What is life insurance? Life insurance involves you making payments every month, 3 months, 6 months or yearly, your entire life to a life insurance company. These payments are called premiums. Once you pass away, the life insurance company pays a lump sum, a death benefit to your beneficiaries. You beneficiaries can be family members or friends. This death benefit is used to pay for your end of life expenses like unpaid medical bills, credit cards, funeral and burial costs. The amount of death benefit depends on your insurance policy. It also provides them with some financial security. The remaining death benefit can be used by the beneficiaries however they like.
Why should I care? A lot of people think they don’t need life insurance when they actually might need it. If you have dependents, life insurance should be a priority. With life insurance you can have the peace of mind that if something were to happen to you, your dependents, young children, spouse, siblings etc. will be taken care of. You won’t have to put your family in a stressful or burdensome position of arranging and paying $7,000 to $10,000 for funeral. Your life insurance death benefit would cover that and save your loved ones from taking loans or using up their savings. If you have a large estate you won’t have to worry about inheritance taxes when passing it to your heirs. The proceeds from your insurance policy should cover the estate taxes.
Who are insurance agents and brokers? For many people shopping for the best life insurance can seem like an impossible and daunting task, especially when you don’t know what to start with. Since it is a decision that will affect your family and loved ones and will probably stay with you for at least a decade or two, may be your entire life, it is better you get help. A DIY decision based on Internet research may not be the best idea, instead consider going to an insurance agent or broker. They can help you find the best life insurance policy for you at competitive rates. Though some life insurance companies sell policies directly to their customers, most distribute policies through agents and brokers. Both agents and brokers perform similar functions and duties. Both obtain insurance on your behalf based on your needs and budget. Both ensure that the insurance policy they recommend includes the coverage you want and explain any discrepancies, if available. But there are some differences. Insurance agents represent insurance companies. They sign binding agreements, a type of contract with the insurance companies. This binding agreement allows the agents to sell certain types of insurance policies. They receive a commission for every insurance policy they sell. Insurance agents are of two types:
Captive agents They represent only one insurance company.
Independent agents They represent multiple insurance companies. Insurance brokers on the other hand are not bound by any contract with insurance companies. They have a client based business model. When brokers initiate a coverage on behalf of a customer, they ask the insurance company to issue an insurance binder. Brokers also receive a commission for every insurance policy they sell. Brokers are not tied to one insurance company but work with several.
How do I choose the right agent or broker? This can be a stressful and time consuming task so here are a few steps for looking for a broker or agent. Finding the right agent or broker may take time and you might have to repeat the steps mentioned below several times till you are happy with your choice.
Referrals Get referrals from satisfied customers who have had experience with agents or brokers. Ask family members, neighbors, friends, colleagues, acquaintances etc. for reputable agents or brokers.
Background check Once you identify possible candidates make sure they have a valid license. Many state insurance department websites have tools that allow you to check the status of an agent’s or broker’s license. Make sure that their license status is active and they can sell the insurance policy that you want to go for.
Ask Questions Once you have decided on a specific agent or broker, interview them. Communication is key! If you don’t like something, speak up. If the agent’s or broker’s response isn’t positive, look for another one. Here is a list of things you should ask about:
Experience This is very important. Choose agents or brokers who have been in business for many years and have experience in life insurance.
Insurance companies Ask them about the different life insurance companies they represent. Check the ratings of those insurance companies online. Having a variety of life insurance companies can help you compare prices and choose the best one.
References Be sure to ask them for references, contact information of satisfied customers. Call them to ask them about the service and how satisfied they were with it.
Understanding Make sure your agent or broker understands you financial and personal situation. This includes your income, tax bracket, assets, attitude towards risk, age, health, dependents, marital status, etc. These questions are important as they use this information to determine the coverage you need and hence suggest the best life insurance options. Avoid agents or brokers who start making recommendations without getting to know your situation first.
Simplicity Choose an agent or broker who can explain the different life insurance policies, options, associated risks in terms you can easily and clearly understand. It is their responsibility to help you understand everything about the insurance policy you are buying.
Space Make sure the agent or broker does not pressurize you into making a decision but gives you space and time to think and decide on your own.
Follow up Your life insurance needs change with time. You could have more children in the future, move to a bigger house, get a job that pays more etc. A good agent or broker will understand that and should follow up periodically to ensure that your current policy is still suitable for you. If your agent or broker does not follow up consider changing them.
Commission Agents and brokers are paid by the life insurance companies they work for and not by you. Agents and brokers receive a commission from insurance companies for every insurance policy they sell. Some receive fees for their services and most get a commission at the time of sale and then monthly residuals from insurance premiums. Be sure to understand how your agent or broker is paid. If your agent or broker is pushing you to go for an insurance plan because that will earn them a higher commission, look for another agent or broker.