Buying life insurance: brokers, direct and online

The same policy from the same insurer generally costs the same regardless of where you buy it, because rates are filed with state regulators.

Which means the channel affects the advice, the range of options, and the process rather than the price.

The channels

Captive agents represent one insurer and sell its products.

Advantages: deep knowledge of that insurer's products, and a local relationship.

Disadvantage: they can only offer one company's underwriting, and underwriting standards vary enormously between insurers for specific conditions.

Independent brokers represent multiple insurers.

Advantage: can place your application with the insurer most favorable for your specific circumstances, which for anyone with a health condition is genuinely valuable.

They are compensated by commission from the issuing insurer, which creates an incentive toward higher-commission products.

Online platforms and direct writers. Quote comparison and application online, frequently with accelerated underwriting.

Convenient and efficient for straightforward cases. Limited advice, and the product range is generally term-focused.

Fee-only advisors. Charge a fee for advice and do not take commission.

The advice is not influenced by product compensation. You then purchase the recommended policy separately, sometimes through a low-load channel.

For anyone considering permanent insurance, a fee-only opinion is worth the cost.

Accelerated underwriting

An increasingly common process where the insurer uses data — prescription histories, motor vehicle records, medical information exchange data, and predictive models — instead of a medical examination.

Decisions can come in days rather than weeks.

It is generally available for healthy applicants within certain age and coverage limits.

The rates are frequently comparable to fully underwritten policies for those who qualify. Applicants who do not qualify are typically routed to full underwriting.

Worth trying if you are healthy, since the time saving is substantial.

Guaranteed and simplified issue

Products requiring limited or no health questions.

Simplified issue asks health questions but requires no examination. Guaranteed issue asks nothing and cannot decline.

Both are substantially more expensive per dollar of coverage, and guaranteed issue policies typically have graded death benefits — limited payout in the first two or three years, usually a return of premium plus interest for non-accidental death.

These exist for people who cannot obtain standard coverage. They are not a good option for anyone who can.

Final expense policies marketed heavily to older buyers frequently fall into this category, at coverage amounts that would be far cheaper if purchased through standard underwriting while healthy.

Getting good quotes

Provide accurate information. A quote based on optimistic self-assessment is meaningless, and the actual offer after underwriting will differ.

Be specific about health conditions, medications, family history and any hazardous activities. A broker who knows the details can direct the application to a favorable insurer; one who finds out at underwriting cannot.

Compare the same product design across insurers — same term length, same face amount, same riders.

Check the insurer's financial strength ratings from the major rating agencies. You are buying a promise that may be claimed in forty years.

The application process

Answer every question completely and truthfully. This point cannot be overstated.

Misrepresentation can void the policy during the contestability period, and the discovery generally occurs at claim time.

Where you are uncertain whether something is relevant, disclose it and let the underwriter decide.

Expect the process to take several weeks for fully underwritten coverage, longer if physician records are required.

Do not cancel existing coverage until the new policy is issued and in force. Gaps are dangerous and reapplying after a change in health may not be possible.

Free look periods

Policies include a period after delivery — commonly ten to thirty days depending on state — during which you can cancel for a full refund.

Use it. Read the actual policy, which will differ in detail from the illustration and the conversation.

Check that the coverage amount, term, riders and beneficiary are as agreed, and that any rating applied was explained.

Signals to be cautious about

Pressure to decide immediately.

A recommendation for permanent insurance without a needs analysis or discussion of term.

Illustrations presented showing only non-guaranteed values.

Reluctance to explain commission or to provide the guaranteed column.

A recommendation to replace an existing policy without a written comparison. Replacement is sometimes appropriate and is also a known source of unsuitable sales, and most states require specific disclosure forms for it.

Advice to fund a policy by borrowing, or complex arrangements described as too good to be widely known.

The simple version

For most people: calculate the need, get quotes for level term of the appropriate length from several highly rated insurers, apply honestly, and use the free look period to read what arrives.

The complexity in this market mostly attaches to products that most people do not need.

General information about insurance products, not insurance or financial advice. Product availability, underwriting and regulations vary. Consult a licensed advisor and read policy documents.