Tell me that you’ve never experienced this situation…Your cousin gets into the insurance business, and contacts you about taking a life insurance policy through him. It doesn’t necessarily have to be your cousin, it can actually be anybody you’re related to, such as a brother-in-law, an aunt or even a sibling.
You may not be entirely comfortable with the prospect of doing business with a relative, but you would like to help that person get established in the new business venture. So you trust him with your life insurance needs. After all, what’s the harm?
Actually, there could be plenty.
Despite good intentions, he probably doesn’t know enough to give the right advice
If your cousin is coming to you for business; it is a most certainly because he’s brand new to the business. This means he probably lacks a lot of critical knowledge when it comes to life insurance. The policy that he will sell to you will help him financially, but won’t necessarily be the best plan for you.
This problem is magnified by the fact that many insurance companies hire new agents – or better put, agent trainees – then advise them to try to sell policies to friends and relatives. They do this precisely because they know that there will be far less sales resistance from friends and relatives than there will be from strangers.
If you take a policy from a relative who is new to the business, it’s entirely unlikely to be the best, the least expensive, or the most appropriate policy for your needs. For the most part, the fact that you are taking a policy from your relative is mostly an act of charity in your part.
He probably won’t be in the business very long
One of the downsides of new insurance agents selling to family and friends is that once they have exhausted their circle of intimate contacts, they are essentially out of business. The only reason that they are able to “sell” family and friends on the policies they were offering is because they represent a warm audience. In fact, the new agent may be completely incapable of selling policies to a discerning clientele of strangers.
What this means is that your relative may not be in the business very long. Years after he departs, you can still be holding the life insurance policy – and maybe not a very good one at that.
In reality, the majority people who go into insurance sales don’t survive past the first few months. It takes a long time to build up clientele and become knowledgeable and professional enough to deserve that clientele. The fact that a person enters a business and is in it for a few weeks or even a few months, hardly qualifies him as an expert.
If there’s a problem with your policy in the future, you’ll be talking to a stranger about a mediocre life insurance policy. Your cousin will be long gone.
He may provide you with the best policy for him – not for you
As a new entrant to the business, your cousin may sell you a life insurance policy that represents the highest commission that will be paid to him. After all, he is looking to establish himself in the business with an income. Maximizing the commission is one way to do that. As a relation, he may fully expect you to understand what it is that he’s doing – and maybe you even do.
The problem is that the policy with the highest commission for him is probably not the best policy for you. Since you are dealing with a relative, it’ll be difficult for you to be entirely forceful about the issue of getting the best policy for your needs. As the saying goes, never do business with family and friends. This is excellent proof of that well-worn saying.
He probably represents only one company
Most new insurance agents start out with a single company. Insurance companies tend to recruit large numbers of agents, knowing that only a very few will survive long enough to become successful agents. That means that your cousin will be representing only a single company, and will offer you only their preferred plan.
He will not have access to a large number of policy choices because he is not an independent agent. He is essentially an employee of the insurance company, and that will limit your options.
Life insurance is too important to trust newcomers
As much as you may want to help a friend or relative make it in the insurance business, life insurance is too important to trust to newcomers, who typically don’t understand the business fully, and are unlikely to be in it for more than a few months.
You’re far better off working with an independent agent, one who has been in the business for many years, knows the industry, has a lot of contacts, and has the experience to be able to properly advise you on the best way to fill your own needs.
The next time a friend or relative comes around looking for you to help him or her get a foothold in the insurance industry, politely pass and tell him you’re already covered.
