This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Thursday, October 16, 2008

Insurance Agents and Financial Advisers: Getting Dinner From the Vending Machine

Posted By Paul

I used to have a job where I traveled a lot, and sometimes I wouldn't get to my hotel until 2AM local time. I'd usually show up tired, but also hungry, hoping to find someplace that served dinner.

I remember once where I found myself standing in front of the hotel vending machine with a stack of coins, trying to make a dinner out of what was offered.

I'm sure we'd all agree that a pack of peanut butter crackers, a couple of cookies, and an orange soda is a very poor dinner, but it was the best I could get from the machine. I was back in my hotel room munching away and looking out the window when I saw a Denny's practically next door to the hotel that I hadn't noticed when I came in. I ditched my vending machine meal and dashed to the diner where a club sandwich awaited.

This situation made me think of insurance agents and financial advisers. Sometimes people have experiences where they feel like their adviser or agent has been dishonest or is trying to swindle them out of a few bucks. I think that more often than not it's just that expecting to get the best deal for you out of your agent or adviser is like trying to get dinner from a vending machine.

After all, let's say that you can save some money on your car insurance by increasing your deductibles. It's not fair to expect your insurance agent to suggest that. After all, they're just trying to provide you coverage based on the products they have to offer. If the monthly savings versus the potential risk of paying a higher deductible is the better choice for you, then YOU need to make that decision.

Life insurance is also a great example. If it were free, then the more life insurance the better, and , your agent will almost certainly offer you a large amount of coverage. Your agent doesn't know at what point the cost outweighs the benefit to you. That decision has to be made by you.

The best example though are financial advisers. They generally represent a specific brokerage company and if you tell them you are interested in a Large Cap Value fund (or if they recommend that you invest in one) then they certainly have one (and often only one) to offer you. They of course offer you the one that they have, it's up to YOU to consider if that fund is worth it versus other options.

My point is that far too often people expect their insurance agents and financial advisers to do what's best for them, and I think that in general most insurance agents and financial advisers try to do just that. The key point is that you can't expect your agent or adviser to comparison shop for you, or try to weigh costs versus benefits for you. Just like a vending machine, they have a specific set of products that they can offer you. They may not be aware of your overall financial situation or your risk vs. cost preferences, you need to decide that for yourself.

By taking an active role in insurance and financial decisions your agent or adviser can be a
great benefit to you. However if you end up following their guidance blindly you may find yourself doing the financial equivalent of getting dinner from a vending machine when there's a Denny's across the street.

1 comment:

frugalchick said...

I love our insurance guy as he is local. His office is just a few blocks away from our house, we see him shopping at Costco and he's just a great guy overall. When I call his office, he picks up the phone right away. That's one of the reasons why we're still with him.

However, I plan to comparison shop soon and see if he could beat the lowest quote I get. I'd like to stay with him but I like saving money even more.