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Shopping for insurance

Let's face it: It's hard to buy a product that you can't see and really hope you'll never use. But unless you're wealthy enough to weather any foreseeable (and unforeseeable) financial storms, it's time to start shopping for insurance.

Where to buy it

When it comes to buying insurance, you have a number of options. You can purchase a relatively straightforward, low-maintenance policy (e.g., term life, auto) directly from an insurance company or through one of the many insurance websites. The premiums for some (but not all) policies purchased in this way may be somewhat lower due to reduced transaction costs, but in most cases you will select this option for convenience and product choices, not to save money. Buying on-line allows you to compare quotes very easily and at your own pace, without any sales pressure.

When your insurance needs are more complex, or when you simply want advice and assistance, an insurance agent or broker can guide you through the process. There are two types of insurance agents: independent and exclusive. Independent agents generally represent several companies, while exclusive agents represent only one company.

Choosing the right company

Low premiums and great features mean very little if your insurance company is not around to pay a claim. Even if it does not go out of business, a company in financial distress may reduce interest crediting to a life insurance policy, stop paying dividends, and limit policyowner service. Consequently, you should be concerned about the financial strength of the company.

A number of companies, including A. M. Best, Standard & Poor's, Moody's, and TheStreet.com (formerly Weiss Ratings), rate insurers. These companies provide both letter ratings and full reports of an insurance company's health. Explanations of letter ratings are usually available on the websites of these companies. The insurance companies themselves will also provide the letter rating if you request it. Although the highest ratings may not be an absolute necessity for the company that you select, you should avoid companies that have very low ratings, are on "credit watch," or have received other negative comments from the rating services.

After you've found several insurers with good ratings, you should make sure that those companies have good customer-service records. Word-of-mouth recommendations can give you an idea of the quality of service that others have received. However, there are many insurance companies, and it may be difficult to get a clear picture of a company by asking others. You may want to check the company's website or even call its toll-free number and speak to a customer service representative about the services provided after the sale. You can also check with your state's department of insurance to see if any complaints have been filed against the insurer. Fewer complaints generally indicate a quality insurer.

The insurance-buying process

Whether you're looking to purchase life, health, auto, or another type of insurance, the buying process is essentially the same. You can get a preliminary quote by contacting the insurer, or an agent, by phone or on-line. But when it's time to purchase a policy, you may have to fill out an application and, depending on the type of insurance, answer a series of questions (and, if purchasing life or health insurance, take a medical exam) to determine exactly how much the coverage you need will cost.

After you submit your application to the insurer, the underwriting process begins. Although this process varies depending on the type of insurance you purchase, it typically involves the underwriter confirming the information you stated on your application and gathering additional information about you from various sources, such as:

  • The insurance agent (if you used one)
  • Credit agencies such as Dun & Bradstreet
  • The Medical Information Bureau (for life and health insurance)
  • The Department of Motor Vehicles
  • Physical examinations and lab tests
  • Your doctor and hospital medical records

Using the information gathered, the underwriter will decide whether to approve your application, issue a policy with an extra premium, or decline coverage.