December 06, 2007
The following posts are appearing courtesy of The Finance Buff . I read many finance blogs and TFB has written some good basic information on life insurance and how to go about purchasing it. Many people tend to over-complicate life insurance to the point that they don’t get any. These post will hopefully add some clarity and maybe encourage someone to get it done.
First posted Sep. 12, 2007
September 2007 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, just read the info from SBLI. 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 (pdf, page 3) 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.
