Here’s Why the Life Insurance World Is Like the Wild West
Explaining the gap that exists between the investment and insurance worlds, and what you can do about it.
Make no mistake about it. While the investment marketplace is efficient, with exchanges that price a very tight buy and sell by the second, the insurance marketplace is the opposite. In fact, the insurance marketplace is more like the Wild West.
The products are numerous, the pricing varies, the underwriting is not exact, and many advisors tend to only sell one product from one company. It is common for individuals to pay substantially more than those who shop for a very similar product with an advisor who has a broader search with more muscle in the marketplace. How does this happen?
When it comes to life insurance, being part of a large independent buying group can make all the difference. Since pricing in the insurance world relies on the underwriting, it all comes down to what the insurance company is willing to offer the applicant as a rating. When an advisor is backed by a larger buying group such as Partners Financial, one of the top three, they tend to get the better decisions when a rating is on the fence between two categories.
Also, it is important to have more than one insurance company in the search. The companies that offer the best pricing tend to change month by month, so the advisor who has the ability to search multiple channels with each case they come across will truly add to their value.
It is also worth mentioning that most of the life insurance being sold is commission-based. For the independent financial advisor, fee-only tends to be the stand-up way to do business, but when it comes to life insurance this offers a challenge. In fact, there are companies that promote themselves as fee-only or even no load life insurance solutions. While these companies may claim to be selling primarily fee-only and no-load life insurance solutions, they are selling just as many commission based products. What is going on?
When one tries to secure a no-load product, they may find that there are limits to the amount of death benefit that can be sold in that world. That means if the policy is larger, one is forced to the commission-based world. This causes the same shops that claim to be no-load to then go to the commission world with less buying power and expertise, costing their clients more in the long run.
Similar to the Wild West, with a lack law and order, you tend to see abuses in the insurance world. Whether it is a lack of integrity or a lack of knowledge, many professionals sell clients policies that are not in their best interest. At the end of the day, advisors must listen to a higher call.
Be sure to choose your insurance advisor carefully and make sure they represent your concerns to the entire marketplace, in a manner that you understand.
If any of what you just read makes sense to you, reach out to us at Bridge Partners and find out how we can work together to bridge the gap.