Four Mistakes That People Make When Buying Life Insurance
By Cory Chew
1) Not Understanding Life Insurance Basics
People do not realize that buying a life insurance policy is actually a bigger decision than buying a home. Like a home, an insurance policy is an asset that has a practical use and, ideally, its value should increase over time. However, on the average, people own their home for five to seven years, whereas a good life insurance policy should be in place for the rest of your life. So why will you happily spend full afternoons visiting open houses when you won’t spend an hour or two with a life insurance agent who can explain to you the various features of different life insurance policies?
2) Buying the Cheapest Policy Based On Price Alone
For anything else you buy, you don’t automatically gravitate towards the cheapest thing on the market: How many of you bought your TV set from a second hand store, or a Kia from a pre-owned car dealer? Then why go online to find the cheapest life insurance policy and buy it? Life insurance companies, like other large companies, are rated on the company’s balance sheet strength, their operating performance, etc. These ratings directly translate into how easy it will be for you to make changes to your policy, to receive your benefits, etc. In almost every case, there are reasons why less expensive policies are less expensive and policies that are more expensive are more expensive. I suggest exploring these reasons before purchasing a policy.
3) Not Knowing Whether You’re Talking to a Captive Agent or an Individual Agent
Now that I’ve illustrated some ways in which life insurance agents are helpful, I want to highlight the difference between a captive agent and a broker. Captive insurance agents only sell one company’s products (think New York Life, Allstate, State Farm – usually captive companies have terrific brand recognition). On the other hand, brokers are agents for many different companies. Therefore, a captive agent is like a car dealership, and a broker is like Carmax. If you know that you want a Mercedes, I say “Great! Go to a Mercedes dealership!” But if you do not have an idea of what you want, I suggest that you go to Carmax and explore your options.
4) Not Incorporating Future Planning Into Your Decision
Most people look at the difference in price between a term policy and a policy that lasts an entire lifetime and they think, “Term looks good enough for me.” However, these people are not considering what life will be like for them when their term policy expires. How will they feel about having paid hundreds (or thousands) of dollars per year for a policy that is suddenly worth only the paper it is printed on? Will they be wishing they picked the life-long/cash-value insurance option? Will they be retired at this point and wishing they had another source of income (which a cash-value life insurance plan can provide)? Will they be wishing that they had an insurance policy that they could use for estate planning? Would they like to have an insurance policy that they can sell? Will they be able to qualify for more insurance if they want it? A good agent helps you prepare for the future and can run cost/benefit analysis for these and many other scenarios.
Cory L. Chew
Ms. Chew is the owner of Bast Insurance Services, an insurance brokerage in Los Angeles, CA that specializes in life, health, disability and long term care insurance. For further information, Cory can be reached at email@example.com or visit www.bastinsurance.com