In the legal profession, they say that a lawyer who represents himself has a fool for a client. Although this is true in some other callings – such as medicine and psychology – the adage does not hold true for the insurance industry. Because of the pay structure and nature of the business, an insurance agent can write his own policy, and there are some advantages in doing so. That's not to say the situation is without its challenges.
Commissions and Renewals
Commissions on the sales of life insurance are impressive, often as high as 45 or even 50 percent of the annual premium for the policy. This commission goes directly to the agent. When an agent writes a policy on himself, it's like getting the insurance at a discount equal to his commission. Since an agent receives commissions on each yearly premium, he also has complete control of how long he gets renewal income on this particular policy.
One of the biggest challenges in buying life insurance is knowing how much to buy. Many agents will recommend larger policies than necessary to increase their commissions. Even agents who are scrupulous about recommending only what you need are not as familiar with your realities and lifestyle as you are. Writing your own policy means that, for once, you are buying insurance from the one person who knows your situation the best – and has your best interests absolutely first in his priorities.
One place where writing your own policy can be a disadvantage is during the underwriting process. Not every insurance agent is 100 percent honest 100 percent of the time, and nobody understands this better than the insurance companies that contract with them. Because of this, agents who write their own policies can expect their application to undergo much closer scrutiny than a similar policy written on a normal customer. So long as you don't lie on the application, everything should work out. The process is just likely to take a bit longer, and require a few more steps.
Another disadvantage of writing your own life insurance policy is the process of collection. For most families, their insurance agent takes over the claims process as soon as he hears about the death. He makes the calls and gives professional advice about getting the claim paid as quickly and painlessly as possible. If you write your own life policy, the agent dies when you do. Your family members will be without that guidance during a time when they are least able to handle complex financial situations.