Shopping for Life Insurance

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Shopping Smart for Life Insurance

Get quotes from several companies. Each insurance company uses its own underwriting guidelines. One company may sell you a policy at a substantially lower premium than another. Life insurance agents are "captive," meaning they can only issue policies for the insurance company they work for. An independent consultant, on the other hand, are "noncaptive" independent contractors who can sell policies of multiple insurers. An independent consultant/agent may, therefore, be able to provide you with price quotes from several companies during a single visit.

Compare "apples to apples." Be sure any policies you compare offer similar levels of coverage. The more features, options, and added benefits a policy includes, the more it will typically cost. A policy that is substantially cheaper than another may have fewer features or provide a substantially lower death benefit. A more expensive policy might actually prove to be a better value when you calculate the amount of the death benefit per premium dollar charged. However, do not just decide on price; decide if the features are worth it.

Buy the policy that's right for you. The more a policy costs, the more an agent or broker typically earns as a commission. When shopping for life insurance, keep in mind that the policy that is best for your agent or broker might not be the best for your insurance needs.

Make sure your company and agent are licensed. It is illegal for an agent or company to sell insurance in Texas without a state license. The Life, Accident, Health and Hospital Insurance Service Guaranty Association pays some or all of most claims for Texas-licensed companies that go bankrupt or become insolvent. If your company is unlicensed and goes bankrupt, your death benefit could go unpaid.

Research your company. An insurance company's financial strength and customer service record can be good indicators of the level of service you can expect. You can learn a company's financial rating by calling TDIs Consumer Help Line. You can learn information about the frequency of a company's customer complaints against a company by calling the Consumer Help Line or visiting the TDI website.

Shop for a low-load policy. You may save money, particularly on cash value life insurance, if you buy a policy with low commissions and administrative fees, collectively known as "the load." Financial planners who are licensed insurance counselors often sell these policies. Generally, financial planners charge clients a flat service fee as opposed to earning commissions, meaning they receive no benefit from a high load. Since low load policies have fewer initial fees, your risk of losing money is also reduced if you cash out early from a cash value policy.

Use your "free-look" period. Most Texas policies will provide you with a "free look" or "right to return" period of at least 10 days, during which you may cancel the policy for a full refund for any reason. Use this time to read your policy carefully to be sure the coverage is right for you.

Here are some additional tips to help you shop for life insurance:

Agents often use charts called "illustrations" to show how a policy's cash value might grow. Confirm that the chart shows a cash value that is guaranteed by the insurance company, and not a financial projection. Projections are based on assumptions and should never be relied upon as a promise of policy performance - you might earn much less. Ask your agent for a history of a company's projections versus the actual growth of cash values. The agent should not object.

Be careful if an agent tells you that interest or dividends earned on your policy will cause your premiums to "vanish" during the life of the policy. If interest rates or dividends drop, you may have to pay higher premiums or pay for a longer period of time than you expected.

Some agents also sell retirement investments and student loans. The law prohibits agents from offering discounts on an investment or loan, or offering any type of gift, as an inducement to buy life insurance. If you believe an agent has made an improper offer, call the TDI Consumer Help Line.

Insurance companies sometimes market life insurance policies as retirement savings tools, estate plans, election funds, or mortgage protection. Not clearly identifying a policy as life insurance is a misrepresentation and a violation of the law. If you believe an agent or company has misrepresented a policy, call TDIs Consumer Help Line.