Using a Life Insurance Broker Versus Buying Direct

By  //  December 5, 2018

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In these days of uncertainty, it is imperative to come under an umbrella of a Life Insurance Policy. This is particularly true if you are married with kids and parents to support.

In these days of uncertainty, it is imperative to come under an umbrella of a Life Insurance Policy. This is particularly true if you are married with kids and parents to support.

Zeroing on one policy amongst a plethora of life Insurance plans is a mammoth – especially if pesky agents are hovering around you trying to sell you a Life insurance policy. This may or may not be suitable for you.

The normal pitch is that life insurance policies are exempt from income tax under the Indian Income-tax Act. The other reason would that the plan that is being sold to you has a bigger commission.

Life Insurance can also be purchased directly from the insurer. So what is the deal about buying from one or another? Buying from an insurer has its pros and cons while the same goes for insurance agents – who also call themselves “Financial Advisors.” A majority of these are qualified to advise you while the others are simply salespersons for the insurers.

Under these circumstances what does the man-on-the-street with no inkling about insurance do? The best way is to first educate yourself about life insurance and how it will affect your life or how it will affect your family after you are no more.  This will help you making an educated guess instead of relying on the agent or the insurer.

What is Life Insurance?

In its simplest form – Life Insurance is a contract between the policyholder and the Life Insurance Company.  You pay a fixed amount (premium) periodically or annually, and the insurer promises to pay your nominees the sum assured on your unfortunate demise.

The sum assured is paid even if death has occurred during the period of the policy. If the policyholder survives the premium paid if forfeited.  The sum assured help to pay for any outstanding liability and also to meet the daily needs of the family that is left behind.

In some plans the sum assured is given along with bonuses. Policyholders can also add “riders.” These riders can be in the form of medical reimbursement, cost of education or any other future expense.

Banks and other lending agencies will insist on an insurance policy to cover the loan in case the person taking the loan passes away. This is a common procedure when you are buying housing on loan. The banks may also require a guarantor and some fixed asset as collateral.

How is Insurance Sold?

Insurance companies have three ways of marketing their products. They have an in-house sales team who contact potential clients. They sell their products online on the Company’s website. Some have agents who register with the company. These agents are trained about the different product offered by the company

Some agents or Financial Advisors operate independently and work on commission and other bonus/rewards as per the company’s’ reward schemes.

Several websites offer insurance policies online. These websites offer a bunch of options depending on the information that you have entered on the website. They also give you a comparison of a few insurers to help you decide.

From Whom Should I Buy My Insurance Policy?

Tricky Question! While some people buy insurance directly from the insurer, others may want to buy from agents. Each has his/her reason.  If you have done some research and compared a few policy plans for different insurers and you understand insurance jargon, then your work is half done.

If you are looking for a particular type of plan, or if you have a health condition, it’s extremely important to seek out a specialist.  Chris Stocker with Diabetes Life Solutions notes ” It’s extremely important to seek out the proper type of agent when you’re seeking life insurance coverage.  As an example, if you’re needing coverage for senior life insurance, work with a final expense insurance specialist.  Or if you have health history such as Gestational Diabetes, you truly need to seek out agents who are qualified.  Many times, you could save 25% or more on life insurance with gestational diabetes by contacting a diabetes life insurance specialist.”

Buying Insurance Directly From the Company

In this case, you buy directly from the company or a bank promoting the particular insurance company without the services of a financial advisor.

It takes less time to buy an insurance policy directly from the company than through an agent. When you buy from the company, you should have a solid understanding of what are right for you and your family. However, the insurers’ sales team will also be able to guide you and provide you with advice on the best policy that is suitable for you. They can provide immediate information that is current and updated.

They will ask you a few questions about your health, family history, your job (if it is hazardous) and other personal questions. Your premium will be based on your answers. Your policy may have exclusions and limitations depending on the information you have provided.

Buy from the Insurer is quick and easy. However, there are other factors that you may have overlooked. For instance, your medical history and occupational type and exclude or restrict you from gaining full advantage of the policy.

Also, buying from the insurer may cause you to lose money because you failed to read the fine print. Some exclusions and limitations were not mentioned to you. This has an effect when payments are made. The insurer deducts the exclusions and other charges that you are not aware but was part of the fine print. On the other hand, a knowledgeable agent may point out these clauses when you buy insurance from them.

Who is an Insurance Agent / Financial Advisor 

Insurance Agents and Certified Financial Advisors (CFA) provide value addition to you by helping you to recommend the best plan that suits your conditions. They take into consideration your current health, family medical history, your career, age, and other parameters and prepare a proposal for you. They also mention the plan that is best suited for you so that you get the best deal. They keep themselves updated on any new laws or changes in the laws by IRDA.

How Does the Broker/Financial Advisor Help You

The insurance agent will take all your pertinent details and compare the different types of insurance available from different insurers. They then match your requirement with a plan that meets your needs. They also take time to explain why they have selected a particular plan and also inform you about exclusions, exceptions, and limitations of the plan.

Why Do I Need an Insurance Agent / Financial Advisor?

Getting the help of an Insurance agent is a personal preference. It also depends on your knowledge of Life insurance. Some don’t want to be bothered with by going to the insurer. They prefer agents since they provide you with their service in the comfort of your home. This is especially true if you are buying a policy for the first time or your situation has changed considerably since.

Agents generally recommend plans to suit your need because they do not have any ties with any particular insurer. So the agent will not pressure you to buy from one particular insurer to meet their sales goals.   

Some of the benefits of buying from insurance agents are as follows:

  • The Agent does the research, paperwork, and legwork for you
  • They can shop around and find the best rates in the marketplace.
  • They can access multiple insurances and find a suitable for your financial goals and security.
  • These agents are experienced and competent and will help you with the application process and other paperwork.
  • The agent is aware of all the IRDA and company laws so they will guide with appropriate advice.
  • The agents will advise you on the perils of incomplete or dishonest information.
  • Agents are well versed in the laws about insurance and keep themselves updated with all the latest happenings in the insurance industry.
  • Agents generally represent multiple insurance companies like LIC, Exide Life Insurance, Aviva, Star Insurance, Oriental Life Insurance, and others. They are not on the payroll of these companies. So, these agents will work for your best interest.