Term Life Insurance: the smart way to shop, avoid mistakes, and save money, Part 2

In part one of this blog series, I told you where not to shop for term life insurance. Here in part two, I’ll tell you where you should shop — with independent life insurance agents — and about buying term life insurance, so you can avoid problems. When you are looking for good auto & home insurance rates & coverage, you should know, if you have been reading my blog, I think it’s important to shop with all the leading companies, including contacting a few independent insurance agents, to make sure you don’t miss out on good auto & home insurance companies selling only through independent insurance agents. But I also advise people to not rely on the claims of some independent insurance agents selling auto & home insurance, to be able to shop the market for you, since most of the leading auto & home insurance companies cannot be shopped or purchased through independent agents.

However, when it comes to term life insurance, independent insurance agents specializing in term life insurance really can shop the market for you. For example, in part one, I advised staying away from captive life insurance agents employed by one company, like Prudential and Metlife. I’m not saying Prudential, Metlife, or any company with captive agents are bad, or have high rates (In fact, Prudential has a reputation for being more willing to accept and offer better rates for certain medical conditions, such as diabetes, if the condition is well-controlled), but it’s best to avoid agents with a strong incentive or requirement to place business with only one company. You want to avoid Prudential, Metlife, NY Life, (et al) agents, but you don’t want to avoid the companies. And you don’t have to avoid these companies, because many of them, including Prudential & Metlife, also sell through independent life insurance agents. There are a few companies, like Northwestern Mutual, selling only through their own agents, or companies selling direct, like Amica, USAA, & TIAA-CREF, independent insurance agents can’t quote or offer you, but when you are looking for term life insurance, independent life insurance agents can adequately shop the market for you. But not all independent life insurance agents are the same, and some independent agents you will want to avoid. This blog post will explain the process of buying term life insurance, why choosing a competent, experienced life insurance agent is so important, and how to know a good agent from a bad one.

Term life insurance is not like buying auto or home insurance.

If you are looking for auto insurance, you can call an agent or company, get an accurate price quote, and buy the policy and have immediate coverage. With some auto insurance companies like Progressive, you can get a price quote and buy the policy online through their website any time of day or night. Most auto & home insurance companies verify everything they need to know, Like your claims history or motor vehicle report, to confirm the price when you buy the policy.

Buying term life Insurance is different. You talk to an agent, the agent asks you questions about you and your family’s health history, the agent discusses your need for life insurance (how much you need, how long you need it), then the agent estimates the price you will pay based on the health class the agent expects you will qualify for. If you want to buy the term life insurance policy, you need to submit an application with a payment, but you are not covered until the life insurance company approves the application. Reviewing the application for acceptance can take months or longer, depending on the company, and whether your agent keeps on top of it. Often, your initial payment means you may have a conditional receipt, whereas if you are accepted, the coverage is effective as of your date of application. For example, you make a payment and submit your application, you are given a conditional receipt, it takes two months for the application to be approved, but you died in a car accident a week after sending in the application, your beneficiary would still get the death benefit. However, if the life insurance company does not approve your application, because, for example, you died before you had the required medical examination, there would be no coverage. When applying for life insurance, always ask your agent if there is a conditional receipt, ask how it works, and read & make sure you understand any documents you sign.

A common way for a life insurance agent to get you to commit, when you say you want to think about it before you get the term life policy, is to explain they aren’t selling you a policy at this time. You have plenty of time to think about it, because the application needs to be submitted and approved by the company before you will be offered the term life insurance policy. The agent tells you this to get you to complete and submit the application with a payment, but it’s good advice. If you are serious about getting term life insurance, it takes a good amount of time to get approved, and if you change your mind or find a better deal, you don’t have to accept the policy, and most states have a free look period. When applying for life insurance, make sure you know your rights about acceptance of the policy and a free look period.

Once you submit your term life application, most companies will require you take a medical examination, where a paramedic takes your blood, checks your heart rate, etc., at no cost to you, and the agent will have the paramedic meet you at your home or work. The life insurance company also orders a Medical Information Board report on you, checks a database to see if you have been approved or declined for life insurance in the past, makes sure you don’t have any undisclosed medical conditions, and depending on your medical history, may need a letter from your doctor. Unlike auto & home insurance, where the agent waits for the policy to be issued in a week or two, a life insurance agent needs to follow your application, for weeks, if not months, to make sure there are no unnecessary delays, and all required documentation, like a doctor’s letter (Attending Physician’s Statement) is received and reviewed. I’ve seen life insurance agents put their customers through hell, because they are lousy at proper follow-up and completing paperwork properly. This is one of the reasons choosing a competent, customer focused life insurance agent is so important. All agent say they put their customers first, but many fail on this promise. Auto insurance has become so easy, even inexperienced or poor agents rarely can screw things up. An incompetent life insurance agent can make the process of buying term life insurance a nightmare, and if you have health issues, can even make you unable to qualify for term life insurance.
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So, how do you tell if an agent is experienced, competent, and customer-focused?

1. Ask how long the agent has been selling term life insurance as an independent agent, does the agent have another job, and how many term life insurance policies the agent sold in the last few months. I wouldn’t choose an agent with less than two years recent experience. Stay away from agents selling life insurance part time, while working at other jobs or business ventures. As far as the number of life insurance policies sold in the last few months, I wouldn’t prescribe a certain number, but if they are selling less than one a week. If the agent is selling a lot more of other types of insurance, or life insurance other than term, they probably aren’t a good choice for you to get a competitively priced term life insurance policy.

2. Ask for specific examples of what the agent does to assure a smooth process, such as how long it’s taken to get a term life insurance policy issued, and specific examples of what the agent has done to avoid or fix problems with getting a policy issued or a customer qualified. If the agent talks about what they would do abstractly, instead of giving you specific examples from their actual experience, or sidesteps your questions, after giving him or her a few chances to properly answer your questions, you should think twice before choosing him or her for your agent.

3. Good agents ask questions about you, your health, and your family health history, as well as your need for life insurance, so they can best help you. Mediocre agents occasionally miss asking you important questions. Bad agents ask few questions, quote you preferred or preferred plus rates for which you may not qualify, resulting in the policy being issued at a much higher rate. A good agent tries to get you the best rate, but also an accurate rate. You may be fit and healthy, but the paramedic exam may reveal you now have higher than ideal cholesterols levels, disqualifying you for preferred plus rates. Don’t think this can’t happen to you, because of your healthy lifestyle, because things like cholesterol levels are also influenced by your genetics. A good agent does the best they can to quote you accurately and set appropriate expectations. In the above example, a good agent would inform you of the possibility of a higher rate, depending on the paramedical exam results. Bad agents sucker you in with low rates, and tell you they did the best they could to get you those rates, when your term life insurance policy is issued at a much higher price. If you know you are slightly overweight, taking medication, or have health issues, but the agent quotes you preferred rates without questioning you about your weight, medication, or health problems, you should be careful about applying for life insurance with the agent.

In part three of this blog series, I’ll tell you more about the differences among independent life insurance agents, and how to choose the ones best meeting your needs.

Have you shopped for term life insurance? Did you have any problems? Tell me about it. Comment on my facebook page. If you have questions and would like my help, you can reach me at help@smartshopyourcarinsurance.com. Follow me on Twitter for important insurance consumer news & new blog entries at CarInsWatch.