With many products and services it’s possible to save money when you “buy direct”. That’s when you cut out the middleman, and buy direct from the company that is providing the product or service. This can work well with many purchases, but there are some that can backfire on you. Life insurance is one example. You will generally pay more when you buy direct from a life insurance company. But you’ll pay less when you use an insurance agent.
That may sound counter-intuitive considering that in so many other cases you can buy direct and save. But life insurance is different – here’s why.
The Premium Will Be The Same – Whether You Use an Agent or Not
Though you may be tempted to believe that you’ll get a discount on the premium for a life insurance policy by buying direct from the insurance company, but this is a myth. Whether you buy direct from the insurance company, or use the services of an insurance agent, you’ll pay the same premium.
Life insurance companies make their policies available to the general public, and often do so by selling direct on life insurance websites. They also welcome business that is provided by independent insurance agents. In recognition of that fact, they will pay the insurance agent a certain percentage of the premium amount as a commission and as an inducement for that agent to send business to the company.
Since the premium will be the same in either case, there is no advantage to you in buying direct from the life insurance company.
There is one very important point here however. The insurance agent that you work with must be independent agent. That means that he or she sells policies for a variety of insurance companies, and not just for one.
A truly independent insurance agent costs insurance companies nothing. They don’t pay them salaries, they don’t provide benefits, and they don’t provide office space or administrative support. This keeps the cost of the policy at a minimum, and enables the insurance company to pay a commission to the insurance agent without having to raise the price of the policy purchased by the consumer.
Go It Alone And You’ll Probably Buy a More Expensive Policy Than You Need
Remember how we just said that an independent insurance agent represents several insurance companies? If you try to buy direct you’ll almost certainly pay more for the policy than you need to. This is because a life insurance company will not sell you the best and least expensive policy for your needs, but rather the best policy that they have available in their product line.
If that policy is 30% more expensive than the better priced policies that are available on the market, then that’s what you will pay. An individual insurance company can only give you the best policy that they have, which is not necessarily the best policy for your needs and budget.
An independent agent will provide you with the best and most cost-effective policy as a matter of business practice. Since he will want to retain your business, and get referrals from you, it will be in his best interest to get you the best policy for the money.
The biggest advantage that he has – and that you never can – is that he knows who the better priced insurance companies are. You can spend a lot of time and money doing your own search, and still not know what a good agent knows.
If You Have a Health Condition You May Not Get a Policy at All If You Buy Direct
If you have a major health condition, such as diabetes, or a history of heart disease or cancer, there’s a very good chance that you might be unable to get life insurance at all if you try to buy direct.
People naturally try to get life insurance policies from the companies that quote the lowest premiums. The problem is that those premiums apply only to people who are young and in excellent health. Not only will premiums be higher if you have a major health condition, but they may not want your business at all.
A major part of the reason why discount providers can offer rock-bottom prices is that they don’t take on any high risk clients. By selling only to a very healthy clientele, they are able to offer some of the best rates on the market.
But if you have a major health condition, applying to these companies is generally a waste of time. Even if they will approve your policy application, it’s likely that the cost of the premiums will be completely prohibitive.
Insurance Agents Know the Niche Companies
We just discussed how low-price providers are able to maintain their low prices. So what do you do if you have a major health condition? Answer: you have to find out who the insurance companies are that specialize in providing life insurance policies to people in your situation.
Those are life insurance niche products, and they exist for nearly any type of health condition. Some of the niches that are available include companies that specialize in policies for:
- Smokers
- Cancer survivors
- People with a history of heart disease
- Overweight/obese applicants
- Seniors
- No medical exam policies
- Guaranteed issue
While it might be convenient to believe that the companies with the lowest premiums for the general population will also have the lowest prices in the niches, the opposite is actually true. The companies that fill these niches are often not competitive at all with policies for the general market, but they’re the best for people with health conditions.
Knowing who these companies are – and how best to make application to them – is something that only someone who is an industry insider can know. That’s the job of an independent insurance agent. Using the services of an independent agent is absolutely essential if you have any kind health condition and all.
So if you’re looking to buy life insurance, forget the whole buying direct idea. You’ll pay less when you use an insurance agent.
