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secrets life insurance agentWe normally like to think of life insurance agents as trusted advisors whose only aim is to point us in the right direction, and get us the right coverage.

There’s almost certainly some truth to that assumption, however the nature of life insurance – and the job of life insurance agents – makes them something close to our natural enemy.

In a lot of ways, what hurts us as consumers of life insurance, actually benefits life insurance agents.

Here are 10 examples of what I’m talking about:

1. His Income Is 100% Commission

Any time a person you’re buying any product or service from is compensated 100% by commission, your radar needs to be up and in perfect working order.

This isn’t to say that being on commission makes a person evil – it certainly doesn’t. But it may change his or her perspective, as well as the type and degree of products that you will be introduced to.

If the agent is entirely on commission, he will then have a vested personal interest in selling you products that will result in you paying the highest premium possible. Since his commission is based on a percentage of that premium, the more you pay the better it will be for him.

2. You May Very Well Be Over-Insured

Whenever a life insurance agent does an evaluation to determine how much life insurance you need to have, he will almost inevitably start with numbers that are larger than anything you’d ever imagine that you would need.

For example, it’s not unlikely that the agent will suggest that you need to have life insurance equal to 30 times your annual income. If you are earning $100,000 per year, he may suggest – without flinching – that you will be adequately insured by a $3 million life insurance policy. After all, you will need to provide income for your family for the next 20 years, college educations for each of your children, the payoff of your mortgage, and a comfortable retirement for your spouse.

Now he knows that it is unlikely that you will take a life insurance policy that large, but it’s an excellent starting point – for him. After all, if he suggests $3 million, but walks out of your house with an application for a $1 million policy, he wins. That’s because he knew going in the door that you probably only wanted a policy for a couple hundred thousand dollars.

And you’d probably be right. After all, if you have other investments, and your spouse is also well employed, you will only need a fraction of the life insurance coverage that the agent will suggest. Most often, life insurance is only needed to settle final arrangements, medical bills, outstanding debts, and maybe a few years of living expenses. Providing for your loved ones to live in luxury for the rest of their lives is an expensive you can’t afford, nor actually need.

3. He’d Rather Sell You An Annuity Than an Insurance Policy

This is one of the biggest secrets of all. And the reason for it is quite simple: an agent will make A LOT more money selling you an annuity than a life insurance policy.

He might make only a few hundred dollars on the first year of a whole life insurance policy, and progressively less each year after that. On a term life insurance policy, he’ll make even less.

On an annuity however, he can earn thousands of dollars in the first year, and more after that.

And here’s why…

4. Annuities Are PACKED With Fees

Life insurance agents like to pretend that annuities are the life insurance equivalent of mutual funds. They’re not. Any similarity is almost entirely a sales pitch.

Mutual funds are professionally managed investment portfolios in which the primary purpose is to return most of the investment gains to the investor. Mutual fund companies and managers are judged based on this performance, and will manage the portfolio and fees of the product accordingly.

Annuities on the other hand, are managed primarily for the benefit of the insurance company and the agent. Though there is usually a (very low) guaranteed return on annuities, your returns on the contract will only come after the insurance company and the agent get their cut.

And that cut can be huge. An annuity may charge as much as 8% to 10% right off the top. They also typically retain part of the investment earnings. And then there are surrender charges. They can match the upfront fees, and can be assessed if you withdraw any money from the annuity within a specified time period, that can cover many years.

5. Whole Life Insurance Isn’t Really a Good Investment – Or Even a Good Life Insurance Policy

Life insurance agents like to sell whole life insurance as the best of both worlds – an investment program with life insurance coverage. In truth, it doesn’t do either particularly well.

The insurance benefit will be limited because the premiums on whole life are high. And since so much of the premium goes to pay for investment fees and the life insurance coverage, there is relatively little left over for investment within the plan.

Which creates another problem agents don’t like to discuss…

6. The Cash Value of Your Whole Life Policy Won’t Benefit You For Years

Life insurance agents also like to hawk the virtues of the cash value build up in a whole life insurance policy. This is another myth. It is most likely that you will have something close to nothing in your cash value at the end of the first year. By the end of the second year, the amount will be minimal.

As a rule, it will take at least five years before you will have a cash value that is equivalent to the amount of money you paid in premiums into the policy. And maybe not even then.

7. “Buy Term and Invest the Difference” Really Is a Better Strategy

There is probably no slogan confronted by life insurance agents that is more irritating to them than this one. And that’s because the slogan is true.

Since term insurance is so much less expensive than whole life, you can buy a lot more of it – in fact a more reasonable amount for your needs. And the investment performance of mutual funds – particularly index funds – dramatically outperforms that of any insurance related investment vehicle.

Even if the combination of term life insurance and investment in a mutual fund is no less expensive than a whole life insurance premium, the amount of money you will accumulate in the mutual fund, and the speed at which you will do it, make it a far superior investment to a whole life insurance policy. And you’ll have a whole lot more life insurance coverage along the way.

8. Long-term Care Insurance is Super Expensive Coverage and We Really Don’t Know How it Will Work Out

From a consumer standpoint, there are two fundamental problems with long-term care insurance coverage:

  1. It’s very expensive, and
  2. It’s not certain that you will ever need it.

Since people are living longer than ever, making a provision for long-term care has become a hot topic. Insurance agents know this, and they’re exploiting the fear.

Emotions aside, the reality is that it is more likely than not that you will not need long-term care insurance. Most people don’t end up in a situation that requires long-term care. And even if they do, it’s often for a short period of time just before death. If there are other assets available, particularly retirement assets or a home with substantial equity, long-term care insurance with my be unnecessary.

And if it isn’t ever needed, you will have spent tens of thousands of dollars over many decades funding an insurance policy that was never necessary. This is an important consideration when there are so many other priorities in your household budget.

It’s also worth noting that some insurance companies have withdrawn long-term care insurance coverage due to the inability to predict future medical costs or the longevity of their  clients. Long-term care insurance is relatively new coverage, and it’s not at all certain that it will survive the test of time.

9. Your Kids Don’t Really Need Life Insurance – Least of Which Whole Life

Life insurance agents love to sell whole life insurance policies to parents of young children, stressing the advantages of the investment provisions of the policies. Those provisions, they argue, will help parents to provide funds for their children’s college educations.

But nowhere is the advice of “by term and invest the difference” more relevant than when it comes to buying life insurance for your children.

You should have only enough insurance coverage on your children to pay for final expenses and uncovered medical costs. In most cases, a $50,000 term life insurance policy will get that job done with money to spare. But it’s important to remember that your child is not a breadwinner, so there is no need to replace lost wages with a ridiculously large policy.

And as we’ve already discussed, insurance related investment vehicles are underperforming investments. You’ll be far better off investing money in a mutual fund for your children, then trying to save for their educations through a whole life insurance policy.

10. There Is No FDIC Equivalent Back-Stopping Insurance Companies

This is a very relevant question – but seldom asked – since life insurance agents like to position themselves as investment advisers. The investments that they sell are almost always exclusively insurance products. However, there is no FDIC equivalent that will backup the life insurance company in the event of investment failure.

There are arrangements within each state for companies to collectively backup a failed insurance company, but there is no apparatus in place to deal with a systemic failure such as the financial meltdown that hit the banks and financial companies a few years ago.

While this has obvious implications for the life insurance coverage that you pay for and expect to have, it becomes much more significant when you have a lot of money sitting in insurance company sponsored investments. Insurance agents will not mention this, and will likely try to minimize the importance of the question should you bring it up. But it’s a question you need to visit in any investment situation that will involve a large amount of money.

We might be able to say that life insurance agents don’t necessarily lie – but they do make significant use of the sin of omission, as well as liberally embellishing the products that they sell.

More Information You Can Use When Dealing With Life Insurance Agents

If you apply for life insurance, keep these tips in mind – and again, they’re not tips your agent will be likely to recommend…

Recommendations from Jeff Root, of SellTermLife.com:

Reconsideration. Life insurance underwriters will always offer the best possible rate class as permitted by their underwriting guidelines, however, if you’re not happy with the life insurance company’s offer, your agent can submit a “reconsideration request” and ask the underwriter for a better offer. Most agents don’t even mention this as an alternative because of the extra work involved in drafting a letter convincing the underwriter why they should qualify for a better health classification.

Tentative Offer Protection. Consumers can get “tentative offers” from life insurance companies BEFORE applying for life insurance. There’s a process independent life insurance agents use where they send your risk anonymously to most life insurance company’s underwriting desks and wait for their response. Underwriters typically reply within 48 hours with a health classification in which we call a “tentative offer”. You can attach this tentative offer to the life insurance application and the company you apply with must give you this rate unless you withheld any information from them. This is a must for people with health issues applying for life insurance.

Shopping Won‘t Necessarily Get You a Better Rate. Life insurance rates are the same no matter where you go. They all use the same published rates. Going from website to website won’t result in finding better rates. However, each company looks at your health differently. It’s your agent’s job to fit your unique health situation into the underwriting guidelines of each company and then see who provides the best rates.

Most Applicants Won‘t Get the Preferred Best Rate. Less than 5% of people who apply for life insurance can qualify for Preferred Best. Yet it’s the #1 health classification quoted on websites.

Chris Huntley, of ELifeTools.com offers the following:

Use an INDEPENDENT agent. “The concept is simple. Independent agents save you time and money. Rather than completing applications and medical exams with 15 different insurance companies to see which one will approve you at the best rating, make one call to a qualified independent agent, who can place you with the most appropriate carrier based on your unique personal and medical history.”

“While many consumers understand the initial benefit of an independent agent, the greater benefit comes if the applicant is declined for coverage. If you have applied to a single carrier with a captive agent, you are out of options. However, an independent agent’s job is just beginning at this point, and will be able to easily submit your case to various companies to see if another will approve.”

You need to be aware of these secrets, and act accordingly.

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There are all kinds of “ten best” lists, to rank the best of everything in the world. Though there are usually subjective factors that determine what any of us think about a life insurance company, Insure.com has put together a list of the 14 top life insurance companies in the US. Their ranking is based on the following criteria:

  • Customers who recommend (the company)
  • Customer service
  • Financial strength rating (according to A.M. Best)
  • Value for price

I’m going to put together my own Top 10 Life Insurance Companies list, but weigh the Insure.com criteria a bit differently. I’m going to base my list primarily on the “customers who recommend” ranking.

My thinking is that the willingness of existing customers to recommend a company to others is the single greatest statement on the quality of a life insurance company or any other business. It’s not that the other criteria don’t matter, but more about extrapolating the results that are most relevant to the average person.

As a rule, top ten lists for just about anything are really based on someone’s opinion.

It’s my opinion that people’s willingness to recommend a company is the most relevant factor in choosing a company – while always acknowledging the fact that not everyone will be happy with every company, even the 10 best.

So here’s the Life Insurance By Jeff Top 10 Life Insurance Companies in the US:

top 10 life insurance companies in the us

Top 10 Life Insurance Companies in the US (Infographics)

1. Jackson National

This life insurance company drew an incredible 88% of its customers who either have – or will – recommend the company to others. That speaks volumes about Jackson National. On customer service, it rated four and a half stars out of five.

On financial strength, it was rated A+ by A.M. Best, which makes it a pretty solid company. In the value for price category, Jackson National scored four and a half out of five stars.

There’s one other factor that will be of interest to anyone who’s looking for a life insurance policy, and that is premium rate. 66% of Jackson National’s customers chose the company because it offered the best rate.

2. New York Life

77% of New York Life’s customers either have, or will, recommend the company to others, which is the second highest rating in that category. Customer service gets four and a half out of five stars, and the company is rated A++ by A.M. Best.

In the value for price category, New York Life scored four and a half out of five stars. Only 23% of its customers chose the company because it offered the best rate. However, 28% cited the company’s reputation as a reason for purchasing life insurance from them.

3. State Farm

State Farm matched New York Life in the customers who recommend category, with 77 percent of its customers either have, or will recommend the company to others. The company gets four stars out of five for customer service, and an A++ rating from A.M. Best.

It draws four and a half stars out of five in the value for price criteria. Matching New York Life, 23% of State Farm’s customers chose the company because it offered the best price, while 28% cited the company’s reputation as a factor.

4. Northwestern Mutual

Northwestern Mutual matches New York Life and State Farm with 77% of its customers having recommended the company, or would be willing to recommend them to others. It gets four and a half stars out of five on customer service, and an A++ rating from A.M. Best.

In the value for price criteria, Northwestern Mutual has a perfect score – five stars out of five. 42% of its customer base felt that the company offered the best price for their life insurance. That’s second on this list, trailing only Jackson National.

5. John Hancock

John Hancock came in with 74 percent of its customers who either have or would recommend the company to others. They received four stars out of five on customer service, and an A+ rating from A.M. Best. In the value for price category, John Hancock scored four and a half out of five stars.

Only 17% of its customers indicated that the company offered the best price, but 32% listed the company’s reputation as a factor.

6. Transamerica

Similar to John Hancock, Transamerica rated 74% of its life insurance customers either having, or willing to recommend the company to others. It received four stars out of five in customer service, and an A+ rating from A.M. Best.

In the value for price category, they rated four stars out of five. Though only 21% of customers indicated that the company offers the best price, while 30% cited the company’s reputation as a deciding factor.

7. AXA Equitable

74% of AXA Equitable’s customers either have or would recommend the company to others. The company gets three and the half out of five stars for customer service, and four and a half stars out of five for value for price. A.M.

Best rates the company A+. 35% of customers said the company had the best price, the third highest rating in this category among the companies on this list. 25% cited the company’s reputation as deciding factor in their decision to purchase life insurance with them.

8. Prudential

73% of Prudential’s customers either have or would recommend the company to others. The A.M. Best rating is A+, and the company gets four and a half stars out of five for customer service.

It gets a perfect five stars out of five under value for price. 28% of the company’s customers cited the company’s reputation as a factor, while only 22% felt that Prudential offered the best price.

9. American General

American General either has, or would be recommended by 72% of its customer base – despite the company‘s somewhat obnoxious TV commercials :-) The company rates a perfect five stars out of five in customer service, but only three and a half stars out of five on value for price.

A.M. Best rates the company’s financial strength as an A. 33% of American General’s customers were swayed by the company’s reputation, while 29% felt that it offered the best price on their life insurance policy.

10. Lincoln General

Lincoln General either has been, or would be, recommended by 72% of its customers. The company has an A+ financial strength rating from A.M. Best.

The company gets four stars out of five for customer service, and four half stars out of five in the value for price category. 32% of its customers believe that it offered the best price on their life insurance policy, while 26% cited the company’s reputation.

The Next Ten

There are ten more companies I want to add to this list, companies that I’ve had good or excellent experience with in my own insurance business. A couple of them are on the Insure.com list, but most aren‘t.

11. MetLife

MetLife is on the Insure.com list. 68% of their life insurance customers either have or will recommend the company to others. The company has an A+ rating on financial strength from A.M. Best.

They get four stars out of five for customer service and four and a half out of five stars for value for price. 32% of customers cited the company’s reputation as a reason for buying from them.

12. Banner Life a.k.a., Legal & General

Do a general search on this company on the web, you’ll find it gets high marks from insurance agents everywhere. The company is actually based in the United Kingdom, but has a strong presence here in the US.

They offer a wide variety of innovative life insurance products at affordable rates, as well as policy conversion provisions that allow you to convert a term life insurance policy to a permanent universal life plan.

13. Protective

This company has been around since 1907 and operates in all 50 states. They also provide a full range of life insurance products, including term and universal life insurance, as well as annuities and various investment products.

14. SGLI

Administered by Prudential, Service Members Group Life Insurance – or SGLI – provides life insurance for members of the United States military, which includes all active duty and reserve personnel. It is supervised by the US Department of Veterans Affairs (VA).

Premiums on life insurance coverage are set at 7 cents (that’s cents, not dollars) per month per $1,000 of coverage, and policies are available in increments of $50,000 up to a maximum of $400,000. That means that a $100,000 policy costs just $7 per month.

These price levels apply regardless of the members age. In addition, the policies provided specifically do not have a war clause exclusion, which means that, unlike other life insurance policies, the members beneficiaries can collect on the policy even if the member dies in combat.

15. Assurity Life Insurance Company

This company has been in existence since the 1890s and it does business in 49 states. The company is rated A- (excellent) by A.M. Best, and it provides both term and whole life policies, as well as universal life and annuities.

16. North American

This company traces its roots back to 1886, and is rated A+ by A.M. Best. The company has solid life insurance products and, in my experience, good customer service and reasonable pricing.

17. ING Life Insurance

ING also appears on the Insure.com list. 68% of INGs customers either have or would recommend the company to others, and the company rates four stars out of five for both customer service and value for price. 29% of the company’s customers cited price as a reason for choosing ING.

18. Mutual of Omaha

Mutual of Omaha is a well respected company that has been around for over 100 years. The company has all kinds of life insurance products available, and their prices are fairly reasonable.

19. Pacific Life

Pacific life was founded in 1868 and is probably the oldest company on this list. It is also a mutual insurance company, which means that if you’re policyholder you’re also part owner of the company, at least on whole life policies. This company is also well regarded by the public, it has the full range of life insurance products at reasonable rates.

20. Genworth

Genworth is a large, diversified financial services company that writes a lot of life insurance policies, but it isn’t exactly well-known among the general public. However, the company has been around since 1871 and now has more than $700 billion in life insurance in force. That many people can’t be wrong!

(Partial Data Source: http://www.insure.com/best-life-insurance-companies/)

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