Americans Are Picking Life Insurance for the Wrong Reason, Survey Shows

Brand familiarity is great, as long as it doesn't blind you to better options.

There are several good reasons to purchase life insurance. You may want to ensure your loved ones are on solid financial footing after you die or that a business you own can go on operating. Whatever your reason for buying life insurance, a new survey serves as a reminder of why it's essential to shop around for one that best fits your needs.

And therein lies the problem. Most people do not shop around.

Read more: How to Buy Life Insurance: Step-by-Step Guide

Brand perception is driving life insurance decisions

In November, J.D. Power released its 2021 U.S. Life Insurance New Business Study. Frankly, we were surprised by what the study uncovered: The top reason people choose one life insurance carrier over another is brand perception.

For 30 years, the number of people who've chosen to purchase life insurance has decreased. Today, that seems to be turning around, in no small part due to the 961,000 people who have died of COVID in the United States since 2020. Simply put, life insurance makes sense.

However, as we set out to purchase life insurance, we appear to be basing our decisions on perception instead of reality. While having life insurance coverage is better than not having life insurance, it is not a one-size-fits-all proposition. Just because our parents were insured through one company or our favorite actor appears in a commercial for another, neither of those companies may fully meet our needs.

According to Robert M. Lajdziak, director, global insurance intelligence at J.D. Power, "Life insurance, unlike other forms of insurance, is a very long-term purchase, and while traditional factors such as price matter, the brand attribute with the biggest influence when purchasing is confidence in the long-term viability of the brand."

What if the company that best meets our needs has only been in the market for a few years? Should we automatically purchase a policy through another carrier?

We all want to believe that our life insurance company will be around in 30, 40, or 50 years when we need it. But, as Lajdziak says, "This creates challenges for younger brands or companies that have rebranded and are competing in a marketplace with companies such as New York Life, which just celebrated its 175th anniversary."

The truth is that a company that's been around since the Truman administration may (or may not) be best for you. If they're too expensive, have lousy customer service, or push you into a policy you'll regret, how long they've been in the business does not matter.

If you're in the market for insurance, make it a point to check with companies that are familiar to you. But while you're at it, why not check with a few who haven't been on the market quite so long? What matters is making sure you find the coverage you need at a price you can afford.

Here's a checklist of five factors to look for as you shop:

1. License

Is the insurance company licensed in your state? Buying a policy from a company licensed in your state means you can depend on your state insurance department to come to your aid if there's ever a problem. Each state has its own Department of Insurance and should have a website that allows you to check for a license.

2. Financial strength

No one wants to spend years paying premiums into an insurance company that is poorly managed or on shaky financial ground. Check with one (or all) of these financial rating agencies to learn more about the financial stability of an insurance company you're interested in.

You will likely need to register to use each of these sites, but the service is free.

Read more: The Best Life Insurance With No Medical Exam

3. Price

The ideal life insurance policy provides the most significant level of coverage at the lowest price.

4. A focus on your needs

If you find that a particular agent or company prods you to buy a life insurance policy you're uncomfortable with or don't fully understand, it may be the wrong insurance company for you. It's important to know that some policies (like permanent life insurance) pay hefty commissions to the agents that sell them. Your coverage is about you and the people you care about. Whether an agent ends up happy is unimportant.

5. Customer service

Customer service comes down to the level of respect you receive. Ask as many questions as you'd like. If a company representative does not provide clear answers, it's probably not the right insurer for you.

Of course, the company that best meets your needs may be the insurer your parents (or grandparents) depended on. Or, it could be an upstart company with significant financial backing and the level of service you desire. You'll never know for sure without shopping around.