Different types of Insurance Agents – Explained

Most people don’t know what is in their insurance policy, let alone understand the different distribution channels for the product itself.  We don’t have warehouses or delivery trucks or a shelf life.  Our companies and policies are heavily regulated and they are quite complicated for most consumers.  This brief article intends to explain the differences and advantages of the three main distribution channels for insurance: Direct, Independent and Online.  Each has an advantage and disadvantage, and while reading I would advise that in the back of your mind it’s a good idea to remember that “you get what you pay for”.

The Direct Writer, or Captive
The direct writer (captive) agents bear the familiar names that your parents knew well – State Farm, Allstate and Farmers (there are others).  Let’s just call them AllStateFarmers (see what I did there?).  These agents buy a franchise with AllStateFarmers, use their systems and sell ONLY that company’s products.  Call a captive agent for a life insurance quote; you’ll get an AllStateFarmers life insurance quote.  They are only allowed to sell the products that their insurance company sells, regardless of how competitively priced they happen to be in that area at that time.

The advantages for captive agents are brand recognition (to the public) and back-office capacity and simplicity (for the agent).  AllStateFarmers sponsors Super Bowl ads, the local agent sells their policies.  And since the agent only has a single carrier to work with, they can streamline their processes and underwriting knowledge.  The disadvantage is that if the agent’s chosen captive parent is not competitive, or in some cases in CA – chooses to leave the state, then the agent is subject to the decisions of the insurance company.  Rule of thumb: when you see AllStateFarmers advertising their great CD rates, their insurance rates are lousy.

Online
A waitress at a diner, a lizard and a caveman are walking down the street…  Sounds like the beginning of a joke, but it’s just the well-known mascots for the big online insurance companies.  They are similar to a captive agency in that they are a single insurance carrier, but instead of a local agent they sell online and over the phone from a service center in, well, who really knows where.  They are the real pioneers in streamlining the insurance policy delivery method (you gotta give credit where it is due).

The advantage – cheap.  Most of the time, anyway.  The disadvantages (remember the “you get what you pay for” admonition above) are that you’re now dealing with an online self-service model or a service center mentality.  You are one of a gazillion policyholders, so if you don’t like it, you can go away.  Service levels tend to be less than either a local independent or captive agent, because they don’t know you.  The other disadvantage is the one that really bothers insurance professionals: they tend to sell cheaper policies because they tend to sell lower limits.  That’s great for your budget – until you have a claim.  We see this regularly in our office – that the GEICO’s of the world will happily sell a low-limit policy and then tell you how smart you are for saving money.  We don’t think that approach is correct, to put it nicely.

 

Independent Insurance Agent
An independent insurance agency is a privately-owned business that sells policies with many different insurance companies.  Independent agents are often referred to as “brokers”.  The relationship between the agent and the insurance company is very different than captive agents – the Independent agency has a contract to sell companies’ policies, but they represent the client to the carrier, not the other way around.  Independent agencies come in all sizes, from a single agent to Fortune 500 corporations.  Most Independent Agents belong to the IIABA and together market themselves as Trusted Choice agents.

The disadvantage of an Independent agent is that they are small businesses with limited resources, trying to master the many different aspects of policies from many companies. But therein lays the advantage, too.  When a Captive agent or an Online carrier raises prices, the client has 2 choices: leave that agent/company or stay and pay the increase.  Clients of an Independent can keep the same agent but switch carriers at renewal.  Independents can shop multiple carriers for clients, whether they are a business or a family.

Summary – Advantage, Independent Insurance Agent
It is our totally unbiased, professional opinion that the Independent Insurance Agency has the advantage when it comes to choosing insurance agents.  Independent Agents answer to their clients, not to an insurance company. They can offer multiple quotes for insurance for families and businesses.  Because they have access to so many different carriers, they can work to fit the right type of policy to your situation. They are local so they understand the local culture and business environment, and they are invested in their own community.  These agents assume that their customers want to save money, but firstly are concerned about their coverage, so they work to bring them the right coverage, at the most competitive price.

Purves Insurance is a proud, Independent Insurance agency located in Davis, CA.

Posted in Home and Auto Insurance, Insurance Davis CA, Life Insurance, Value of Independent Agents | Leave a comment

An Option for LTCi Buyers

People who buy Long Term Care Insurance (LTCi) tend to have assets to protect and the means (or at least the desire) to protect those assets.  They buy the policy having read statistics that show about 50% of adults need some form of assistance, if not nursing home care, and see the advantage of buying a policy to protect their assets.  LTCi policies mature in a way, too.  Not that the policy actually changes, but the older you get, the more likely you are to need the policy – so these are policies that you hang on to.  But LTCi is not cheap, either.  What happens if you pay for an LTCi policy for years and then don’t ever use it – what happens then?  The answer: nothing happens.  You belong in that 50% that didn’t need it after all.  Good for you, right?  Well, there is an alternative that guarantees you get a return on the money you paid in premiums all those post-working years.

Life Insurance as an LTCi Tool As mentioned above, when you buy LTCi you intend to keep it.  That’s different than other policies.  You may think that Life Insurance is a type of policy that you keep forever, too, but most statistics show that as little as 15% of policies ever pay a death claim because most policies lapse before the insured dies.  What a waste.  But some carriers are introducing a Life Insurance policy that can double as an LTCi policy, too.  Simply put, you can buy a rider on a Life Insurance policy that allows you to spend down the death benefit on LTC expenses before you die.

Consider this: if 50% of people need some form of care then 50% don’t.  But as a financial planning consideration, I’d call 50-50 a pretty good chance that you’ll need it.  Still, what if you don’t?  Transamerica is selling a Universal Life policy with a LTCi rider that includes a Return Of Premium feature, too.  It gives you these benefits:

  1. If you need Long Term Care, the policy pays you 2% of the death benefit per month.  Example: On a $300,000 policy, 2% = $6,000.  This is a cash benefit, too, not a frustrating reimbursement mechanism that so many LTCi policy offer.
  2. If you never need the LTC coverage, you will eventually die.  Using the same example $300,000 policy, your heirs would receive a tax-free benefit of the full $300,000.
  3. If you get 15 years into the policy and you no longer want the policy, you can surrender the policy for a full return of your premiums.

Cost, Options, Benefits As much as I hate to ever compare insurance to gambling – when you dedicate a % of your income to a LTCi policy you’re making a bet that you think you’ll need the care someday, and that buying a policy is a better way to plan than to pay cash for service when the need arises.  With that in mind, why not hedge your bet and pay a little more for the option to get your premium back down the road?  Or for the option to pass along greater inheritance to your family?

I believe LTCi to be a smart financial move.  But I also understand that it’s an expensive solution to an even more expensive potential risk.  If you’re going to do the smart thing and pay for an LTCi policy, perhaps you ought to first consider the added guarantees and benefits of insuring your LTC risks with a Life Insurance policy.

Purves Insurance is located in Davis, CA and likes to see people make smart insurance buys.

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Term Life Insurance. Made. Easy.

I have come to believe that almost everyone who is thinking about Life Insurance starts at Google. From Google they quickly move to a website where they plug in the fewest data points possible (age, gender, amount of insurance, term) and get a quote.  Next, back to Google. Repeat.  Next, get distracted by anything on the web more interesting that Life Insurance and drift away to sports, celebrity gossip, cat videos, etc.

I’ve started a series of posts with tips for buying Term Life Insurance on this blog, but the #1 tip to remember when shopping online is that you always get the teaser rates online.  Very few people actually qualify for those rates, but the websites that generate traffic stay in business by showing the best and hoping that it works out in the end.

Out of respect for your intelligence and your time, we have partnered with Banner Life to bring you Quotes Done Right.  Chances are good that if you have searched for Life Insurance rates online you’ve seen Banner, and usually in the top 1-2 for price. So take confidence in their competitiveness and check out Quotes Done Right. Take your sweet time playing with the questions until you are satisfied, and when you’re comfortable that the rates and coverage are right – submit a ticket and get the policy.  It’s a brave new world, and this new platform will let you build the perfect Term Life Insurance policy for your needs and at your pace.

QDR-button-for-email-14-032

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Update on New ACA Rules

A very good breakdown of the changes from RGB…

Summary of Shared Responsibility News  

  • Employers with fewer than 50 full time equivalent employees: Not required to offer coverage in 2015, or in any year, under the Affordable Care Act.
  • Employers with 100 or more full time equivalent employees: New rules phase in the percentage of employees who must be offered coverage to 70 percent of full time employees in 2015 and 95 percent in 2016 and beyond, or be potentially      subject to a penalty assessment beginning in 2015. 
  • Employers with 50 to 99 full time equivalent employees: Must offer coverage to 95% of their full-time employees in 2016 or face potential penalty payments.

Note: Full time equivalent employees (FTE’s) are a combination of full and part time employees (see below for how to calculate). FTE’s are used to determine if an employer is subject to Shared Responsibility. FTE’s need not be offered coverage. Only full time employees (and their dependents) must be offered coverage.
To calculate Full Time Equivalent employees, add the total number of hours for all part time employees for that month, divide by 120, and add the resulting number to the number of full time employees.
  
Following are a few of the differences between requirements prior to yesterday’s announcement and the Final Rule to be released tomorrow.
(Note: There is a link to the Final Rule below.)
Old rule:  Employers with over 50 Full Time Equivalent employees must offer coverage or be penalized in 2015.

Final rule: Employers with over 100 Full Time Equivalent employees must offer coverage or be penalized in 2015.  Employers with 50-99 Full Time Equivalent employees must offer coverage or be penalized in 2016.

Old rule: Employers with over 50 FTE’s must offer coverage to at least 95% of full time employees or be subject to penalty in 2015.

Final rule: Employers with 100 or more FTE’s must offer coverage to at least 70% of full time employees in 2015, and 95% in 2016 or be subject to penalty.

Old rule: Employers can determine whether they had at least 50 full-time or full-time equivalent employees in the previous year by counting at least six consecutive months, instead of a full year

Final rule: For 2015 employers can determine whether they had at least 100 full-time or full-time equivalent employees in the previous year by counting at least six consecutive months, instead of a full year:
 
Old rule: Dependent coverage: Employers must offer coverage to their full-time employees and dependents

Final rule:  The rule that employers must offer coverage to their full-time employees and dependents will not apply in 2015 for employers that are taking steps to arrange for dependent coverage to begin in 2016.

Old rule: Dependents defined as children under age 26. Spouses are not included in the definition of dependents

Final rule: No change

Actual Treasury Press Release is HERE. 

Purves Insurance is located in Davis, CA and we love to read enormous press releases.

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2 Major changes to ACA announced; one final

These are both very big changes for employers with more than 50 employees.

First, one change that is not yet final but advanced on Friday would increase the hourly work requirement from 30/week to 40/week to determine “full-time”.  See here for more. That is a very big deal for small businesses trying to grasp measurement periods and who would be eligible for coverage and what would trigger a penalty.  Watch this one…

Next, and I can’t believe this one, the Mandate for 50+ employers has been delayed another full year.  Yes, just like that, to 1/1/16.  More here.

We’ll keep you posted if there is more.  Pretty safe bet it won’t be today!

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Term Life Insurance Secrets (Part 1)

Yes, that’s right, secrets.  Here are a couple of secrets to help you when you’re shopping:

1. Internet Term Life Sites Always show you teaser rates
If you start your search for a new Term Life policy like most people do, on Google, you will end up on any number of sites promising the best Term Life rates.  Some will even talk about the “price war” between carriers, etc.  Most will allow you to get a quick quote.  BEWARE: Every carrier has many rating levels, such as Super Preferred, Preferred, Standard Plus, Standard and so forth.  But what you will see on term life quoting engines is almost always the Preferred Best rates, which few people actually qualify for.

Isn’t it a bait-n-switch, and wouldn’t most people be ticked off when they get their final approval at something more expensive?  Yes and yes.  But these sites (Insurance Brokers with a website) are betting that once you’ve gone through 6 weeks of underwriting, releasing medical records and a nurse’s visit… that you’d rather just take the policy and move on than re-apply and go through it all again.

But you don’t have to rely on teaser rates. A good broker (ahem, us) can walk you through a little pre-underwriting and determine a proper expectation of rate before you go into underwriting.  If your dad and mom both had cancer, you’re not getting a Preferred rate.  Let’s just discover that up front – no surprises.

2. Nobody has an exclusive deal, or the best rates on Term Life Insurance
Any good insurance broker (again, Purves Insurance…) will be able to give you a quote with all of the most competitive Term Life carriers.  Yes, Dave Ramsey fans, I can give you the same policy at the same rates as his preferred Term Life broker.  The secret is that once we establish that Banner Life, for example, has the best policy and rates for you, the application process is the same with me, Super Term Life Busters.com (I made that up) or your brother in law who got his insurance license last week.  Now, we have recently found a program that streamlines the process and makes it less painful for everyone, but the underwriting process ALWAYS will include these things:
A. Application (may be online, may be submitted by me, may be old-fashioned paper – more often now it’s a phone interview with the carrier)
B. Nurse’s visit – they will take a little blood & urine, ask health questions
C. Medical Records – The life insurance carrier isn’t going to take your word that you never were treated for anything bad. That’s just the way it is.
Once the underwriter has all 3 of these things, they will compare the data to their (very inflexible) underwriting guidelines and issue a “rate determination” and an “offer”.  For example: We have determined that you are a Standard risk and are offering a 20-Year term policy for $500,000.  You can then take it or leave it.  But whether you bought the policy with Purves Insurance or your brother in law, the underwriting guidelines are fixed, non-negotiable and the same.

The value of a great insurance broker is NOT in giving you a cheap quote, but knowing which company is best for you up front, setting the right expectations and also knowing what to do when your chosen carrier comes back with a bad surprise.  That, my friends, is where experience and knowing who you are dealing with makes all the difference in the world.

In the next part of Term Life Secrets, I’ll discuss conversion and Term UL policies, and why it’s not always about price with Term Life Insurance.

Purves Insurance is located in Davis, CA and hates underwriting surprises as mush as you do.

Posted in Insurance Davis CA, Life Insurance, Value of Independent Agents | Tagged , , | 3 Comments

9 volt batteries burn a house down!

Yikes!  Brittany Stoker in our office found this video today.  This poor man feels awful about burning his house down, and I was as surprised as anyone to learn how a couple of old batteries could become so dangerous.  Watch the video for more; he explains how the fire started at about 1:45.

Videos like this always come to mind when someone wants to save $50 by reducing their insurance coverage.  There is a long list of ways to save money on your insurance (bundle home + auto, for one), but one of the things that we will never do is lower coverage to save a few bucks.  Believe me, the last thing on this guy’s mind was how much he paid for Homeowner’s insurance.

Be careful out there!

Posted in Home, Home and Auto Insurance, Homeowners Insurance, Life Insurance, Value of Independent Agents | Tagged , , , , | Leave a comment