Insurance Advisors—Are They Appropriate For All Insurance Types?
Last year, a family friend was driving through a small midwestern town in mid-afternoon. It was raining outside, so driving conditions were less than optimal. Our friend came up to a red light, so she slowly brought her SUV to a stop at the light. The car behind her, however, did not. It wasn’t pretty. The car hit our friend’s stopped vehicle at 40 mph. Fortunately, both drivers were able to leave the scene of the accident without immediate hospitalization. However, the strong trauma of the accident caused quite severe back and neck pain for our friend. Of course, insurance companies and lawyers got involved, and 18 months after the accident a ruling or settlement still has not been reached.
We hear these stories all the time. The situation with our family friend is that she had opted to purchase the very cheapest car insurance possible. This led her to buy insurance with a little known firm in the Midwest. If she had done a little investigative work, she would have quickly discovered that the firm had several complaints at the Better Business Bureau, and a simple Google search produced dozens of complaints of poor customer service.
This leads to a question worth considering—should you pay for an insurance advisor?
What Is An Insurance Advisor?
Before we jump into the specifics of this argument, let us first define what an insurance advisor is. Basically, there are two types of “experts” in the insurance industry. First, you have your insurance agent. An insurance agent should carry all of the appropriate licensing and credentials. The agent knows the industry quite well. However, the agent is, of course, compensated by getting you to sign up and buy insurance from a specific company and may not be incentivized to get you into the cheapest car insurance. Furthermore, the compensation schedule for an agent is typically tiered commission, and he or she will oftentimes earn more commission fees by directing you into one specific investment vehicle over another. Suffice to say, an insurance agent may be an expert in the field, but without a doubt, he or she will be severely biased concerning the terms and conditions of the insurance product they present to you.
Second, you have your insurance advisors. Advisors are often seen as a wasted expense by many people, no matter the field of expertise. Advisors are simply consultants who offer their expert opinion in exchange for a fee. Critics often dislike the idea of an advisor because they argue that you could do enough research in order to make the decision yourself, and then you could save yourself the advisor fee. This is a bad way to look at it, though. If you are dealing with an expert advisor, then he or she could potentially save you thousands of dollars over the course of your insurance policy, and this potential savings is going to cost as little as $50-$100.
The Role of an Advisor
An insurance advisor can help in several ways. First of all, advisors are clearly compensated through the fee they charge for a consultation. Therefore, you can be assured they have no additional incentive to push you in a specific direction concerning an insurance product. The idea is that an advisor will offer you a completely unbiased expert perspective and opinion regarding an insurance policy.
One function of an advisor is to review your current policy for weak points. This can help tremendously. For example, an advisor may be able to read through your life insurance policy and discover significant areas where coverage will not be complete, and oftentimes these findings are priceless.
A second function of an advisor is to assess your needs and find a product that suits you. This fee can be a bit more expensive because it includes two major steps—identifying your needs and finding the product. This can be a great way to get an unbiased opinion concerning what type of insurance product will be best for you. You could search the internet and a cheap insurance quotes company, but since an advisor is not compensated based on product sales commissions, he or she will not be biased concerning which product they direct you to. This can be a huge advantage.
Weighing the Pros and Cons
The primary point of contention between whether or not you should pay for an insurance advisor is short term cash flow. In the near term, an insurance advisor is going to cost you money, although the amount will most likely be rather nominal—no more than a few hundred dollars. And the reality is that the extra perspective they give may not result in huge savings in the future. However, on the other side of the coin, there is the very real possibility that they could be getting you into the right insurance product that is going to save you thousands of dollars in the future. It may be very well worth it to pay a few hundred dollars now to have the peace of mind that you are fully protected in the future.
Note: this has been a guest contribution provided by Jason Hoerr. Jason is part of the writing team designated for outside columns on Cheap Insurance 1-2-3′s behalf.
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