Consumers have become more savvy about buying
insurance and many have begun trying to do more of the work on their own.
Although you still might have to get a physical
examination from your doctor, you can usually handle most of the
process on the Web and over the phone. Not only can you compare
prices and policies, but you can track a company's financial
worthiness and check its ratings by visiting the companies listed on
our insurance
company rating page.
Deciding how you're going to buy
Before you inundate yourself with life insurance
policy performance surveys, annual reports and marketing brochures,
first decide how you're going to buy insurance. There are several options:
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Buy it yourself directly from the company.
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Use a fee-only financial planner to advise you on what
to buy.
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Use a commission-based financial planner who can sell
you the insurance.
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Buy insurance through a life insurance agent.
To make an informed decision, you need to understand
how these purchasing methods differ.
Buying insurance yourself
Although it can be complicated and time-consuming, you
may want to buy on your own. You're a good candidate if:
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You're reasonably knowledgeable about term and
permanent insurance and have a good idea which one is right for you
given the time frame of your needs.
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You've done a capital needs analysis to determine how
much you need (for each spouse if you're married or have any
dependents, such as children or parents). The MSN MoneyCentral Needs
Estimator is based on the capital needs assessment.
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Your taxable estate won't exceed about $650,000
(including life insurance death benefits).
-
You're just buying term insurance, where there is no
cash value buildup.
Even if the above doesn't apply to you, you can do a
lot of the legwork yourself, which will make you a much better
consumer and increase the chances that you'll get the right policy
for your needs. See what kind of rates you can get through our advertisers.
A bit of a warning for the do-it-yourselfer:
If your insurance policies are an integral part of an
attorney-designed estate plan, you may need some professional help.
Such plans typically include variable or second-to-die insurance
policies and/or have as one of their goals to reduce your tax bite.
That gets a bit complicated and if you choose the wrong policy,
you've just wasted your money.
How to get professional help
Even if you do this legwork on your own, you may
decide the information you got back is so complicated that you need
an insurance expert to help you. You may be spending thousands of
dollars in premiums over time and you may be counting on hundreds of
thousands of dollars in death benefits.
Choose just one expert to help you. This means that
you avoid having several agents or planners competing with each other
and pressuring you to try to buy from them. A licensed insurance
agent who works on commission is fine as long as you understand that
they're only going to make money if you buy something.
If you consult a financial planner, understand the
three ways in which he or she may be getting paid:
-
Commission-only planners, who only make money if you
buy a product.
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Fee-plus-commission (sometimes called fee-based)
planners, who charge both a fee and commission on the products they sell.
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Fee-only planners, who charge a fee for advising you
but don't sell any products.
Knowing how a planner is paid will help you evaluate
the advice you're being given and make sure it's not biased toward
product sales. There is nothing wrong with using an adviser who earns
commissions (if you get help from someone, you should expect to pay
them). But you're entitled to know how you're paying them.
In addition to knowing how your adviser is paid, you
should consider the person's professional credentials and years of
experience. Look for some of the following credentials if you're
using a planner: Certified Financial Planner (CFP), Chartered Life
Underwriter (CLU), Chartered Financial Consultant (ChFC), Certified
Public Accountant (CPA), or a law degree (JD or LLM). Insurance
agents should be a CLU or a ChFC and licensed in the state where you
live. You also need to look for someone with at least five years'
experience. That sounds like a long apprenticeship but insurance is
very complicated.
Check out the insurance company's ratings
Once you've decided who will help you, pick the
companies you want to consider. The company you choose is much more
important than any individual policy. Never purchase what looks like
a terrific policy from a mediocre company.
Policy illustrations can be prepared based on very
unrealistic assumptions, so check the insurance company's financial
ratings. Financial rating services such as A.M. Best, Duff &
Phelps, Moody's, Standard & Poor's, and Weiss all issue reports
on a company's financial worthiness. You should be able to get this
information on the Internet, from an insurance agent, or from the
company itself before you buy. Get a copy of the ratings reports from
at least two of the services. On our insurance
company rating page you can access the five major rating companies.
Beware of any adviser who tells you that she knows
more about the insurance company than the ratings services, that the
ratings are unimportant, or that he or she can't obtain them. If the
planner or agent doesn't do enough business to get copies of the
reports from the services, then you shouldn't be dealing with that person.
Keep in mind, however, that even though some rating
services are more conservative in their ratings than others, you
shouldn't consider anything below an "A" rating.
As long as you own a life insurance policy, you'll be
tied to your insurance company's financial status. If you're using an
insurance agent or financial planner who sells insurance, you also
have a vested interest in establishing a long-term relationship with
that adviser. These are relationships worth researching.
