Are you looking to buy your first life-insurance policy? Before you sign the proposal forms, it is important that you are an informed consumer who will get a trustworthy and competent agent.
With these five questions, you are more assured of buying a policy that meets your needs while saving on premium.
1. How much life insurance do I need?
A competent agent would take into consideration your income level and how much you are providing for your family.
There are five major types of life insurance coverage, namely death benefit, disability, disease and critical illness, hospitalisation and surgical, and accident coverage. Your agent must be able to explain these using simple language.
If an agent names a product without first finding out what you need, it is a red flag. It would be like a doctor prescribing medication without first asking about your symptoms.
2. How can I get adequate coverage with the lowest premium?
Let’s say you need life coverage amounting to RM100,000. You can choose from the cheapest group term life plan (RM12 a month); investment-linked plan (RM100 a month); whole-life policy (RM200 a month); endowment or savings plan (RM500 a month); or a one-time payment, single-premium insurance plan, which could be RM20,000.
The main differences are the amount of premium you need to pay, the duration, as well as the cash value of the policy.
Your agent must be able to propose a policy explicitly designed for protection with the least premium. This is of benefit to you so you can have adequate insurance without overpaying, and end up with more capital to invest and grow your wealth more efficiently.
Try asking this question to different insurance agents. You will get different proposals, even when the agents represent the same company.
3. Do you also purchase this same policy?
If a policy is good, the agent should have one for himself or his family members. If not, find out why.
Some agents push a product because it is easier to sell and the premium is higher, which means they get higher commissions. But it is a red flag if an agent wouldn’t buy a policy for themselves. After all, you wouldn’t order from a chef who won’t eat his own cooking.
4. What are the disadvantages of this policy?
Every type of policy serves a specific purpose, which means each will have its downsides. If your agent can explain the disadvantages of a policy well, it shows he or she has knowledge of the product.
5. How much commission will you get?
While this might be an uncomfortable question, an agent’s commission is a percentage of the premium collected. A low commission is good for you as a client, as it means you get a lower premium or more cash value. But it also means the agent gets paid less for the same amount of work as with a high-premium policy.
Be wary if your agent tries to sell you a product that has a higher coverage – and therefore premium – than you require. To earn your business, an agent must convince you they deserve their commission. It is important to find one who is transparent, truthful and trustworthy.
This article first appeared in kclau.com
KC Lau’s first book Top Money Tips for Malaysians has sold thousands of copies. He launched the first online personal finance course specifically designed for Malaysians, entitled the Money Automation System. He also co-founded many other online financial courses including the Bursa Method, Property Method, Founder Method and REIT Method.