If you are buying life insurance, there are certain questions that you must ask your life insurance agent. Life insurance is actually more complicated – and certainly more important – than we generally assume. The only way to find the information that you truly need to know is by asking the right questions.
Here are six questions you should ask any agent any time you’re considering purchasing life insurance. You may be surprised at some of the answers you’ll get, and what impact that will have on your application.
1. Are you licensed?
You should never assume that whoever you are talking to is a licensed life insurance agent. Life insurance agents have to take certain courses, pass an examination, and be issued a license through the respective state. In addition, the license needs to be renewed on an annual basis.
Life insurance agents also have various designations, such as Certified Financial Planner (CFP), Chartered Life Underwriter (CLU), or Chartered Financial Consultant (CFU). If they don’t have one of these designations, you can simply be dealing with a salesman.
In addition, you probably don’t want to be buying life insurance from a person who mostly does something else for a living, but sells life insurance as an add-on product. That may be good for the agent, but it is unlikely that any policy you’ll be offered will be the best deal for you.
2. Who do you work for?
This is one of the most important questions you can ask a life insurance agent. Many agents work for a single company. In fact, this is typically where you will find most of the least experienced life insurance agents. Worse, they will sell you a single plan, because it’s the only one they have.
Your preference should be to work with an independent agent. That is an agent who is not affiliated with any single life insurance company, but with many. An independent agent is in a position to match your needs with one or more of the many programs that he or she works with. This will offer you the best opportunity to get the best plan at the most reasonable price.
3. What company will you place my policy with?
This could be another tip-off that the agent works for only a single insurance company. You should always find out who the company is that they’ll be placing the policy with, and then do some research on your own.
You can easily do this by checking out the company through independent ratings agencies, such as A.M. Best Company or Standard and Poor’s. If the company has a low rating, you may have reason to suspect that the agent works directly for that company, or places you with them because that is where he will get the largest commission. Once again, good for the agent – bad for you.
4. How many insurance companies will you submit my application to?
This is another indication that the agent is independent. If he is submitting your application with several companies it’s because he has the flexibility to do so.
There may be an advantage to submitting your application to two or three different insurance companies, especially if there’s some question as to whether or not the application will be approved. However if the agent is sending it to many companies, he may be simply shopping it as a way of covering for a lack of knowledge about each company and how they’ll underwrite the policy.
5. What options can be added to the policy?
Just like buying a new car or a computer, there are always options when it comes to life insurance. You need to find out what options are available that can be added to your policy.
Some of the more important ones include:
Convertibility clause. This will allow you to convert a term life insurance policy to whole life coverage without having to submit to a medical examination. This can be especially valuable if you develop health conditions during the term of the original policy.
Guaranteed insurability. This provision will allow you to purchase additional life insurance in the future regardless of your health condition.
Return of premium rider. For a term policy, the company will return your premiums at the and of the policy term. You will pay extra for this privilege, but it is a way of accumulating cash in a term policy.
6. Are there any benefits in the event of disability?
Life insurance companies often offer certain benefits in the event of disability. One is a waiver of premium provision that will allow you to waive your premiums in the event you become disabled. This provision is generally good for up to six months.
Some life insurance policies will also offer the option to collect the death benefit in the event you become disabled. If you have a $100,000 life insurance policy and become completely disabled, the company will pay out the policy benefit to you, just as they would in the event of your death. Not all companies will do this, and there is generally a higher premium for it.
This doesn’t replace traditional disability insurance, but it can provide you with a windfall in the event you become disabled, and that‘s a always a nice benefit to have.
If you’re about to take a life insurance policy, never be afraid to ask the agent serious questions. That is generally the best way to find out about the competence of the agent, the integrity of the company that your policy will be with, and any other valuable benefits that you could get along with the policy.
