Choosing the right life insurance agent is the first and most important step in obtaining coverage. A good agent can help you make important decisions about the type and amount of coverage you need, and explain confusing industry jargon. There are many ways to find agents, including personal recommendations from friends, lawyers and accountants, as well as internet resources. However, not all agents offer the same level of service. Pay attention to these key factors.
Agents Should Develop a Financial Profile
A good life insurance agent should get to know your complete financial picture before recommending any products. First, the agent should be familiar with your attitude about risk and your income and tax bracket. This information can help an agent figure out how much coverage you need to provide for your dependents if you die. Generally, if you have a higher income, you require more coverage to make up for a larger shortfall in income.
The agent should inquire about your marital status and dependents. The number of dependents correlates with the amount of coverage that you need.
Finally, the agent should inquire about your assets. For example, if your assets are subject to an estate tax, you may want to purchase a permanent life insurance policy with a cash value to help pay those taxes.
When you meet with an agent, pay attention to the due diligence that the agent performs. An agent who fails to ask probing questions about your financial situation doesn't have enough information to make informed recommendations. In particular, avoid working with an agent who recommends products before learning anything about you.
Agents Should Avoid Jargon
The life insurance industry uses plenty of arcane terms to describe its products and services. A good agent should explain what these terms mean in simple, clear language. State financial agencies often provide glossaries that explain industry terms, but it is the agent's responsibility to make sure that you have a clear understanding of the product you are purchasing. A good agent should provide you with a personalized written document that summarizes your financial situation and describes the features of the proposed coverage in clear, simple language.
Agents Should Follow Up
Your life insurance needs change over time, and a good agent should follow up with you periodically to determine whether the product you purchased continues to be suitable. For example, if your dependent children enter the workforce or your income changes, then your life insurance needs may change as well. If an agent fails to follow up regularly, then you should seek out a new agent.
Agents Should Be Licensed
Make sure that your agent is licensed by the insurance department in your state. One way to ensure that an agent is qualified is to choose a member of the National Association of Insurance and Financial Advisors (NAIFA). The agents in this organization subscribe to the organization's code of ethics. Use the organization's search features to locate an agent in your area.
In addition, seek out agents who have one or more of the professional financial service designations used in the industry. These include the Chartered Life Underwriter Chartered Financial Consultant issued by The American College, Certified Financial Planner issued by Certified Financial Planner Board of Standards, and Registered Representative or Registered Principal issued by the National Association of Securities Dealers.
Understand the Agent's Compensation
Agents and insurance brokers get paid for connecting buyers with insurance companies. While most agents get compensated with commissions, some receive fees for their services. Most agents receive the bulk of their commissions at the time of sale and then receive monthly residuals from the insurance premiums.
Before you buy life insurance, understand how your agent gets paid. If it seems that your agent is only pushing products that give him or her a high commission, look for a new agent.