With so many companies offering life insurance, and so many agents around, selecting the most appropriate one is not an easy task. The first question that needs to be answered is, how do you know what you actually need and what you don’t, from a life insurance policy.
Don’t be at the mercy of the insurance companies, do a little homework, find out how they work and why that over-sized, suit-wearing agent acts as if he is your best friend alive.
Finding a life insurance agent is no big deal. But finding a genuine, trustworthy agent is really hard, if not nearly impossible. In reality, it’s not you, but he who will find you, and won’t leave until you get down with him to listen to the policy. He will tactfully show you the figures that your family will receive in case of your sudden death.
Trapping your vulnerable mood, he will quickly show you, how the particular policy will help your family maintain the same status of living, if you were to die. The 5 or 6 digit ‘end-of-term’ amount may even lure you for that moment.
But wait, do not give in and say yes immediately. Out of personal experience, I can recommend that you take 24 hr for contemplating. One day will be enough for you to gather your perspective back, and think correctly.
I’m not saying that you should not buy insurance, or all the insurance companies and agents use deceitful tricks to make a person buy policies. But think carefully, look at all the aspects, take recommendations from friends, check the company’s website and then decide. Bottom line: Don’t decide in haste!
Let’s take a look at some of the things your life insurance agent WON’T tell you.
Stick to Term Policy
Sticking to term policies of 10, 15 or 20 years is better than opting for ‘whole-life’ or ‘universal’ coverage policy. First advantage is that they come cheap. Secondly, one should understand that a person needs insurance when he is young, have a dependable family and minimal assets to depend on, and not when he reaches 60.
At a later age, the person will have children who are adults and can earn, he would also have assets that he can rely upon for income.
Also, if the average rate or inflation of 2% continues, the lump-sum amount that the person may receive after may be 30 or 40 years may not matter as much as it will matter now. The agent can also try to coax you to go for a life-long policy under the garb of getting tax-benefit, and the option to borrow against policy if there is a need.
Leave the Add-On’s
Selling add-ons when not required is another tact that the insurance agent will try to push through. Although it is seen that bundled insurance policies (home loan, auto loan) from the same company, will help you save more money as compared to individual policies. But it should not happen that to save a few dollars, you end up spending a fortune, rather it is more advisable to just opt for a single policy.
It is not necessary to take every grain of advice given by the agent seriously. It is possible that he may just be knowing half the facts. (It’s not his fault completely, it all depends on the training provided by the insurance companies.)
Nevertheless, he is out for selling it to you and knows which one is the best (for him). How? The policy that he is trying to sell, (with the extra add-ons) fetches him lucrative incentives. Some insurance companies go the extra mile by offering all-paid vacations to exotic destinations, if the agent successfully sells a particular policy or meets his target.
Not To Switch Policies
Asking you to switch policies, is again a profitable trick that the agent will suggest. He usually gets a fat commission check on your first premium and in the first year. After that, as the policy proceeds in terms of time, his commission starts reducing.
One more point to mention here is that, if you suddenly stop payment on a policy and switch to a new one, you will mess up your credit score. Therefore, take a written consent from the company before quitting a policy. So, if he is insisting you to switch over to new policy under him, you know the reason why.
How Your Premium is Decided
Your life insurance agent won’t also tell you how the company decides your premium. That’s for us to find out. The pricing policy is really complex. Earlier, companies used to distinguish between the customers in three to four tiers, based on four or five variables. Now, hundreds of variables affect the setting of premium price.
Normally, your age is the first factor, your medical history, the state, and the locality you reside in, your driving records, history of other policies, assets ownership, and most important your credit history, are the factors that are considered before setting your premium.
Nowadays, they also check your hobbies while deciding on your premium. So if you like frequent traveling, you may be set up for a higher premium because, according to the insurance companies, you are in the high-risk bracket.
The Insignificance of Cash-Value
Always inquire about the cash-value policy, it is nothing but a type of life insurance in which you pay the premium as well as a little extra money which builds up to generate a cash value. Many a time, it requires a few years for the cash value to build up, and after the company’s deductions of fees, percentages, and interests, what you get in hand is peanuts.
If the insured person dies, the family hardly gets the insurance payout and the cash value both. They might be given the insurance payout and the company might keep the cash-value. While buying the policy, the insurance agents tell you that you will get both in the event of death, but they don’t tell you that an additional fee is to be paid for this ‘privilege’.
Quit Smoking to Reduce Premium
There is a clause that says, if you quit smoking, your premium amount may reduce, but your insurance agent will not utter a word about it. Smoking is negative, in terms of both health and insurance premium.
If you have the capacity to pre-pay your annual premiums, then do it. The agent won’t tell this to you because getting billed on a monthly basis will add up extra three percent fees for the insurance company and ultimately the agent.
Undergo the Medical Test
Beware, if your insurance agent is asking you to skip the medical test. If your health is top-notch, you may require a lesser premium. But if the premium is calculated based on your credit score, which is in a little slump, you may end up paying more premium than you actually would be paying if your medical test would have been considered.
Is He Still There?
The last thing that I would like to mention is that, your insurance agent may not be in the market after 2 years. In the sales pitch, he may have told you that by purchasing this policy, you are not only securing your family’s future but also are forming a life-long bond with him. He may seem the nicest person to you at that time. But that would be a whole lot of downright baloney.
The next time you spot an insurance salesperson, don’t run away from him, listen to what he says and then, go and check out if you can get the same policy on the net. You will save yourself from being sold something that you don’t require.
By John Hester