Shopping Around for Life Insurance: Brokers, Agents or Company Direct

Buying life insurance can seem complicated right out of the gate, as you wrestle with where to buy it. Should you call the insurance company directly? Is an online broker best? You might decide to throw up your hands and walk into the office of the nearest insurance agent.

But doing so can cost you serious money. Life insurance policies can be complicated and differ widely in price. It's hard for even a savvy consumer to find the best deal. 

Insurance agents came on the scene centuries ago to address this need. Ben Franklin was the first insurance agent in the United States, writing out policies around 1752 to protect property after a devastating wharf fire in Philadelphia. He was intelligent about risk, granting insurance to good prospects and denying it to building owners who didn't comply with safety rules.  

But insurance has changed since Colonial days. The U.S. has the largest insurance system in the world, and many companies are multi-national giants. It takes some serious know-how to sift through the array of insurance products. 

Because of all the new options, more people are turning to independent online brokers. Consumers can compare a dozen policies in minutes, customizing the plan to meet their needs. Still, other customers bypass the intermediary and call the insurance company directly to get a policy. 

There are solid reasons for choosing each of these approaches. Here are the pros and cons of each method to help you find the right one.

Online Insurance Brokers: One-Click Ease

It's a competitive marketplace out there. Just as grocery shelves now stock 20 different kinds of toothpaste, you can find life insurance policies with a wide range of options and pricing. And just like Amazon provides one-click ordering, consumers are beginning to demand fast online solutions to their insurance needs.

Online insurance brokers cut through the complexity by helping you comparison-shop for the most coverage at the right price. They're trustworthy because they represent the customer directly rather than a particular insurance company. Some, like PolicyScout, rate the various companies and give you the pros and cons of choosing each one. 

Online brokers do get a commission from the insurance company if you buy a policy, but there's no change in premium cost for the consumer. Insurance companies often offer a discounted price to insurance brokers. 

Some, like PolicyScout, also make agents available by phone if you have questions about policy features, including:

• Whether a policy price is firm or changes over time 

• Individual riders tailored to protect your family 

• Any exclusions in various policies  

Some online brokers offer mainly term life insurance, so if you want other kinds, you might have to look elsewhere.

Traditional Agents in a Brick-and-Mortar Office 

Sometimes you have a good rapport with a local agent, or you know them personally—your kids play on the same soccer team, for instance. You explore insurance options with someone you know and trust.

A local agent is useful if you have complex insurance needs. You may have a disabled child, a severe medical condition, or a complicated estate. A local agent can help walk you through the various options in-depth.

Local agents sell whole life and universal life policies as well as term life insurance. There are two kinds of traditional insurance agents:

1.  Captive agents work for one insurance company and will sell only their products. 

2.  Independent agents represent a variety of insurance companies.  

Captive agents get commissions and sometimes salary from one insurance company. They promote just the products from one company, so you can't shop around. But they do have specialized knowledge about that company, including which riders are the best deal and how to speed up the application process. 

And they'll contact you personally if there are any policy changes, and maybe on your birthday, too.

In contrast, independent agents sell insurance from a variety of companies and work on a commission basis. They are independent businesses that pay their overhead. They're often in-the-know about unique offerings from the different companies. Ask them about getting a discount for wearing a fitness tracker or staying in shape, for instance. 

"Going Direct" with an Insurance Company 

It is possible to pick an insurance company and call them directly to get an insurance quote. This option, known as "going direct," cuts out the intermediary.

There are no commissions or fees paid to agents. It sounds cheaper, but it isn't always. It depends on the deal you get from the insurance company and how it compares with other companies. 

Many life insurance companies require you to use a licensed agent to buy a policy. They realize you may need advice about different products, and a seasoned professional can help you find the perfect fit.

If you don't use an agent, arm yourself with a firm grasp of the various types of life insurance (term, whole life, universal) and which one would benefit you the most.

It wouldn't hurt to brush up on some of the more complicated provisions, like insurance riders that can apply if there's a disability or accident, or how to pick a beneficiary. Being informed helps you advocate for yourself and get a policy on the best terms. 

Here are some pros and cons of this approach:

• Company representatives are experts on the details of their policies 

• There's no incentive to sell you the most cost-effective policy as the insurance company represents themselves, not the consumer  

• If your application fails or you don't like the rates, you'll have to start over with another company 

Buying life insurance is something you may do only once in a lifetime, so it's essential to get it right. Risk hasn't changed as much as you might think since the days of Ben Franklin. People still worry about fires, earthquakes, or other life-altering events that may affect their ability to provide for their families. Thankfully, there is plenty of information out there about how to protect yourself. Using an expert is a time-honored anchor to help you feel secure no matter what troubles you face. 

If you're looking for help finding a policy to fit your needs, visit PolicyScout to learn more.