If you’re looking to save money on life insurance, there’s a right way to comparison shop and a wrong way. Choose carefully and you stand a chance of getting a great deal; choose wrongly and you could end up wasting your money on a "bargain" policy that doesn’t actually meet your needs.
Here are some handy dos and don’ts for the budget insurance shopper. Keep them in mind when you start shopping and you’ll drastically improve your odds of finding a great deal.
Compare policies, not brokers
DON’T waste time trying to comparison shop multiple brokers and agents.
When you go to the supermarket for a jar of pickles, if you don’t like the price you can go to a different supermarket and see if they’re selling that same jar for less, or whether it’s on sale, or discounted with a store coupon.
It doesn’t work that way with life insurance. In the scenario above, imagine the two supermarkets are competing brokers, and that the price of the jar of pickles is regulated by law and will be the same no matter where you buy it. One "broker" may still be a better choice in your opinion, but always for other reasons, never because of the price of pickles.
DO comparison shop policies from competing insurance companies.
Since brokers and agents can’t cut you a deal or engage in price wars, you’ll need to tighten your focus and compare policies to policies. Every insurer evaluates risk differently, so for example a history of heart disease may lead to a more expensive quote from one insurer than another. To make these comparisons, though, you will need to see quotes from multiple insurers, which means you need to pay attention to the type of agent or broker you’re working with. Which leads us to…
Cast a wide net
DON’T buy a policy from a "captive agent."
Agents work for insurance companies. Brokers work for you. This distinction isn’t as important as it looks on the surface since the price of the policy will be the same.
But there’s one case where you’ll definitely be at a disadvantage as a shopper, and that’s if you work with a so-called "captive agent." Captive agents don’t just work for insurance companies, they work for a single insurance company, which means they only sell policies from that one insurer.
DO buy from a broker or agent who can show you policies from multiple insurers.
If you’re comparison shopping policies from one insurer, you’re not truly comparison shopping at all. You’re just looking at the small, medium, and large options on a menu.
There’s one wrinkle here, and it’s that some insurance companies will only sell through captive agents, so in order to get quotes from those insurers you have to play their game. Even so, you should still go to an independent broker or agent to get quotes from competing insurers. What you’ll typically find is that insurance companies who work only through captive agents tend to be more expensive.
DON’T make a deal just to get a good price.
It’s possible, even likely, that some broker somewhere will swear to you that you’ll pay less if you go through him. This statement can be true in a broad sense, as I’ll discuss below. However, if a broker or agent promises you’ll pay less for a specific policy than you would if you bought that same policy from another broker, watch out. The only way to deliver on this promise is for the broker to offer you a rebate deal where he’ll give you some of his commission if you buy the policy from him--which happens to be illegal in 48 states and forbidden by insurance companies in all 50.
DO take the time to work with your broker on which riders to keep and which riders to cut.
A good broker acts as a matchmaker between you and insurance companies, and finds you the best policy for your coverage needs and budget. An even better broker then works with you to fine-tune your policy with the right riders, which are extra clauses that can add additional benefits (for a fee).
Riders aren’t that complicated, but there are a lot of them and they can vary between insurers. That’s why you want to work with a broker or agent with enough experience to show you which riders are worth paying for, which ones you can ignore, and which ones you absolutely don’t want to lose.
Use good judgment (tools)
DON’T try to determine the reputation of an insurer by reading online reviews.
Take it from me, a person who used to blog for a consumer advocacy site—online reviews aren’t always the best way to gauge a company’s reputation. Mixed in with the true horror stories are lots of tales of confusion, misinformation, or misdirected anger, and they rarely capture any feedback from satisfied customers, or from those in the middle who have good and bad things to say.
DO look at official ratings.
If there’s no good way of getting an accurate list of customer sentiments for a company, there’s at least a way to get a good idea of the company’s financial stability, and that may be far more important for a product that might sit quietly for years and years before it’s needed.
The best way to do this is to check with independent third-parties that make a business of evaluating the financial health of insurance companies. One you can use is A.M. Best.
And finally, remember the value of a straightforward business deal. Depending on your comfort level, you may want someone who will talk you through the shopping process in detail, or you may want access to the right tools and guides so you can do it yourself. What you don’t want in either situation is to ever feel pressured to buy a policy, or to feel that the answers you’re getting don’t actually answer your questions and in fact make things more confusing. If either of those things happen, it’s a good sign that you need to find a broker you can trust. Once you’ve done that, then you can truly start comparison shopping.
Photo credit: Sangudo