This is an especially critical question for consumers to ask at this time. This is because the life insurance industry has undergone a tremendous change in how insurance companies distribute their products. According to a recent LIMRA study, over fifty percent of all life insurance products are sold by independent brokers. Ten years ago, agents from captive companies accounted for the majority of the sales.
It can now be assumed that an independent broker will be first in line to help you. I personally believe that this puts the consumer at a tremendous advantage. Considering the "super-specialization" among life insurance companies when it comes to assessing risks they will underwrite, I firmly believe that an independent broker has a distinct advantage over a captive agent in getting the client the best offer.
To illustrate this point, I will address some of the most popular questions people ask when shopping for life insurance.
"My investment advisor (or auto insurance broker, accountant, or other advisor) has offered to sell me life insurance. Why not use him as a 'one-stop' financial supply house?"
The fact of the matter is that financial professionals can be effective in only one marketplace. To be really good at what you do, you need to spend the time learning about the companies, their underwriting preferences, making contacts, building relationships, and establishing yourself as a trusted professional in the business. Nobody can establish himself/herself in more than one marketplace because of the time commitment that is involved.
If you work with someone who claims that he/she is a "jack of all trades," odds are against that person being able to get you the best product available for your particular needs. It is very similar to asking your electrician to do your plumbing - he may be good with wires, but he's not good with pipes. Why settle for less?
"My investment advisor claims that he has an insurance agency that will handle my life insurance application for him. Why not let him outsource this service?"
The issue here is that the insurance agencies that typically provide outsourced life insurance distribution to advisory firms are large and bureaucratic. If your advisor simply hands you over to them, you will be treated like one of a thousand other cases. You will not have an advocate in your corner that can make sure your application gets the full attention it deserves and the most favorable assessment that can be made.
Just imagine yourself being admitted to a hospital without an attending physician to supervise your care. Or, think of yourself as moving through the legal system without a lawyer representing you. We can all recognize the tremendous disadvantage we would have without an expert leading the way. That is what you would be missing if a financial advisor, who does not specialize in life insurance, passes you on to a large general agency.
"I have been speaking with a career agent with a prominent insurance company. She says that she has advanced training in financial planning and that this is added value I would receive as her client. Why would I walk away from that?"
I am a firm believer in financial planning, and think that virtually everybody needs it. Whether you have a small estate or a large one, whether you earn a modest salary or earn ten figures on a yearly basis, you will benefit from advice regarding taxation, property ownership, and the like.
However, in my experience I have found that life insurance is an underwriting-driven service. Each applicant represents a unique risk-profile to a carrier. Medical conditions, health history, lifestyle, and other factors collectively determine the level of risk you represent to a company. The fact is that different companies look for different types of risk. Some companies are very competitive for people with a cardiac history, but not with cancer history. Other companies will be competitive for hepatitis, but not with foreign travel. A broker that knows which company wants what risk can truly bring added value to the consumer.
It is true that expertise in estate and business planning is required when buying life insurance to pay estate taxes, fund a buy-sell agreement, and other sophisticated applications. If the life insurance agent can provide this level of knowledge in addition to the essential underwriting expertise, then so much the better - but it should not be considered a replacement for underwriting expertise. I think the client's interests are best served by a team approach in which the life insurance broker gets the best offer available and a financial planner, or estate planning attorney, provides the financial advice.
"Why do I need a broker at all - why not just go onto the Internet and search for the best rate?"
We have a tremendously busy website and I am aware of how many people shop for life insurance on the Internet. It has become clear to me that in the vast majority of cases the Internet can be used to find the right broker, but not the right company. This relates to the issue of presenting your risk profile to a carrier and getting the most competitive rate available. These profiles are complicated and must reflect both factual information about you and subjective assessments. If the profile is incomplete or imbalanced, odds are you will not get the review you deserve.
The only way I have been able to get my clients the most favorable review possible by underwriters is through a thorough interview. I really need to have a conversation with somebody to get a grasp on the most important underwriting issues to be addressed. An insurance broker that has the combination of underwriting expertise, industry contacts, and people skills can provide the level of service consumers deserve.
Steven H. Kobrin, LUTCF, is an independent life insurance broker and nationally recognized expert in field underwriting for people considered high risk. He currently serves as a preferred life insurance quote provider for professional advisors and their clients, including attorneys, accountants, financial planners, and business loan officers.
Consumers and consumer advocates are warmly invited to contact Steve for his experienced and patient guidance.