How to Buy Life Insurance

September is Life Insurance Awareness Month. I won’t bore you with what life insurance is or why/when one needs life insurance. If you want to know, you can find plenty on the Internet. I’m just writing about how you go about buying life insurance.

First let me get this out. This is not a “sponsored” post. I’m not an insurance agent. Nor am I affiliated with any businesses I mention here.

1. Free life insurance from work. Many employers offer free group term life insurance as a part of their employee benefits package. Typical coverage is 2 times base pay. It’s free, except the cost of insurance over $50,000 is taxable to you as “imputed income” according to a rate table established by the IRS. Free is nice but the coverage is often not enough. You may still need to buy some more coverage on your own.

2. Extra insurance from work. After the typical free coverage of 2x base pay, you can often buy extra group term life insurance coverage through your employer’s group plan. Unless you are in poor health, this is usually NOT a good idea. More details are in my post last year on open enrollment choices.

3. Term life insurance. For most people, this is the best approach for obtaining life insurance coverage. Ignore all the confusing noise about other types of life insurance. Just buy term. And the best place to shop for term life insurance is term4sale.com. Term4Sale does not sell insurance. It lets you compare quotes from many companies. It then gives you names and phone numbers of 3 independent agents in your area.

Agents?! Who needs agents in this Internet age? Do you not get lower rates if you cut out the agents and buy directly from the insurance company? What about those Internet sites where you can compare rates AND buy insurance in one shot, you know, like QuoteSmith (now Insure.com), AccuQuote, SelectQuote, IntelliQuote, etc.? Well, it turns out picking up the phone and working with a local agent is still the smartest way to buy term life insurance.

Insurance is a funny business. It’s licensed and regulated by the states. The insurance rates are filed with the states’ department of insurance. Unless a company doesn’t sell through agents, period, the rate is the same whether you buy directly from the insurance company or go through an agent. If you use an agent, the agent earns a commission. If you go to the insurance company directly, they just pocket the commission themselves. And those Internet sites that let you compare rates and buy insurance at the same time? They ARE agents, just agents with a large Internet marketing budget.

Term4Sale is great because it doesn’t sell insurance. Therefore it includes quotes from as many companies as possible. It won’t lead you to companies that pay it the most money. There is no conflict of interest. It doesn’t ask for your name, phone number, or e-mail address because it’s not trying to sell anything to you. You just fill out a simple form and you will get a list of quotes. Change some options and see how the quotes change. After you get an idea of what the policies cost, click on “Find An Agent” and you will get 3 names and phone numbers for agents near you.

Working with a local agent is smart because you get to talk to a real person who is knowledgeable about the business. Life insurance rates are dependent on health underwriting class. Not all companies treat the same health issues equally. You may qualify for preferred plus with one company but only preferred with another. A local agent would know which company is picky on what issues and qualify you for the best class with the right company.

Will the agent try to sell you more expensive whole life, universal, or other “permanent” life insurance? Mine didn’t. If they do, call the next agent on the list. My agent Ron was very professional. He helped me with the insurance application. There was one issue the insurance company had to put in a restriction for one year. After one year was up, without me asking for it, he called me and sent me the form to lift the restriction. When I needed disability insurance, he helped me again. There has never been any pushy sales pitch. After all these years, I never had to meet my agent face to face. Everything was done over the phone and by mail. Maybe I got lucky with a good agent. But I suspect if you contact an agent and let him/her know you got their name from Term4Sale, they will know what you are looking for and won’t pull a hard sale on you, because they know the next agent is just one phone call away.

[Update on 9/19/2007] This is the fist post in a mini series on life insurance. Other posts in this series are:

See All Your Accounts In One Place

Track your net worth, asset allocation, and portfolio performance with free financial tools from Personal Capital.

FREE E-mail Newsletter

Join over 3,000 readers and get new articles by e-mail:

No spam. Unsubscribe any time.

Comments

  1. Byron Udell says

    I’m glad you’re helping spread the message of the importance of life insurance. I completely agree with you on point #1 and #2 that you make: free group life insurance coverage from work is NOT nearly enough to protect a family from financial disaster and buying extra coverage through your employer CAN be very expensive.

    Sites like term4sale, AccuQuote, etc. are good tools to get an idea of which company will give you the best deal. In fact, they are all the same quoting engine. Yet that does not mean they can give an accurate quote for every specific combination of lifestyle and health profiles.

    That’s why it’s so important to use an agent to assist you in your purchase decision.

    However, I don’t quite agree that your local agent is the best agent to use. I think that an agent or brokerage firm that deals with multiple companies is the best. Here’s why: when you go to a quoting system like term4sale, you can only punch in so much information and the computer will spit out an answer. Let’s say the computer tells you that Prudential will offer you the best rate. So, you go to an agent that sells Prudential and maybe he also sells one or two other companies’ products. Depending on your specific health and lifestyle conditions (like driving record, family history or even foreign travel), the most favorable rate might in fact be at a company other than those that your local agent sells.

    An agent at a brokerage firm that deals with multiple carriers will know the ins and outs of each company (and are licensed in all 50 states). These agents can determine who will give you the most favorable rate for your specific condition. I hope that makes sense.

    For consumers the main point should be shop around – use the interet to research but contact several different agents because as you mentioned, the rates are the same, however the way various cases are underwritten for lifestyle and health profiles are not.

  2. Harry Sit says

    Byron,

    Thank you for your comments. I think other than the issue of local agents versus an agent elsewhere, you pretty much agree with what I wrote. I think the agents referred by term4sale are all independent agents representing multiple companies. They don’t show captive agents who only sell for one company.

  3. Justine says

    hi my name is justine and i believe strongly in life insurance! Before i had no idea what life insurance was but than i met this couple who introduced us to the buisness called primerica. there are a lot of strong negative issues about this buisness but i guess it depends on the person. for myself, my spouse, and our three kids we couldn’t have been at the right place at the right time. we are agents now and we sell soley term. you were saying in one paragraph that cut the agent out. well, that might be true for one part but we are trained to read the current policy that the families we are trying to help have. we educate them on what they have, and show them how to buy term and invest the diffence. what i enjoy about this company is that we don’t get paid by each policy but by the family so we aren’t trying to rip off the family and give them two diffent policies plus no one wants to think of their children passing away but in reality it can happen, so we cover the children until age 25. So im glad that you see that term is good and you are educating people on this because we come accross to many families that are getting ripped off. Thank You for reading this.

  4. Adam says

    Its good that someone else advocates the obtainment of life insurance. Even at a young age its important imo the financial situation you can put your beneficiaries in if you are not covered is drastic. Being covered is being responsible, to yourself and for your loved ones.

  5. Jonathan says

    I sell life insurance. no matter who you buy from you are getting the best price at the time and rating. Commisions are included in all sales or we wouldnt sell it. The internet is a great place to get information but usually the do it yourselfer thinks he knows more than who he is dealing with. As an agent I have worked with my underwritter to get my client a better rate based the support of my argument that they deserve the better rating. I have made the difference to my clients and been unable to help the term and saver that knows more than me. especially when he says he is going to save and doesnt and ten years down the line he doesnt have anything but his know it all attitude and term insurance that that expires when he has reached an age that leaves him uninsurable and unable to afford a new policy. WL we as agents need to help our clients understand the ins and outs of insurance and life a persons life. to help them plan. not sell term insurance and walk away.

    Everything on the web is part of a sales process, education and purchasing. the internet is a store front and sales pay for the store.

    jonathan

Leave a Reply

Your email address will not be published. Required fields are marked *