It’s important for consumers to know that anyone selling a life insurance, disability insurance, or Long Term Care insurance policy receives a commission for placing that product. Even if you work with a financial advisor who helps with your budgeting and long-term planning needs, if that advisor also recommends insurance of any kind and then signs you up for that insurance, he or she will receive commission on that policy.
This can sometimes create a conflict of interest, depending on the level of integrity your financial advisor has and his/her business model. How can a client know for certain whether the life insurance, disability coverage, or Long Term Care coverage recommended is actually in the best interest of the client, and not the advisor making such recommendations?
At Quantum, we make it a point to always put the client’s best interest first. This means sometimes talking someone out of coverage they think they need, even if it results in lower commissions for us. We do so because we believe that by earning our clients’ trust and doing the right thing, our reputation will continue growing and business will ultimately reflect that high level of integrity and service.
Here are a few ‘tips’ to use as a guide, in case you (for some reason) ever work with a broker other than Quantum for your insurance needs:
- Long Term Care coverage is not what it used to be. If you bought an LTC policy years ago, it’s definitely worth keeping. However, the new policies do not have lifetime benefits, and cost much more. There are alternative approaches to planning for this important contingency with products that allow you to build cash value as another form of investment, rather than simply pouring money into a ‘use-it or lose-it’ form of coverage that you may not ever actually use.
- That said, a traditional Long Term Care policy sometimes still fits the bill, depending on your health, age and budget. If so, it’s good to know there are significant discounts available for 2-party policies. Your broker/agent should encourage you to explore that option.
- Disability coverage is very expensive, and you get some automatically through the State of California unless you are self-employed. If you are self-employed, there’s a way to purchase disability coverage through the State which sometimes can be a good approach – particularly if you have a baby on the way and can anticipate needing maternity leave. However, the state disability product is not particularly cheap, and it caps out at a certain amount of coverage, so it’s usually not the right fit if you earn a high income (around $100K or more).
- If you are self-employed and earn $100K or more each year, and your family relies heavily on you for financial support, then disability coverage should become a priority. The younger you are when you buy the policy, the less it will cost. Don’t procrastinate if you know you need it (but don’t buy it unless your needs fit the criteria!).
- Even if you need disability coverage, you can lower the costs by getting a policy that has a waiting period longer than 90 days before benefits kick in. Your broker should help design a policy that keeps costs as low as possible, while still protecting you for ‘own occupation’ coverage. A policy that only covers you if you’re unable to perform ‘any occupation’ is basically worthless.
- If you have young children, you should absolutely purchase life insurance (and also work with an estate planning attorney to set up a trust and will). Know that a term life insurance policy will make a cost-effective solution and give you huge ‘bang for the buck’. Even a $1MM term insurance policy can cost only a few hundred dollars/year, depending on your age and health. At Quantum we recommend term life insurance as the baseline of family protection, rather than ‘whole life’ or ‘permanent’ insurance, which costs at least 3-5 times more and can become prohibitively expensive. If your broker or agent tries to talk you into whole life insurance without showing you term insurance rates, watch out! That person may not have your best interests in mind.
- ‘Permanent’ insurance (which can fall into various categories, such as Whole Life, Universal Life, Variable Life, or even Variable Universal Life) also has its place in certain circumstances. Work with a skilled broker if you plan to get this type of coverage, which typically costs at least 3-5 times more than term insurance. There are certain types of ‘permanent’ policies that can function as excellent investment vehicles; however, some products promise more than they will likely deliver. It is absolutely crucial to utilize a trustworthy insurance professional who understands the most cutting-edge solutions on the market, and will guide you towards the products that have the best design for your needs and goals.
A lot has changed in insurance over the last decade! The solutions of yesteryear don’t necessarily work as well in today’s world. Choose a broker who works with multiple carriers rather than an agent tied to one particular company. Make sure to coordinate the recommendations of that insurance expert with the other members of your financial team to get the best results. And above all, make sure to use the tips above to discern between good advice, and a simple sales pitch.
[social_icons facebook=”yes” twitter=”yes” linkedin=”yes” googleplus=”yes”][/social_icons]