Buying life insurance can be confusing for some people. With multiple types of policies available plus decisions to make about how much coverage to get, you may find that you want some guidance before you choose a policy. But does that mean you need to hire a life insurance agent?
At Addition Financial, we believe in providing our members with everything they need to achieve their financial goals – and that includes helping them with life insurance. With that in mind, here’s what you need to know about what a life insurance agent does, where you can buy life insurance and the pros and cons of hiring a life insurance agent.
What is a Life Insurance Agent?
A life insurance agent is someone who represents one or more insurance companies, working with prospective policyholders to ascertain their needs and obtain quotes. They shepherd people through the process of evaluating quotes and choosing a policy. They also work with beneficiaries to file claims and get them processed. It’s important to remember that an agent is a representative of the insurance company and ultimately, their loyalty will be to the company and not to you as a policyholder.
Life insurance agents may be captive or independent. A captive agent works exclusively with one insurance company, selling only their life insurance policies. By contrast, an independent agent represents multiple insurance companies and may sell policies from any of them.
It’s the job of a life insurance agent to explain life insurance options and help their clients choose the best life insurance policy for their needs. They help people evaluate various policy types, such as whole life insurance and term life insurance.
What is the Difference Between a Life Insurance Agent and a Life Insurance Broker?
People sometimes use the terms agent and broker interchangeably but they are not the same thing. The primary difference is in who they represent.
As we noted above, a life insurance agent is a representative of one or more insurance companies. They are appointed by the company to sell their life insurance products and in return, they earn a commission that is paid by the insurance company.
You should know that an agent can complete insurance sales (also known as binding coverage) but a broker cannot.
By contrast, a life insurance broker does not work for an insurance company. Instead, they represent consumers. Their job is to assess their clients’ needs and help them determine which insurance policy and coverage will meet those needs. They cannot bind coverage, meaning that they must go to an insurance agent or an insurance company to complete the sale.
The biggest commonality between a life insurance agent and a life insurance broker is that both must be licensed by the state. You should always check your agent’s or broker’s license before working with them.
Do You Have to Use an Agent to Buy Life Insurance?
One of the questions we hear most frequently about life insurance is about agents, specifically, do you need to work with a life insurance agent to buy life insurance?
The short answer is no. You have four options to buy life insurance, as follows:
- Directly through an insurance company
- Through a life insurance agent
- Through a life insurance broker
- Online
The option you choose will depend upon your comfort level and the type of insurance you want. Buying directly from an insurance company is a good choice if you know what type of coverage you want and you’re willing to do the legwork of comparing quotes yourself.
Working with an agent or broker may be your best option if you’re not sure what you want or you don’t have the time to research companies, coverage options and quotes.
Online applications may be useful if all you want is a quick quote for a term life insurance policy. You may opt to use a comparison site that will provide you with quotes from more than one company or to work with an online broker or agent.
Most people already have one or more insurance policies. These may include homeowner’s or renter’s insurance, car insurance and medical insurance. If you decide to buy directly from an insurance company, make sure to approach the companies you already have policies with to ask about policy bundling, which can save you some money on life insurance.
Pros of Hiring a Life Insurance Agent
Now, it’s time to review the pros and cons of hiring a life insurance agent. We’ll start with the pros.
One-on-One Relationship
It’s difficult to get personal attention when you’re dealing with any huge company, including insurance companies. By contrast, working with an agent allows you to form a one-on-one relationship where you get to know them and they get to know you.
This type of personal connection can be helpful when you have questions about the type of insurance you need. After all, buying life insurance involves thinking about big picture issues and end-of-life planning, all of which can be overwhelming. It can be helpful to have someone to assist you.
Explanations of Terms and Options
Working with an experienced life insurance agent can help you understand some of the unique terms that are part of any life insurance policy. They can walk you through the available options, policy terms and riders.
Your life insurance agent can also help you decide how much coverage you need based on your financial and life planning goals.
Answers to Your Questions
One of the biggest benefits of working with an experienced life insurance agent is that they are often more accessible than insurance company employees. It’s their job to serve as an intermediary.
If you have questions or concerns about your policy, it may be far easier to get in touch with your agent than it would be to get somebody from an insurance company to return your call – or to get a human response to a question you ask online.
Application Assistance
Filling out any insurance application is time-consuming. Your life insurance agent will walk you through the application process, ensuring that you get everything right the first time.
It’s important to note that your application may impact your approval for life insurance. Working with an agent will ensure you don’t miss anything, making it more likely that you’ll be able to get the coverage you want.
Evaluate Quotes and Policies
If you work with an independent agent, they can help you sort through quotes from several carriers, evaluate policies, and help you choose the policy that’s right for you.
Keep in mind that working with a captive agent does not have this benefit since they are bound to a single carrier and may not sell any other insurance company’s policies.
Cons of Hiring a Life Insurance Agent
While there are some important benefits associated with hiring a life insurance agent, there are some potential downsides as well.
Longer Timeframe
The first potential downside to dealing with an agent is that it may take longer to bind a policy than it would if you bought directly from an insurance company.
With the agent serving as a go-between, there may be a delay in getting anything done, from obtaining a quote to getting a copy of your final policy.
Limited Quotes
As we have already mentioned, life insurance agents are representatives of insurance companies. They may represent only one company or several, but in either case, you’ll have access to a limited number of quotes and options.
An agent can only give you quotes from insurance companies they represent. That means there might be a more affordable policy out there but they can’t tell you. The only way to get a full array of policies and premiums to evaluate is to do the research yourself.
Commission
Life insurance agents work on commission. While the commission is paid by the insurance company the agent represents, the very existence of the commission may make the agent a less-than-ideal resource to tell you which policy is best suited to your needs.
The reason is that different insurance companies may pay different commission rates. Since the agent’s livelihood is tied to the commissions they earn, there’s a possibility that they may be tempted to recommend a policy based on their commission rather than on your needs.
Higher Costs
The other financial issue related to working with a life insurance agent is that you may end up paying more for the same coverage than you would if you bought directly from an insurance company.
The reason is that insurance companies build the agent’s commission into their rates. They do the same with any other coverage. Another way of looking at it is that the agent’s services are never free even if you’re not paying the commission as a line item when you pay your premium. You may be able to save a significant amount by buying directly from the insurance company.
Evaluating your choices of life insurance policies and coverage can be a lot of work, particularly if you don’t already know how these policies work or understand the terminology. Hiring a life insurance agent can help you evaluate your options. Make sure your agent is licensed and ask plenty of questions to ensure you choose the right policy for your needs.
Do you need assistance with financial planning? Addition Financial can help! Click here to learn about our MEMBERS Financial Services program.
Posted on Mar 18, 2022
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