It’s a common desire to make sure that when you pass away your family will be well taken care of. To that end, life insurance is an important planning tool that can ensure your family is prepared to deal with your loss financially. But navigating the life insurance process can be confusing and choosing to work with a professional to choose the best policy can help you avoid that confusion and ensure that you have the right type of coverage.
What is a life insurance broker?
Rather than being employed by one specific company and working to do what’s best for them, a life insurance broker works for you to find you what you need at the best price. They do this by helping you assess your life insurance needs, then comparing several coverage quotes to help you find the best deal, whether based on price, amount of coverage or both.
You can opt to work with either a traditional life insurance broker or an online broker. If you’re looking for personalized advice and an easy way to ask questions, then a traditional broker may be the best choice. But if you know what type of policy you’re looking for and just want an easy way to compare rates, then an online broker may be more convenient.
Life insurance broker vs. life insurance agent
Both brokers and agents require a state life insurance license, but their services differ. Brokers are usually independent, meaning they aren’t tied to any single insurer. Using a broker gives you the opportunity to shop around with multiple insurance carriers.
A captive agent, on the other hand, typically sells policies from the insurance agency they work for. This means that you have fewer choices because you’re limited to the policies and rates offered by one company.
Why would I work with an insurance broker?
There are a number of benefits that come with using an insurance broker to choose a life insurance policy. Instead of going at it alone, consider the advantages that a broker brings to the table.
- Advice on the best type of policy. Life insurance policies can be complex, from choosing term versus whole life to choosing a coverage amount. An insurance broker looks at your personal and financial situation to help you choose the best type of plan.
- Quickly compare offers. Instead of checking with multiple insurance companies on your own, an insurance broker does the work for you.
- Streamlined application process. A broker also holds your application information as you compare offers from different insurers. You can save time by getting updates from your broker during the application process rather than having to follow up with the insurance company on your own.
How does an insurance broker make money?
An insurance broker earns commission on the policy you ultimately choose. Usually it’s a percentage of your premium amount. You may wonder if they have your best interests in mind since they’ll earn more if you purchase a more expensive premium. On the other hand, they typically continue to receive a commission each year the policy stays active. If they push an expensive policy and you end up terminating the contract, they’ll lose that future stream of income.
If you’re concerned about commissions being a conflict of interest with your life insurance broker, just ask them how they make their money. Each state has its own rules about what they must disclose to clients. They likely have to tell you that they receive a commission and some states even make them disclose how much. Don’t be afraid to interview multiple life insurance brokers to compare how they answer these compensation questions.
Pros and cons of an insurance broker
As with everything, there are pros and cons to working with an insurance broker.
|Personalized service||Commission-based sales|
|Easy comparison shopping||Knowledge may vary|
|Negotiation with pre-existing conditions|
A life insurance broker generally takes the time to get to know you in order to match you with the best type of policy. They’ll ask about your family, finances and health. These questions help determine the right amount of coverage so that you don’t overpay, but also ensure that you have a large enough death benefit to provide for your family.
Easy comparison shopping
Having that one conversation with a broker gives you access to multiple policy options. Otherwise, you’d have to apply separately with each individual insurance company.
Negotiation with pre-existing conditions
If your application has issues like pre-existing conditions, an insurance company may offer an expensive premium or deny your application altogether. A life insurance broker can find an insurer that is willing to work with different types of applications.
Ultimately, a life insurance broker is a salesperson. You have to do your own analysis on their advice since they’ll make more money by selling you a more expensive policy.
Knowledge may vary
Some types of life insurance can be complex. A less seasoned insurance broker may not understand the intricacies very well. Be sure to ask detailed questions so you can gauge the quality of their responses.
Frequently asked questions
Do you have to use an insurance broker to buy life insurance?
No, there are a number of ways to purchase life insurance other than through a broker. An insurance agent, for example, works with a specific company and only sells their products. This may be a good option if you have some type of brand loyalty or want to bundle multiple types of insurance with the same carrier in order to get a discount.
What is the best life insurance company?
There’s no clear cut answer on the best life insurance company since every individual has his or her own needs. However, you can start by checking companies with a strong financial rating. This means the business is run efficiently and they have the capital to payout claims. You can also evaluate customer service in addition to comparing prices for the type of coverage you’re looking for.
How much life insurance do I need?
That depends. Think about the people who financially depend on you and how your passing away would impact them. Your life insurance policy could be enough to cover debts like a mortgage and car payment. It could also cover final expenses and provide some financial cushion to help make up for your lost income.