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Fool Insurance
Meet Your Agent

Like any other retail product, insurance can be sold to someone directly through the mail, over the phone, or over the Internet -- or you can go to a middleman (called an insurance agent) who helps you pick the product that is right for you. It is hard to really say which is ultimately better, although most of the time you can get a better price if you go direct.

For example, there are insurance companies that sell auto insurance to good drivers that are able to keep prices very low and still make great money because they only sell insurance over the phone instead of through agents. Whenever insurance is sold by an agent, the agent gets to keep a large part of the first year's payment (and smaller part of subsequent years) as a commission for completing the sale.

Much like anything else, where people are incentivized by commissions, certain agents abuse the system. People are sold too much insurance all the time by over-eager agents who want to make a few extra bucks. Probably the worst example is when life insurance is sold to people who have no earthly reason to have life insurance as an "investment."

By preying on the financial ignorance of Middle America, the bad insurance agent can do crazy things like convince parents to take out life insurance policies on their newborns in case they develop some rare disease and cannot be insured later or to pay for a funeral if there is an untimely death. These agents never mention they make a fat commission off the sale and that the same money, if put into bonds, common stocks, or even mutual funds would actually create enough wealth to meet the same needs -- or maybe even go well beyond those needs, depending on how much money we are talking about.

While some agents are wonderful and will work with you to get you the best deal on what you really want and need, others quite frankly view you as a Pony Express mount, something to be ridden into the ground to advance them along their own career path. Spotting the difference isn't easy. A good agent isn't necessarily the top producer, the friendliest agent, or even the one that appears to care the most. Projecting a Caring Image is taught in Sales 101. We hope to arm you with enough facts to be able to (if I can strain a metaphor) tell the cowboys from the horse lovers.

Although we will discuss specific issues to look for in our articles on each type of insurance, a general policy is to always remember you are insuring yourself against a potential financial loss, not trying to invest or trying to arrange your life so you or your loved ones effectively win the lottery if something bad happens. In fact, ask the insurance agent to be straight up about what kind of commission they make on the product that they sell you. If they refuse to even give you a general idea, don't be afraid to take a hike -- there are plenty of insurance agents in the sea. Just the same as if you were buying a stereo or purchasing a used dishwasher at a flea market, you have to do a little due diligence and figure out if the price you are paying is reasonable, if the product works, and if you really can benefit from it.

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