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Life Insurance Brokers – ask the expert

Looking for a life insurance broker? Make sure you select wisely.

Not all life insurance brokers are equal. In fact, not all life insurance salespeople are created equal. The industry has created a variety of levels of skill levels and biases that can potentially impact the advice you receive. I’m going to detail some of these items, I’ll also disclose how we handle them here.

In the end, while I’d like to think that your journey ends with us as your life insurance broker, consumers are generally well advised to get initial advise from two or three brokers. This will give you a variety of options and opinions. In other words, shop your broker like you shop for products.

Broker selection

There are three levels of insurance reps in Canada, and only two are obvious. The first choice is a single company representative. This is an insurance agent that represents only one company. If you’re looking for unbiased,independent advice, this is not the choice you should make. Agents such as this are not going to be able to offer you advice from other companies, even when that advice may be in your best interests. Avoid single company reps for your best options.

Next up are brokers. Life insurance brokers work routinely for more than one company. But there’s two layers of brokers. Many – perhaps most – brokers work only with a select few life insurance companies. Brokers will have their favourite companies, there’s different compensation available from different companies, and brokers have different opinions on specific companies. Over time, brokers can fall into a lull of only recommending the same one or two companies that they’re familiar with. Again, this does not provide a full range of opportunities for the consumer.

Lastly are full range brokers. These few brokers offer any company they can to their clients. This is the camp that we fall into. We have no company loyalty. In fact, since we cannot directly impact pricing, the only way we can be assured we have the lowest premiums is to ensure we offer more companies. In the end, we will make available almost every company we possibly can.

This means available companies with us fall into three categories. Most companies are great, we’re happy to recommend them based on product features and price. A few companies we are happy to make available but with reservations. These companies may have lower customer service levels or tougher underwriting guidelines. We would normally quote these companies, advise our clients to take the next least expensive, but are happy to offer them if our clients are OK with the drawbacks. Many clients will go with our suggestions, but our clients are welcome to disagree with our recommendations and select a different company – and we’ll happily offer those companies. In other words, we disclose and advise, we don’t ignore or hide these companies. Lastly, there’s one or two companies that we choose not to work with, based on their previous treatment of our clients. Again we will quote these companies and advise against them. In this rare situation if you wanted these companies we’d simply suggest that you purchase them through another broker.

The way consumers can determine the companies represented is simply to get quotes and receive advise. Asking for a percentage of business can be misleading. For example, because much of our advice is driven by price, our recommendations during any specific time period are frequently for only one or two companies – we would appear externally to be representing only a few companies. In reality, the one or two companies we recommend change over time with company pricing – we may recommend Canada life frequently this year, and Manulife frequently next year, as prices change. This information is not readily available to consumers, so again, shop around and ask questions.

Middle man influence (MGA’s)

This impact is much more hidden and not easily selectable by consumers. It’s simply something you should be aware of.

Independent life insurance brokers rarely deal directly with the life insurance company. Instead, their business is placed through a middle entity known as an MGA. Brokers frequently end up tied to an MGA, similiar to insurance agents that only offer one life insurance company. Brokers tied to a specific MGA may tend to only offer companies offered through that MGA (not all MGA’s offer all companies) and may offer life insurance companies recommended by their MGA.

We work with a minimum of 3 MGA’s. We have our primary MGA that handles most of our life insurance companies. We also have two additional MGA’s that we’ve contracted with for some of the smaller life insurance companies. And finally there’s one company that we deal directly with instead of through an MGA. Our practice is to be independent from our MGA rather than tied to them.

Expertise – credentials, certifications, expertise, and organizations

One thing that consumer advocates frequently recommend is that consumers look for a list of credentials. I don’t disagree with this, however we do fall down on this personally.

The common credentials you should consider in the life insurance field are CLU, CFP and CHFC. These credentials all ensure high levels of technical education for the broker, but should be taken in conjunction with the company biases mentioned above. They are excellent credentials.

I have chosen not to seek these credentials. My experience is primarily technical, and my early education in the industry was actuarial in nature (I have earned some of the early actuarial exams, though stopped short of full credentials). My personal decision is that I’m not currently seeking credentials, and if I did personally, I would continue to pursue the actuarial credentials rather than agent-level credentials. For consumers, I would suggest that seeking credentials can be a good thing, but that in some cases (such as mine!) there can be exceptions.

In terms of industry organizations, there are two primary ones – the independent broker’s association, and Advocis. Advocis has been around approximately forever. I was pleased to be around during the formative years of the broker’s association and saw it as it grew. Today, neither of those associations align with my industry goals so I specifically belong to neither. Instead, myself and a few other brokers have recently formed a new, grassroots broker assocation we hope to launch in 2013-2014. The intial focus of the organization will be on educating brokers (I am designing many of the courses personally).

From a consumer perspective, I suggest that belonging to any one of these organizations is neutral for you – it neither benefits nor detracts from your life insurance coverage. Belonging to these associations does not provide any additional professionalism or consumer benefit.

Summary

In the end, your best advice will be becoming educated on your options. Choose a broker who educates rather than recommends specific companies or products. Credentials can help, but are not the answer to everything. Be aware of broker loyalty to specific companies or MGA’s. And in the end, consider speaking to 2-3 seperate life insurance brokers and choosing the one you feel most comfortable with.

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