, each of our situations are going to be different and that is what should guide you. I?m a husband with a young and growing family. Thus my coverage needs are going to be different from someone who is older and retired or someone who is young and single. There are also different calculations as to how much life insurance you could buy. Generally, they vary anywhere from 5 to 10 times your annual earnings. These can be relatively good guides, but when it comes to buying life insurance you need to do what?s best for you and your given situation and not some formula. This also means the possibility that you may not even need to buy life insurance. If that?s the decision you make, follow it if it meets your needs.
Go independent ? as in buy from an independent broker. When you?re buying life insurance, you want to deal with someone who is not going to be incented to push you towards one product or another. You want to be able to have access to multiple products and companies in order to get the best value as well as best fit. While not perfect, this also helps you make sure you?re more inclined to get a sales representative who?s not solely driven by commissions.
There is more than one policy type – As I covered in What is the difference between term?life and whole life insurance, there is some variety when you?re purchasing life insurance. That variety includes term life insurance which covers a specific term, usually somewhere between 10 to 30 years and is generally cheaper. There is also permanent coverage which comes in the form of whole life or universal life insurance. For the overwhelming majority, term life insurance is generally going to meet your needs adequately. That said, it?s going to be based largely off your given situation and needs. You may also find that you have no need to buy life insurance, and are adequately covered through group life you can secure through your employer?or nothing at all.
Don?t confuse investing with insuring ? This is really meant to go with the prior point, but when you?re buying life insurance you want to make sure not to think of it as investing. This is not to say that having adequate life insurance coverage is not important, just different. Far too often, some sales representatives will use numbers to argue that you need whole life or even universal life insurance coverage because of the investment component they carry. Don?t fall for it. Instead, buy life insurance for its intended purpose ? protection. Leave investing to the stock market, real estate, etc. and leave protection to life insurance. Unless you?re a high net worth individual who needs the coverage for estate planning, then cheaper term life insurance should adequately meet your needs.
Know your rights ? Buying life insurance comes with a lot of ins and outs and it can get confusing to know what rights you have. Many don?t know that life insurance comes with a ?free? 30 day look period as it?s called. What that means is that you get 30 days after buying the policy to cancel it if you don?t like it and get your premiums back. If you find yourself in a situation where the policy doesn’t provide what you want, then by all means use your rights. You will also want to ask such things as ?if and when the policy renews, how long are premiums guaranteed for?? and ?what exclusions are there??
How does the sales representative get paid? ? When you?re in the middle of buying life insurance that means one thing for the representative?they?re going to get paid. Shocking, I know. 😉 You want to ask how they get paid. Are they paid by commission, fee plus commission or fee only? This is not fool proof, but if they?re paid by commission then there is the potential for a conflict of interest.
Buy quality ? There are many life insurance companies out there to choose from. This can make it difficult to know whom to choose when buying life insurance coverage. As you?re making your decision, make sure you?re buying from a stable company that will be around in the event of your passing. There are several ratings agencies, though I tend to like?A.M. Best?the most. Generally speaking, you want to look for a rating of at least B+ when purchasing life insurance coverage.
Compare, compare, compare ? When you?re buying life insurance, you generally don?t want to go with the first policy you find. There are a number of reasons for this, but thanks to the internet you can compare life insurance quotes online as well as policies. Do yourself a favor and do a little homework to see what kind of rates you can reasonably get to help you see what you can expect when it comes time to purchase.
There can be a lot of work that goes into buying life insurance, but hopefully by following some of these tips you can find a better policy that meets your needs.
What do you look for when you?re buying life insurance? Do you prefer to buy a policy online or go through a specific broker?
Photo courtesy of: Insurance in Bradenton
*This post was featured on Disease Called Debt.
Wise Dollar
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Life insurance is very important. I have term only because whole life is just a scam. If you are healthy and get term its not too bad on the wallet.
While I wouldn’t say WL is a scam, it is definitely pushed on far too many people that simply don’t need it. But, I guess when that’s done it is a scam. 🙂 We have term only as well – much cheaper and it serves our purpose.
My favorite tip here is to go with an independent broker. I hate when people receive commissions for financial decisions – not anyone I would ever trust!
I don’t know that I’d never trust a commission driven salesperson, but I’d certainly be curious as to why they were recommending products and would want to know what they make out of it. But, that’s why I prefer independent as well as it can remove a lot of that guessing.
I strongly disagree with the assumption that commission-based agents are less trustworthy that those who are salaried. When a commission-based agent loses a sale the consequence is lost income. Salaried employees have more to lose with lost sales. They have quotas that must be met or they lose their job.
Both commission and salary employees are paid to sell insurance. Their compensation is merely calculated differently and has no bearing on the quality of advice.
I’m sorry to hear that Kevin. That said, I’m not assuming it. Having worked in the life insurance industry myself, as well as my wife doing so, we saw far too many times where reps paid via commission only were driven by one thing – selling the item that made them the most. I get it on many levels, but it’s not what’s best for the client which is what should matter. Unfortunately it’s not something that is bound only to the life insurance industry as we see it in others as well.
I also know that not all commission driven reps are “bad”, but it’s the bad ones that make it easy to view all in that light. It’s my opinion that by going with an independent rep you’re going to be more likely to find someone that’s going to sell based off of need/fit and not solely what’s going to get them the best commission.
We have several term policies, and two of them (one for each of us) are return-of-premium policies. We learned how important life insurance is by working in a funeral home for all those years.
Sounds like you’ve got a great set up Holly, not that it surprises me. 🙂 I can definitely see how working in a funeral home is a huge eye opener on it as it was for me working in life insurance.
I had no idea about life insurance either, until it became one of the products I sold, and now I am a HUGE fan of it. In most instances, I feel as though a term policy fits with what people need and since term policies are pretty defined within an individual state, I would not work with a broker, I would just compare rates online and by calling different providers. We actually got a great term rate from our home insurance provider since we had other services with them.
That’s an excellent point Shannon! That is how my wife and I got our major policies. We have a couple of supplemental ones through USAA or AAA, but everything else was from the internet.
We don’t actually have life insurance…we have all of our debts insured and a very small amount through work but no individual policy and it stresses me the eff out. I need to JUST DO IT. Part of the thing holding me back is my husbands extensive heath history (himself and congenital family issues) i get a headache when I think about it but I soooo need to just do it! Ahhhhhhhh!
I can definitely understand the stress of that Catherine, especially with family health issues thrown into the mix. One thought would be to start with something for yourself so you’d be covered in the very least if something were to happen to you.
This is something I’ve really got to get moving on. If I passed today, I’m not sure the position I’d leave Ana in would be a great one. Thanks for the tips…they’ll come in handy for my search!
Not a problem, glad to help Josh. We don’t like thinking about it, but you never know what’ll happen tomorrow so it pays to get some sort of coverage.
I’ve actually set aside a bit of time in my schedule today to look over options…thanks again for the tips!
Very cool Josh! Glad to be of help and some encouragement. 🙂
I have term insurance through work. I will have to work on self insuring ourselves for after our retirement.
Sounds like you have a good start Deb, something is better than nothing at all. 🙂
I have a term live insurance policy, and I think that it works for now as my wife and I carry a decent amount of debt and are in the process of building our net worth. It is actually kind of funny that I came across your post today and just last evening I posted as to why I have life insurance.
We could have maybe done a better job shopping around and I will be looking into the costs of getting group policies at our employers and see if that will be a better deal or not.
It sounds like you made the right call for you and your wife Kipp. For the overwhelming majority term is going to do just fine.
It can be easy to overlook the comparing, but most term policies should do the trick. In regards to group policies, generally speaking, they’re going to be very reasonable – usually along the lines of only a few bucks a month and it comes right out of your paycheck. The thing to remember though is most group policies are not portable, so once you leave the employer you lose the coverage.