One of the fascinating things these days about personal finance is that more people are now open to the idea of investments and insurance. Previously in the Philippines, insurance is frowned upon due to fears of provider insolvency. And the thought of “making claims difficult” has also discouraged individuals and families from taking a protection plan. Fortunately, especially the younger generations, people are now keen towards insuring themselves and taking up some investments.

However, we can still hear horror stories like

“I just received a call from the insurance provider that I have to add more money if I still want to be insured. I thought I only have to pay for 10 years!”

“My money never grew. The fund value is way lesser than the amount I put in!”

If only we truly understand how insurance works, we should have never heard about these horror stories. However, most often, we are at the mercy of the insurance agent on how they explain the product to us. This would also depend on their motivation though: are they just aiming for the sale, or genuinely sincere about your welfare?

So, how do you approach an insurance agent? Here are some tips.

Know How Much You Need For Protection

To answer this, you should know what is your purpose for getting insurance. Is it for the family you will leave behind if there is a loss of life, to pay for estate taxes, or as a replacement of income when the insured falls critically ill? You can choose any or all. Your agent should help you calculate this. 

I usually recommend using the DIME method for calculation. D for Debts, I for Income Replacement, M for Mortgage (including estate taxes), E for Education cost for kids. Add everything up and most likely you will have your protection requirement. 

Of course, you don’t want to leave behind your debts, so it has to be paid off by your insurance. Income replacement is calculated based on how much your family needs to survive on a monthly basis for a specific number of years (e.g. 10 years) if the breadwinner passes away. Mortgages usually have Mortgage Redemption Insurance (MRI), so you might not need to add it up. Just add up the estate taxes and other costs when the property needs to be transferred to the heir. For education, we can obviously save up for that but that is if we are physically able to save up for it. What if the breadwinner is struck by an illness, and can no longer work? How will the family be able to send the kids to college? That is where insurance should come in. College education costs should be included in the protection calculation. 

Know Your Options

Generally, there are two categories of life insurance: Term, and Permanent Life Insurance. 

With term insurance, you are only insured during a specific term. If something happens within the term, the insured will be compensated. After the term, insurance will terminate and subject to renewal. Whatever you have paid during the term, can’t be recovered since that was the payment for the cost of insurance. This is the cheapest form of life insurance since there is no “investment” component in it so you are not paying extra. 

Permanent life insurance on the other hand provides protection all throughout one’s life. With this type, you pay the cost of insurance plus an investment component. This insurance can be paid until death or can be paid for a specific timeframe, say for 15 years. On the 16th year, the insured will no longer be paying however, the cost of insurance will now be taken from the investment component. There is a possibility that your investment becomes zero. If this happens, you may no longer be insured. Ask your agent these questions,

• What will happen if the investment becomes zero? And how can you mitigate this risk?
• Where will the funds be invested?

Ask your agent the pros and cons between the two types.

Shop Around

Getting at least 3 quotes from various providers is a good practice. They might have the same offering but one important thing you can get out of this is you might be able to learn a few more critical things that the other agent might have “forgotten” to disclose. I have had a lot of experiences when the client says, “they never mentioned those potential risks to me.”

Check Your Agent’s Credentials and Get Feedback From Their Existing Clients.

It is important that your agent is duly authorized or licensed by the country’s insurance regulation. This means that they have passed the basic qualifications and requirements to discuss and provide you the insurance product. Does it mean that if an agent has more credentials, the better? Not necessarily. A license does not automatically mean that they are good and totally understand the product. Just like any other profession, whether an engineer, lawyer, or doctor, there are still those whom you can or can’t rely on. This is where getting feedback from their existing clients will help. Get their opinion especially on how they are taken care after the sale. Things like, how responsive are they with your concerns, questions, etc, and how often do they keep in touch.

If you can get a hold of someone who already made a claim against his/her insurance policy, the better. Ask him/her about the claim process experience. This could be a game-changer. 

Check Providers’ Review and Financial Rating

There are a lot of insurance companies out there and most of the time we end up confused as to which provider we should be taking the insurance from. To help you decide, check the reviews of these companies and also get information on their credit ratings (e.g. Moody’s, Standard & Poor’s, Fitch Ratings) if they are very stable. You can usually find them on the insurance company’s website under the “Investors” section. 

Ask your agent what happens when the insurance company goes bankrupt. Insurance companies are re-insured. Ask who are their reinsurers and how client’s are protected from bankruptcy. 

On a final note,

If you signed up for life insurance in just 10 minutes or less, most likely you were just sold to the idea too quickly. It takes time to carefully assess your protection requirement. Do not buy because your agent is your friend. Buy because you know what you need.

Personally, for me, I focus more on how these agents and companies take care of their clients after. These companies and their products are generally the same, but how well their after-care is, for me, one of the biggest deciding factors.