You've got a lot of options for buying life insurance. You can buy it by working with an independent agent or agency or directly from the insurer. The internet has also changed the life insurance buying process — now you can buy from popular quote websites, connect with an agent or agency online, and even buy directly from an insurer online.
"Armed with more information and price transparency, consumers are in an excellent position to pick their term life insurance 'vendor.' I use the term 'vendor' here because, in 2020, it’s not necessary to meet in person with an agent to get guidance on how much life insurance to buy — online calculators and quote engines abound," says Chris Acker, CLU, ChFC of CB Acker Associates Insurance Services.
While buying term life insurance online is more common, some sites also allow you to apply for permanent life policies online.
To evaluate the pros and cons of each life insurance shopping method, we'll start with the more traditional methods of buying life insurance and then cover online life insurance shopping.
You can always work directly with a life insurer to buy a policy from them. Many insurers have their own life insurance agents who can help you through the process. Some insurers like Northwestern Mutual also offer financial planning services. If you're already working with one of their financial planners and trust them, it can be convenient to work with your financial adviser to determine how a life policy fits into your broader financial goals and apply for a life insurance policy.
While you can't get a better deal by working with the company directly, working with an independent agent, or shopping online, there are still some disadvantages to working directly with an insurer.
The company's agent will only give you insurance policy options available through that insurance provider. If you want to compare insurance policies from multiple insurers, you'll be doing all of the legwork yourself and may not receive unbiased advice from each insurer's agent.
If you have some health concerns that will affect your premium, it may be in your best interest not to work with insurers directly.
"Each insurer has different underwriting guidelines, and rates can vary wildly. To score the lowest rate, compare a bunch of term life insurance quotes," says Katia Iervasi, an insurance writer at Finder.com.
Working with an independent agent can help you find an insurer that underwrites your condition more favorably than others — even for permanent life insurance policies. As you compare, be sure to note how the policies from each insurer differ because there may be slight differences that affect the overall value of the policy.
However, it can be nice to cut out the middleman to work directly with your insurer if:
Instead of working with an insurer directly, you can find an independent agent who works with multiple insurers. If you work with an independent agent or agency, you can be more confident that you're getting help finding the right fit. You can choose a policy from any company, and the agent will still have made a sale.
The other nice aspect of working with an independent agent is that it has no cost to you. Independent agents and agencies are paid by the insurers they represent.
While there are lots of perks to working with an agency over an insurer, notice any signs that your agent is pushing a specific policy or company on you. Since agents are paid by the insurance companies for the policies they sell, rates can vary by product or insurer.
Agents should be able to present quotes, benefits, and drawbacks of each policy and insurer in an objective manner and leave the final decision to you.
The convenience of the internet makes it a popular tool for life insurance shopping. The internet can help you research insurers and their policies, compare quotes, connect with agencies, and even buy term policies online.
With all the advantages of convenience, keep these pitfalls in mind:
Often insurance quote websites and even some insurers will show the lowest premium rates available. These quotes may not be the rates that most people qualify for. If you are seeing surprisingly low rates, approach these numbers with some skepticism and anticipate that your actual rate will be higher.
If you're using a quote website that asks for some underwriting information (e.g. age, gender, health, and tobacco use) before it shows you quotes, you can have more confidence in these numbers.
Two online insurance agencies have a strong commitment to providing potential clients with realistic quotes: Quotacy and Policygenius. This commitment is one reason these companies are worth using as part of your life insurance research and purchase process. Even if the final rate is not the exact quote you received, it will usually be close to the mark.
Before you share your contact information with any website, you should know how the site uses the information you provide. Do they keep it confidential? Do they send your information to many insurance companies? Do they only send the information to the company you asked about?
Understanding how sites use your information will protect you from getting a crazy number of phone calls from salespeople trying, as they may say, "to earn your business."
Fortunately, whether you are comparing companies or looking for quotes, there are sites that respect your information including Best Company, Quotacy, and Policygenius.
Best Company doesn't offer quotes. However, you can read customer reviews and see how companies rank against each other based on industry criteria and customer reviews and ratings.
If you choose to use a company by clicking on a Best Company "Visit Site" button, the only company that will receive that information is the company you selected. We save you the frustration of unending sales calls in this way.
On Policygenius and Quotacy's platforms, you do not have to provide contact information before you can view quotes. If you decide you want to work with either company, you can share contact information with them after you see quotes.
Quotacy agents keep your information anonymous as they work with insurers to find a policy that best fits your particular needs with a favorable underwriting process. This practice offers an additional layer of security as Quotacy shops around to find the best life insurance options for you.
Policygenius also only shares your information with the insurer you applied for through its platform.
If you're mainly using online resources to connect with reputable agencies and view quotes, you're not buying from limited options. However, if you're planning on completing an online application and purchase in the same sitting, you cannot buy a permanent life insurance policy and you're limited to a few kinds of term policies.
"When you buy online, you're limited to the simplified issue and guaranteed issue policies, which are quick and easy to buy but don't involve much underwriting. This is usually bought by people who have medical conditions, so they are much more expensive. That means you won't get the best rate because the insurance company will charge you the same as these unhealthy people.
Although it will take longer, the best route to go when buying term life insurance is through an insurance agent. You will go through underwriting and get the best rate available," says Brian So, life insurance agent and Brian So Insurance founder.
Online policies are also not as customizable as policies bought through more traditional methods.
"There are a string of fintech insurers that can issue term life insurance policies online, including Bestow, Ethos, and Haven Life. They offer a quicker buying experience and your coverage might go into effect instantly — but just know you may not be able to add riders to your policy,” says Iervasi.
If riders are important to you, then buying life insurance online may not be the best way to go. You should also keep in mind that some of these companies are new, so don't have a lengthy time in business to demonstrate their longevity. Before you buy from these companies, make sure you understand how they protect the policies people buy — Is the company a subsidiary of a trusted insurer? Does the company have insurance on its life insurance policies?
"An increasingly popular model is where a life insurance company develops specific policies for the non-medically underwritten marketplace and re-brands the site with all new products. You see this with Haven, for example, which is owned by MassMutual," says Acker.
Another similar example is Bestow. Bestow's policies are from North American Company for Life and Health Insurance ®, which has earned high financial strength ratings. These policies are also reinsured by Munich Re. Even though Bestow is a new company, you can buy confidently from it because of the steps it has taken to ensure its ability to meet claims obligations.
While these new companies can be trusted, buying life insurance online isn't a great fit for everyone. Raquel Murphy, HUB International Northeast Vice President of Individual Life insurance offers a few examples:
"Buying term life insurance online seems easy and convenient unless you have a problem. There will always be an agent behind the machine that you are referred to if you don’t meet the narrow criteria for applying online. If you have a medical condition or have a family history of medical conditions, purchasing on the internet may not be for you.
Also, if you are purchasing very large amounts of term insurance, then you should probably speak with an agent."
What's the verdict on online life insurance shopping? It can be a great tool for researching policies and connecting with agencies or insurers. However, applying and buying life insurance instantly is not for everyone because the options may be limited, you may not qualify, or you may overpay on premiums.
As you consider your options for buying life insurance, you should consider the pros and cons of each and which would make the most sense for your situation.
Working with a life insurer cuts out the middleman and establishes a connection to the insurer that you can contact as you need to make changes to your policy beneficiaries or update your address. However, the life insurer will only show you policies that they offer. If you choose an insurer without understanding how they approach underwriting certain conditions, you may pay higher premiums than with another insurer.
If you want to explore your options at multiple top insurers, working with an independent agent or life insurance agency is a great choice. Agents represent multiple life insurers and can help you find the one that offers the most favorable underwriting for your situation. This is another advantage of working with an agency, especially if you have medical conditions that would affect underwriting.
You can also connect with some agencies online to buy term or permanent life insurance policies. Quotacy and Policygenius are good examples because they allow you to view quotes without providing contact information and, in many cases, start the application process online.
Licensed agents are also available to help you as you navigate the application and purchase process.
As you consider purchase methods, you don't have to worry about being given a different price for the same policy from the same insurer whether you work with an agent or with the insurer.
"Seeing as insurance laws do not allow for premiums to be greater when an agent is involved we recommend utilizing an agent that specializes in planning to ensure the policy fits into your overall strategy," says Todd Burkehalter, Drive Planning CEO.
If you want to apply and buy a life insurance policy online in one sitting, you're limited to some kinds of term insurance. Convenience is a huge advantage of these policies, but they're not for everyone. If you're trying to get the lowest premium or have health conditions that affect underwriting, you'll want to choose another purchase method.
Whichever way you choose to approach life insurance shopping, be sure to avoid pitfalls and choose an insurer with high financial strength ratings.
"Insurance companies are heavily regulated and among the least likely institutions to go under, so I advise clients to not worry as much about which particular carrier they work with so long as they are A-rated by A.M. Best or the other ratings agencies. This information is readily available on a company's website and pretty much all you need to know," says Jake Tamarkin, Everyday Life CEO and cofounder.
High ratings indicate an insurer's ability to manage its finances wisely and meet claims obligations. If an insurer has unpublished or low ratings, it's best to choose another company.
Buying life insurance will give you peace of mind and help your loved ones be financially prepared for the future.
Want to know more about the pros and cons of life insurance agencies and quote comparison websites? Read: "Life Insurance Brokers vs. Quote Comparison Websites."