Where do you get your Life Insurance? (1 Viewer)

[DaveF]

A recent death in the family prompted a conversation with my wife about life insurance. The conclusion is that I should have a larger policy in case of my unfortunate demise. Currently, I have the standard work-provided policy, which is one year's salary; I need something to provide 2+ years for my wife. (We're young. I don't know that I need to provide her with a lifetime's insurance currently, balancing curretn expense against future risk potential.)

I just have no idea where one goes to get life insurance. Well, the problem is there are too many options and I don't know how to quickly filter down to two or three good options. Where do you get your life insurance?

I spoke with a friend about two yeas ago, who sells insurance for a respected company. I was stunned, as the pricing seemed outrageous. I think it was $50-$100 per month, which seemed unreasonable, and put me off the whole thing for a good while.

But now I'm back to it. I was also talking with a financial planner -- the kind that wants to sell me a mutual fund with a 5% load fee -- and she's more than happy to sell me insurance too.

I'm at a loss for a good starting point.

 

[Brian Perry]

You can start with your auto insurance company, as many of them also sell life insurance. (I know State Farm does.)

 

[Malcolm R]

I get mine thru the benefit programs of my employer.

The company pays for a small policy, then we can buy supplemental amounts from there.

 

[drobbins]

I use Thrivent Insurance for Lutherans. I am not Lutheran, but they had the best rates I found. I also like the fact that they give back to the local community. My daughter is in the school marching band and Thrivent makes donations.

 

[Philip Hamm]

As always in cases like this I recommend the services of a professional financial advisor.

 

[DaveF]

That leads me to an equally vexing question: how do I find a good professional financial advisor? All such professionals I've met make their money by selling me their product, so there's an obvious conflict of interest. They make their money not by giving me the best product for myself but by selling me the most expensive product they can. My benefit and their motivations are not necessarily aligned.

I suppose I could find a financial adv. who works wholly as an hourly consultant. It's too expensive for investment guidance, but it might work for insurance.

So how do you find a good financial pro? (And if you say, "As always in cases like this I recommend the services of a professional financial advisor." I may scream )

 

[Eric_L]

You might be shocked to discover this - but nearly EVERYONE gets paid more to sell their most expensive products; plumbers, mechanics, home builders, and yes; financial planners.

Just because they do does not mean they will - many take their responsibility serious and will tell you exactly what you need to know. There are also some who won't; just like some car mechanics, plumbers, etc.

The trick with a financial planner is no diferent than it is with a car mechanic; Look for reputation, experience and credentials.

You should probably limit your search to advisors who hold the CFP (CERTIFIED FINANCIAL PLANNER) designation - most often placed after their name on their business card and marketing material. Though it is no guarantee of competence; it does indicate this professional has gone above and beyond the minimum requirements to engage in their business. Also worth note - ask how long ago they received their CFP designation -about 8-10 years ago it becamse SUBSTANTIALLY more difficult; prior to that it was a piece of cake.

You also should ask them about experience. What sort of client do they work with, how long have they been in business, what is their advising philosophy, what sort of after-sale service do they offer, etc. If it sounds like a job interview - you're right. YOU are the boss. Remember that.

Finally, reputation. That is a tricky one. A referral from someone who is a long-term client is most valueable. Referrals from a CPA or attorney can be marred by referral fees. (also, sometimes a good CFP can find themselves at odds with a CPA or attorney who has given shit advice to a client)

Keep in mind - the services they provide are valueable, and therefore worth a cost. Sure - you can get it cheaper onlne if you do it yourself. You can also repair your car much cheaper repairing it yourself than if you take it to a mechanic... as long as you know what you're doing. If you don't then doing it yourself is messy, frustrating, time-consuming and eventually more expensive when you eventually take your mess to a mechanic to finish...

Now - to your original question; you don't have to become an expert at life insurance, but you should become familiar with the difference between TERM and permanent insurance. I'll give you a lead but it is up to you to expand on it.

Term insurance is cheaper (at least, if you die). You pay a comparably cheap fixed premium every year. At the end of the term (usually 10, 20 or 30 years) If you are still alive the policy terminates and you get nothing.

Permanent insurance has LOTS of moving parts, but esentially you pay a much higher premium (how much so depends primarily on your age), but the policy NEVER lapses. Someday someone collects a benefit from all of the premuims you have paid. Comparison shopping for permanent is a VERY complex task and should be done only with an experinced and trusted advisor.

Which is better? It depends on your needs, means and goals. Wanna guess who can help you with that?

Good luck in your search for a qualified and capable advisor.

 

[Scott Merryfield]

Find a different financial planner, preferably one that is fee-only (i.e. they do not make a commission off any investments or other products they are recommending). Any adviser who's making a commission on selling you products has his/her interests before yours, IMO.

As for how to find an adviser, ask friends and co-workers in your area who they use. That's how we found ours, and we have been with the same firm for about 15 years now. We pay a fixed annual fee based on our income.

 

[DaveF]

I don't have enough money for that to be worthwhile. I estimate a good planner would charge $100/hr (minimum) and would need about 40 hours per year to do a fair job on my assets. If I had $100k of investments (401k, IRA, savings), that would be 4% of my principal. They would have to provide 4% return simply for me to break even in this case, much less earn money from their efforts. Unless I'm way off base and a good consultant needs less than a day per year to manage my concerns, I estimate I'd need about $500k in investment assets before a non-commission planner is worthwhile.

EricL -- Yes, you're right. However, financial planning already has a great deal of voodoo involved that it's difficult to judge how they're performing. If a plumber fixes my toilet, it works or it doesn't. If the landscaper overcharges me for the flower bed, I'm out a thousand bucks and have ugly trees. But a financial planner can ruin my retirement and laugh all the way to the bank.

They profit from my buying their products, not from giving me good investments. In the time it takes to determine if they're doing a good job for me, I've already paid them some thousands of dollars and then am at risk of seeing my investment decrease.

To me, a financial planner's conflict of interest is a much bigger deal than most every other professional I'll deal with.

That said, I'm investigating. And your suggestions are helpful. I've met with one person from a national company. And when work calms down, I'm meeting with a second professional. But it's hard to gauge their worth, their ability, the value of the products they're selling me, and the impact of their merit function not being strongly connected to mine.

 

[drobbins]

I think one of the tricky things is balancing what you think is needed if you should pass on vs how much it will cost you while you are alive. Every one I talked to wanted me to have enough coverage to have $100,000 for each of my 2 kids college funds. If I live they won't have that much money, especially if I spend the extra ~$100 per month for the increased premium. So my hardest decision was making sure my family is OK if something should happen and stomaching the large monthly payment for something I probably won't use. I ended up getting term because the whole life was too much. Besides that I didn't like the look in my wife's face while we were discussing the potential large payouts.

 

[Bryan X]

If this is what you want you really don't need a financial planner. Get yourself some term life in the amount to provide for your wife for a couple years. But do keep things such as future kids in mind when making the decision. If kids are in the future, you'll probably want to increase the amount, and make the term long enough to get them out of the house and possibly through college. Either way, I think term is the way to go. In my opinion, life insurance shouldn't be used as an investment vehicle. Buy cheaper term life to cover the unthinkable and use your 401k/403b/IRA/stocks/bonds/whatever as your means of investment for the future.

You may just want to start with your employer's benefits coordinator. That's where I get mine-- employer provided 1.5 times salary and a term life policy I purchased through the employer provided benefits.

 

[Scott Merryfield]

Any reputable financial planner should give you an initial free consult and be able to break down his/her fee versus what they can do for you financially. In our case, the money our planner saves us on our taxes versus what I am able to do pays for much of their fee.

Every case is different, but it shouldn't cost you anything for the initial meeting to see if the service provided is worthwhile.

 

[DaveF]

The first F.P. I spoke with told me that they do per-hour consulting, at $150 - $300 per hour. There's also a one-time financial planning session for $600; I get a couple of hours of her time and I leave with a roadmap that I can do with as I will.

At $150 / hr, guessing 20 hrs/yr (2.5 days to manage my money every year, including face time) is $3000 annually. That's huge unless they're far above average or I have major assets (which I don't). I could get a direct quote, but even talking with her, telling her I'd prefer directly counseling, she didn't recommend it and promoted the mutual funds her agency sells.

 

[Brian Perry]

Many advisors are not fee-based, but rather charge a percentage of the assets under management (i.e., they may take 2% of your account value annually). Therefore, they have a vested interest in trying to grow your assets as the more you have, the more they make. Of course, it also means they make the 2% even if they do nothing.

 

[drobbins]

How in the world can these guys justify that cost. They will probably spend most of the time with introductions, gathering information from you and giving you their background info. Basically a glorified sales meeting I would guess. I honestly don't know, because I haven't spent that money for a consultation. There are many who will also give that same consultation for free. Tell them up front that you are shopping around, so they know that they might not necessarily make a sale.

What are you looking to buy? From your first post, I thought you were only talking about life insurance. You do not need any complicated advice for that, so you shouldn't need to pay any consulting fees. You decide how much you need/afford and you can call around. How much you need depends on if you have a family, house payments, debt etc...

Now if you want long term financial planning, life insurance can be, but isn't necessarily a large part of that. There are many web sites that can teach you more than a consultant could possibly teach in a 2 hour session. Your financial planning is something that you need to be active in and review regularly. Even if you do end up paying a consultant, you want to have that same background info anyway to judge if the guy knows what he is talking about.

 

[Scott Merryfield]

I would look elsewhere, too, if those were the terms, Dave. As I said, our initial meeting with our planner was free (this was probably 15 years ago), and she outlined exactly what she would be able to save us in taxes versus their annual fee. The initial savings from amending our previous three tax returns more than covered our initial fees, so it was an easy decision for us to use their services. On the other hand, a co-worker was shown that they could not save him enough money initially to make sense to use the firm's services, so the planner actually recommended not using them at that time.

 

[Philip Hamm]

The way I found mine was by personal reference.

 

[Eric_L]

I suspect you are dramatically overestimating the complexity of your situation. I would hazard a guess that your current situation would take around 4-6 hours max. Once per year you may also spend an hour or two.

The first advisor you spoke with sounds like a hourly fee only advisor. THey have no conflict of interest and usually will give you a roadmap to your needs which involve little to no commission when possible (like investments) or the best deal they can find (like insurance) with commission going to the agent who provides it.

Is it worth it to you? I dunno - it depends...

IMHO - if the advisor cannot give you a reasonable estimate of their costs, as well as sell you on the specific value they provide then they have not earned your business. Move on.

Things to watch out for;

Someone licensed only for insurance; may not really be a well rounded advisor.

Someone who says 'risk free' or 'easy money' - Run Forrest! Run!

Someone who offers you a 'signing bonus' - Hit the road, Jack...

Someone who asks you to sign a contract with a duration longer than the average marriage in America. ... and doncha come back....

There are plenty of other warning signs. Best thing you could do - ask around, interview and go with your gut. You'll eventually find the right guy.

Meanwhile - you may want to consider increasing your work policy (if you can) while you look around. Most likely it can be terminated (probably annually) if you find a better deal - and if something happens while you are looking you are covered.

 

[DaveF]

She was definitely a mutual fund salesperson. She also offered hourly consulting -- I don't know if she would do it or someone else in her firm -- but her push was for the front-loaded investments. (there were even three cost options. two were about 1% fee per year ongoing, the third was 5% upfront but no recurring fees)

I don't mean to impugn her or her company. I have no reason to doubt them. But I find it difficult to evaluate the potential value of product like this when the direct goal is to sell me commission-based products.

And that's the second part of my confusion. I have to evaluate both her ability as a financial planner and also the quality of the mutual funds I would be invested in through her company. It's just like a car salesman, I suppose, but there's much more at stake.

But I've got a clearer understanding of questions I can ask.

I may be able to buy further insurance from work. That's a good idea.

 

[Eric_L]

I would definately look at work as a band-aid while you are shopping. When I compared my work policy to what I got on my own it was inferior. I suspect because of the lax underwriting you get through a group policy.

I personally went with term - enough to cover my mortgage and provide income for enough time for my grief-stricken widow to take her time to remarry (and enough cash to make her even more attractive than she already is!) It won't afford her early retirement, but it will give her the flexibility to live as she wants without a lack of my income forcing her hand. Meanwhile I am setting aside about 10% of my income for the future, so when the term ends, and the kids are out of college - she and I BOTH can live how we want without regard to my income or lack thereof...

As far as your fee financial planner / load fund salesperson... I'm not keen on anyone who is double dipping - and your description makes him/her sound that way. The plus side is that they did an adequate job of disclosure... They could improve their value statement. Also - don't overlook the value of after-sales support and ancillary benefits. If you work with a load advisor - other than the mutual fund selection what will they provide? It had better be a whole bunch of stuff to deserve those commissions...