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Buying Life Insurance Online vs. Through An Agent
Life insurance is something you rarely think about. After all, you’ll only benefit from it when you die (even then, it’s your heirs that “use it,” not you), right? Maybe. There’s so many different kinds of life insurance out there that you really need to talk to an agent to understand what you’re buying. Online quote engines assume that you understand life insurance when you might not. Also, some online quote engines put you in the wrong risk class. Why does this matter? Because risk classification is what determines your premium.
The Optimism of Quote Engines
Many online brokers are motivated to show you the lowest price. It’s just the way they compete. What could be wrong with that? Many things. First of all, life insurance premiums are driven by your health and lifestyle (and to a lesser degree, your family health history). Online life insurance quote engines, by default, often assume the best possible risk class for you.
In other words, it’s advantageous for the online brokers to assume that you’re in perfect health (unless you tell them otherwise). That way, they can quote you the lowest premium. They’re hoping to appeal to your thrifty side. However, your actual premium might be substantially higher after you complete a more in-depth health questionnaire.
Online Quotes Might Leave You Paying Too Much
Even if you answer some basic health questions online, it doesn’t guarantee that the quoted premium is accurate or reflects the correct risk class for you given your health. There’s only so much an automated tool can do, after all. In some case, especially with “guaranteed issue” policies, the premium may be higher than what you would pay if you talked to an agent.
“Guaranteed issue” is a way for insurance companies to minimize the paperwork involved with issuing life insurance policies. The downside is that the insurer has to increase the premium for all policies issued this way since it’s not asking you for a detailed health and lifestyle history. The insurer takes on more risk for not knowing much about your health – you pay for it in higher premiums.
Part of the problem with using an online broker is that the quote engines aren’t able to talk to the underwriting department of various life insurance companies or do a pre-qualification for you before submitting an application. It’s just a computer program spitting out insurance quotes for you. You may or may not receive a phone call depending on how the online system is set up. In many cases, even when someone calls, it’s just to verify information you filled in and go over the coverage you’re buying.
Online systems also don’t have an intuitive sense for which companies are better able to insure which risks. For example, some life insurance companies consider any smoking at all a risk deserving of the “smoker” risk classification. As a smoker, you will pay higher premiums than a non-smoker assuming all other things are equal. Other life insurance companies allow you to smoke periodically throughout the year (i.e. celebratory cigars) without being classified as a “smoker.”
An agent can help you navigate the finer points of the underwriting process, ensuring that you’re classed properly and you don’t overpay for insurance coverage.
Differences In Policy Types
Often times, it’s assumed that term life insurance is the best way to go. This isn’t always true. There are times when universal life and even whole life insurance makes a lot of sense. Only a life insurance agent can properly assess which policy would be suitable for you given your financial situation and long-term goals.
The Benefits of an Agent
Automation in the life insurance industry is saving insurers a lot of money, but it’s not doing much to educate you about which types of coverage are right for you. Without an agent, you’re missing the one-to-one connection, and personal attention, that used to be common in the industry. It’s that personal connection that will result in you getting the coverage you need at a premium you can afford now, and in the future.
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