10 Questions for Your Life Insurance Agent

Talk to your life insurance agent If you're feeling intimidated by your life insurance options, you're not the only one. A 2010 study by the National Association of Insurance Commissioners shows less than half of American consumers feel confident about making insurance decisions. Perhaps more frightening is only 2 out of 5 U.S. consumers could answer basic questions about insurance coverage.

Get informed about your policy and the company issuing it by asking your life insurance agent these 10 questions.

Whom am I buying from? Before getting into the major questions of how much life insurance you need or whether you want term or permanent insurance, do some homework on the company, says Allen McLellan, associate dean and assistant professor of insurance at The American College in Bryn Mawr, Pa.

"You need to know how long the company has been in business, the size of it (and) its ratings," he says. "You also want to ask the agent, 'What are your credentials for being a life insurance professional?'"

McLellan says consumers can research the financial strength of their life insurance company by checking out their fiscal ratings through organizations such as A.M. Best Co., Standard and Poor's and Weiss Ratings. When it comes to the life insurance agent, McLellan says to look for designations such as Chartered Life Underwriter, Certified Financial Planner and Chartered Financial Consultant.

"These designations take up to 10 semester-long courses to acquire," he says. "Those who come out of those courses are, at least knowledgewise, going to be quite professional."

Consumers will also want to know if their agent sells insurance from one particular insurance company or multiple firms.

How is my need determined? How much life insurance you'll need involves two major factors: how much it will take to pay your debts off, including the mortgage, and how much your dependents will need to maintain the same lifestyle after you're gone. Though all companies factor those two variables in, insurance providers frequently use different formulas for determining your specific insurance need, says Bradley Behrendt, a CFP with Tax & Financial Group based in Newport Beach, Calif.

"(Consumers need to ask) how did the adviser come up with the (appropriate) amount of insurance?" Behrendt says. "Was it a ballpark figure? Was it based on an analysis? If so, how deep was the analysis?"

Understanding how your need is determined is crucial, especially for families with unusual debts, such as high medical bills, that may not be considered in a rudimentary-needs formula. Once policy shoppers are sure their insurance agent is taking all of their current and future fiscal needs into consideration, they can purchase a policy that fits their family.

Does the policy provide living benefits? You'll want to ask about the basics of the policy, including how long the policy will last, what your premiums will be, what the policy's rate of return is and how the death benefit works. If you're purchasing permanent insurance, you should also ask about what kinds of benefits the policy provides while you're living, says Kim D. H. Butler, author of "Live Your Life Insurance."

"You're basically looking for four things: control, liquidity, use and equity," she says.

Control means the policyholder is clear on who owns the policy, who's funding it, who gets to decide the beneficiaries and whether the policy stays open or closed, says Butler.

Liquidity means the policyholder is clear on how much money he or she can take out of the policy and how fast. "You can get the cash value of whole life insurance within seven days," she says.

As for use and equity, Butler says policyholders should thoroughly understand what money taken from their account can be used for and what the rules are on borrowing against it if you need to take a policy loan.

What's guaranteed? If purchasing a permanent policy, consumers need to pay careful attention to their life insurance illustration, says McLellan.

"Another question (consumers should) ask is 'What are the guarantees associated with this product?'" he says.

While life insurance illustrations frequently provide several projections on how your policy could pay out down the road, McLellan says the numbers that really count are the "guaranteed" figures, which show how much you'll make regardless of fluctuations in the market or fiscal problems the insurance provider may encounter in years to come.

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