Once considered a fate worse than death, spending an evening with an insurance salesman is becoming a necessity in our modern world.
"Life insurance should be an integral part of any long-term financial plan," said Mike Becker, a senior service advisor for Metropolitan Life Insurance in Chicago. "Everyone should have at least a basic policy."However, "most people put off buying life insurance until they are older and have children," said Carolyn Bowers, spokeswoman for the American Council of Life Insurance, based in Washington, D.C. "Policies that are bought while you are young and healthy are easier to get and will cost you less."
Still, looking for insurance can be intimidating. Like the first-time home buyer, the first-time insurance buyer faces a new world, with its own language and subtleties.
When you do go insurance hunting, here are some things to consider:
- Before you buy, ask why. Experts agree that the first step in choosing a policy is determining your personal goals and objectives.
Do you want to provide for your family if you die or are incapacitated unexpectedly? Do you see the policy as an investment with tax benefits? Is your objective to save for retirement? Or is your goal a combination of all of the above?
"Decide what you want and then choose," said Becker.
- Picking an agent. Interview more than one. Ask friends, relatives and co-workers for referrals of agents whose performance they already know. Somebody's brother-in-law may be a nice guy for a golf date, but will he be able to protect you when things go bad?
- Check credentials. It's basic and may even seem inpolite, but ask any candidate who wants your business for his professional credentials.
All states require agents to be licensed. In addition, look for professional designations and organizations. Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC) and Life Underwriters Training Council Fellow (LUTCF) are some of the designations for qualified agents. Membership in the National Association of Life Underwriters is equivalent to the Hippocratic oath for life insurance agents.
- Check references. Speak to people the agent has represented and helped through an insurance claim or crisis. You need someone who can deliver protection, not just promise it. Good intentions simply are not enough.
- Buy only what you need. Once you've picked an agent, he should help you match your coverage with your responsibilities. Buying too much insurance is simply wasteful.
- Picking the right policy. There are two basic types of life policies: term and permanent.
Term insurance is similar to car insurance. You buy coverage for a specified period of time. If you die during that term, the policy pays the value of the coverage to your beneficiary. Of course, if you don't expire before your policy does, you get nothing. And then you must pay for a new policy.
Premiums for term insurance usually are cheaper than other types of coverage. However, while the premiums start out low, renewal costs continually rise as you get older and if you develop a health problem.
Term insurance best serves people who are cash-strapped but still have large obligations for a fixed period of time. For people with small children or a large home or business loan, the most important consideration usually is the death benefit.
If your insurance needs extend beyond seven years or so, it makes sense to consider permanent life insurance.
Permanent life is designed to stay in effect until the death of the policy holder, and in fact it accumulates cash value through the years. Whole life and universal life are the most common types of permanent coverage.
Whole life insurance offers a fixed premium schedule and a fixed death benefit, while universal life is flexible in both areas. A whole life policy has a fixed cash value, but the cash value of universal life insurance is based on the amount you have paid in premiums and current market conditions.
There are many variations on both types of insurance, but don't forego simplicity if you don't have to. Always understand what you are buying.
- Check on the insurance company. Call your state's insurance commission and verify that the company is licensed to operate in your state. Ask about any possible consumer problems with the company. The insurance commissioner also can answer other questions you may have.
Another source of information is the A.M. Best Co. insurance rating book, which rates insurance firms on a scale from A+ to C. Although the guide grades companies and gives background information, some companies are not rated.
Take the time to get to know your agent. Developing a professional relationship and being able to clearly communicate your needs is just as important with your insurance agent as with your stock broker.
After purchasing life insurance, distribute copies of your policy and your agent's name to your beneficiaries and your lawyer. Keep copies in your safe deposit box, if you have one.
Remember to review your policy periodically, especially if your financial or personal circumstances change.
Reader questions will be answered and may appear in this column, when mailed to Gary S. Meyers at 20 West Hubbard St., Chicago, IL 60610.