There are numerous places to purchase life insurance protection. Once you have determined that you need life insurance protection, the approximate amount needed, and the type of coverage you would like to put in place (e.g., term insurance for fifteen years, permanent, or burial coverage), you are ready to make the purchase.
The Places You’ll Look—the Purchase Channels
To purchase life insurance, there are four places to go or what are referred to as the purchase channels. They are (1) through an online licensed agent, (2) through a local licensed agent (e.g., an independent, bank affiliated, or agent that is a member a financial planning firm), (3) through an association or group you belong to (e.g., certified public accountants, university alumni, etc.), or (4) through enrollment in a group life insurance plan via your employer’s benefit plan, if life insurance is offered and available.
For these sources, you may receive solicitations to purchase coverage through the mail, with advertisements over the internet, telephone calls, or in person. Regardless of how you are solicited, who you contact, and how you do business (in-person, virtually, or by email/computer), the person or entity selling the coverage has to be properly licensed with the state you reside in to sell the life insurance product they are offering to you. That is the law.
In this post, I will walk you through the three main channels and what you should expect to experience. If you purchase coverage through an association, trade group, or education affiliation, the purchase experience should be similar to what you will have with an online licensed agent.
Using a Local or Online Licensed Agent
The two main options for shopping and buying coverage are to work with a local licensed agent (who you will meet with face to face and/or using technology) or to use an internet-based agent (that you deal with exclusively using technology). There are times when either of these types of agents can best serve your needs.
My advice is that you should work with a local agent if it is the first time you are purchasing coverage, you have preexisting health conditions that will make it difficult to purchase coverage, you have special needs you are trying to provide for, or you have a large coverage need because of business or personal circumstances.
Before we begin, let’s provide a little general background information on the various types of life insurance agents.
Captive and Independent Agents
Insurance agents, either local or internet based, typically fall into two types: captive and independent. The difference between the two is in which life insurance companies they represent and the number of companies they represent and can shop your application around to in order to get you the best coverage possible for a reasonable price.
Captive insurance agents are only able to sell insurance on behalf of the company they work for. This goes for internet companies also—some can only sell the products of one or two life insurance companies. These agents are usually properly trained, know the products they are selling, and can match your needs to one of the products they offer. However, their product offerings can be limited.
Independent agents work as stated—independently—to sell policies from a number of companies. They are not captive to one company, with most of these agents selling the products of three to five companies, but if needed, they usually have access to a large number of other companies to best fit your needs. This offers you a number of markets to find the policy or underwriting that you need.
There are licensed local life insurance agents who work for banks, financial planning firms, and other financial institutions you may already use. They can also sell you coverage and service your needs.
Which type of agent you chose is up to you. Here are some benefits and drawbacks when dealing with online and local life insurance agents.
Online Agents
Here are the benefits and drawbacks for using online agents:
They will work to understand your coverage needs primarily using technology to gather information.
These organizations normally offer only term life insurance, which may not be the product you want to buy.
You are driving the purchase decision for yourself using the tools and technology provided.
You will not have a trusted local resource to go to in case of the need to file a claim or resolve a payment issue or a coverage dispute.
If you chose to use an internet-based agent, be sure to ask the following questions:
Does the website offer information and tools to help you decide how much and what types of coverage to buy?
What kind of customer support is offered?
Which life insurance companies provide the policies sold through the website?
Local Licensed Agent
Here are the benefits and drawbacks of using a local agent:
They will understand your coverage needs. They will use technology or checklists to gather information about you and your needs.
They will offer a variety of products including term, universal life, and whole life.
They can help you get the right coverage for your current situation and for your financial life. For example, term insurance may be the cheapest policy initially, but over fifteen to twenty years, universal life or whole life may offer substantially better pricing.
Most are used to working with clients with complex needs.
They will likely have experience providing business-related coverage.
A local agent can provide more personal service if you have many questions or concerns about your policy.
Getting Coverage through Your Employer
Getting coverage at work, when available, is done through your benefits enrollment process when you are hired and at some other restricted, agreed upon times when open enrollment is allowed. Many employers offer their employees coverage (usually group term life insurance) at some multiple of their base salary. (For example, if your base salary is $60,000 and the employer offers coverage equal to one times your base, you will get coverage of $60,000; two times you base yields $120,000, and so on). The employer will usually pay for some portion of the coverage, and the employee will be responsible for the cost for coverage in excess of the employer-paid amount.
The reason that coverage can only be obtained at certain times is that many employees at companies offering group life insurance do not elect to get coverage, and then after being hired and on the job for a number of years, they may have a health issue and then elect coverage. Employer-based insurance or group insurance is priced by the life insurance carrier assuming they are insuring a wide range of primarily healthy risks. If employees only elected for coverage when they were sick, this would not be the case and would greatly increase the cost of the insurance.
Here are some buying positives and drawbacks for group life insurance:
For most plans you only have coverage when you are working for that employer. If you leave that company, most times the coverage lapses, and you will be without life insurance. Some plans allow the insured to purchase an equal amount of individual coverage to what they had while employed, but the premium rate charged will usually be much higher.
The cost of group or employer-based coverage is usually very reasonable compared to purchasing individual coverage.
The coverage offered by most employers may not be what you need. For example, most employer plans are term insurance, which will not accumulate the cash you would like to have for later in life.
You will need to pay income taxes on your employer-provided coverage in certain circumstances. The premium cost for the first $50,000 of life insurance coverage provided under an employer-provided group term life insurance plan does not have to be reported as income and is not taxed to you. However, amounts in excess of $50,000 paid for by your employer will trigger a taxable income for the “economic value” of the coverage provided to you. This amount will be calculated by your employer and included on your annual Form W-2 of taxable wages. It will be disclosed as a separate line item, and you will need to include this amount in your calculation of taxable income.
Summary
These are the places you can look to purchase life insurance coverage. If you are purchasing insurance for the first time, have health issues, or need coverage for special needs, you should contact a local licensed financial professional that can review your individual situation and the types of coverage you need, so that the solutions you put in place are going to deliver the protections needed and not just those at the cheapest price. Conversely, if you are experienced and know the type and amount of coverage needed, an internet-licensed agent can be a great place to buy.
The most important thing to remember is that you need some coverage in place no matter what your age. In subsequent posts we will discuss when to buy life insurance protection and when not to.
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