After you have thought about your financial needs and
have become familiar with the basic types of Life Insurance, you
will need to choose a company and agent.
Choosing a company
About 1,800 companies in the United States sell Life
Insurance. While some consumers prefer to buy policies directly
from a company, most people buy life insurance through agents
or brokers. Much of the information provided here will be helpful
whichever way you decide to buy life insurance.
Before purchasing a policy, check the company's financial condition.
You can do this by asking the agent or requesting information
from your state's insurance department. A number of insurance
rating services rate the financial strength of companies. These
ratings can be found in large public or business libraries, or
can be obtained directly from the rating service. There may be
a fee for that information. Also check with the state insurance
department to be sure the company is licensed in your state.
Choosing an Agent
Collect the names of several agents through recommendations
from friends, family and other sources. The following are some
questions you may want to ask a potential agent:
- Is the agent licensed in your state?
All states require that agents be licensed to sell Life Insurance.
In addition, agents who sell variable products must be registered
with the National Association of Securities Dealers and have
additional state licenses.
- What company or companies does the agent represent?
- Does the agent have any professional designations?
Professional designations include Chartered Life Underwriter
(CLU) and Life Underwriter Training Council Fellow (LUTCF).
Agents who also are financial planners may have designations,
such as Chartered Financial Consultant (ChFC), Certified Financial
Planner (CFP) or Member of The Registry of Financial Planning
- Is he or she a member of a professional association?
The major association for agents is The National Association
of Life Underwriters (NALU). Through NALU's local associations,
agents can attend educational seminars and can stay on top of
trends in the business. Similar training and services are provided
to financial planners through the American Society of CLU and
ChFC, the Institute of Certified Financial Planners (ICFP),
and the International Association for Financial Planning (IAFP).
- What can I expect an agent to do for me?
An agent should be willing and able to explain various policies
and other insurance-related matters. Let your agent know what
you expect from him or her. You should feel satisfied that the
agent is listening to you and looking for ways to get you the
right type and amount of insurance at an affordable price. If
you are not comfortable with the agent, or you aren't convinced
he or she is providing the service you want, find another agent.
The Agent Visit
Now that you have reviewed the basics of Life Insurance
and thought about your personal financial needs, you can shop
for a life insurance policy with more confidence and knowledge.
- What can I expect during an
The agent you have selected will meet with you to discuss
your Life Insurance needs. He or she will ask questions about
family income and your net worth. Using the information you
already have assembled about your financial situation, you should
be prepared to discuss your insurance options.
- Will the agents ask questions
about my health?
In this initial meeting, be prepared to answer questions
about your health (for example, age, medical condition, medical
history, family history, personal habits). It is important that
you answer these questions carefully and truthfully; this information
helps a company charge a fair premium for your coverage. For
instance, you may pay a lower premium if you don't smoke. On
the other hand, if you have a chronic illness, you may be charged
a higher premium.
Also, in the event of a claim, accurate and truthful answers
enable your beneficiary to receive prompt payment. Inaccurate
or untruthful answers, however, may cause delay or even denial
of a claim.
When you apply for Life Insurance, you may be asked to have
a medical exam. Often, a licensed medical professional will
make a personal visit.
Your Agent's Recommendation
Once you have discussed your financial needs and
objectives with your agent, he or she will recommend the type
of Life Insurance policy that will best suit your purposes. Often,
the agent will provide a "policy illustration" that
will show how your policy will work.
Carefully study your agent's recommendation and ask for a point-by-point
explanation if there are items you don't understand. Because your
policy is a legal document, it's important that you know what
Here is another question you
Does this policy
truly meet my needs?
your agent recommends a term policy, consider:
- How long can I keep this policy? If you want the option to
renew the policy for a specific number of years or until a certain
age, ask your agent about the terms of renewal of the contract.
- When will be premiums increase? Annually? Or after a longer
period of time, such as five or ten years?
- Can I convert to a permanent policy? Some policies allow you
to convert the policy to permanent insurance without a medical
exam, regardless of your physical condition at the time of conversion.
These policies are known as "convertible term."
If your agent recommends
a permanent policy, consider:
- Are the premiums within my budget? Be sure you want to spend
the money for this type of long-term coverage.
- Can I commit to these premiums over the long term?
- Make sure you know the amount you would receive if you surrender
Keep in mind that permanent insurance is designed to provide
protection for your entire life. If you don't plan to keep the
product for many years, consider another type of policy. Cashing
in a permanent policy after only a couple of years can be a
costly way to get insurance protection for a short term.