Consumers routinely shop for the best prices on smaller ticket items such as appliances and electronics, and some may even drive miles out of their way to get the best price on gasoline. Yet all too often their shopper’s instinct disappears when it comes to a purchase like life insurance.
It’s understandable. Life insurance is one of the most complicated financial products available today. It’s hard to shop for something you don’t understand.
In addition, it’s difficult to find objective advice; even the most well-intentioned insurance agents suffer from an inherent conflict of interest because they are compensated based on what they sell.
The solution: use a fee-only life insurance advisor.
A fee-only life insurance advisor generally charges an hourly rate to evaluate your insurance needs, helps you select the appropriate amount of life insurance, the right type of life insurance, and even goes so far as to help design policies that minimize agent commissions, and maximize policyholder value.
Think paying an hourly rate sounds expensive? It’s certainly better than committing to $50,000+ of premium over your lifetime, only to discover that what you bought wasn’t what you thought you were getting.
Scott Witt, a fee-only life insurance advisor with Witt Actuarial Services in Wisconsin says,
“The life insurance industry is dominated by commission-based providers. Without an advocate that is looking out for their best interests, insurance consumers are at the mercy of their insurance agents and the companies represented by those agents. Consumers have few places to turn for unbiased advice.”
Scott has strong opinions about the insurance industry, and outlines the following four reasons to use a fee-only insurance advisor.
1. Choosing the Right Product
Many agents are either contractually obligated, or financially motivated, to place their business with a certain company. These agents spend their resources trying to convince potential clients of the merits of “their” company, rather than investigating which company can offer the right policy for the given situation.
2. Commission Levels
Most agents will naturally design and sell policies that maximize their commissions. It’s easy to do so because there is little to no disclosure to the consumer regarding agent commissions. In some cases, it’s possible to reduce the agent commissions by simply designing the policy differently. This can save the consumer as much as 1 to 2 annual premiums on cash value policies, but it’s an option that few, if any, agents are going to show of their own accord.
3. Policy Design
Agents are often poorly trained to provide expert advice on the most technical issues surrounding the design of life insurance policies. For instance, many policies would never have been put in place had the consumer better understood the implications of the chosen policy design. Policy design is absolutely critical, and there are several key decisions that can greatly influence long-term policy values.
4. Service of Existing Policies
Because the life insurance industry focuses on selling new policies, existing policyholders often receive poor service or worse yet, damaging service. Agents and life insurance companies often have a financial incentive to get their policyholders to behave in a manner that is in conflict with what would be best for the policyholders. It’s naïve to think that a company or its agents are going to make their policyholders aware of these situations.
In addition, for the majority of policies in force, the agent that sold the policy is no longer servicing the policy. This means the “servicing” of the policy often turns into an attempt to replace the policy with a new one that will generate another round of commissions.
After years of working in the insurance industry as both an agent and an actuary, Scott Witt opened his own practice to offer consumers an objective way of evaluating both existing and new life insurance. Now, after the experience of practicing as a fee-only insurance advisor Scott says,
“Other than providing clients with the most knowledgeable and expert advice possible, fee-only insurance advisors have absolutely no vested interest in the insurance decisions their clients make. The only compensation received by fee-only insurance advisors is the fee paid by their clients. They do not receive compensation from insurance products that their clients may decide to purchase, nor do they receive any financial incentives from steering clients toward a particular agent or company. In this way they can act as true fiduciaries, delivering unbiased, objective advice.”