When talking with clients initially, I often hear reference to the “whole life policy”. I have long learned that this is a general reference to permanent insurance as opposed to term insurance. Some policy owners understand that whole life (WL) insurance is only a form of permanent insurance, and the menu of options is wide and varied.
Often, this common terminology is harmless, but many times it is not. This is because there is a traditional juxtaposition of what WL is and how it works, and this conventional wisdom is often far from the truth. In fact, “WL” isn’t always even a lifetime!
an abundance of products
As for permanent insurance, I would include the following in the modern lineup: WL, Universal Life (UL), Guaranteed UL, Indexed UL and Variable UL and WL. Additionally, within these categories, there are subcategories. For example, traditional WL can be said to be a compound word, and this can make the WL policy anything but. WLs operate somewhat differently from mutual and stock carriers. With a dividend-paying WL, there may be a handful of different dividend options that could dramatically affect policy today and down the road. When it comes to dividends, you can also find a version in which the dividend is held in an indexed option instead of a normal account for paid-up additions. In recent years, there has also been a proliferation in long-term care riders. You can build these policies in any way you want, from fully guaranteed to meaningful risk-taking.
That’s all with just WL. The multitude of products manufactured on the UL chassis can be dizzying. Within traditional, guaranteed, indexed and convertible models, a tremendous amount of flexibility and rider options abound. Just when you think you have your arms around it, you may find that there are indexed and convertible UL options with a lifetime guarantee, for example. A securities-based variable UL with a guaranteed premium and death benefit for life? Yes.
Try convincing a traditionalist that there are UL and securities-based products with more guarantees than “WL” policies from top-name reciprocal carriers. It’s not beautiful. Why do I put “WL” in quotes? I see several policies with ABC Mutual on the title page of their major WL policy that have as much to do with WL as my son has with a clean bedroom. Several times I have reviewed a WL policy which turns out to be 1% WL and 99% term insurance. If you expect this policy to work well in a declining interest rate and dividend market for several decades, you might want to sit down before hearing the truth. I’ve seen “WL” disasters that make UL disasters look like playtime.
It is important to understand that there is no such thing as sitting at a computer, entering the details of a proposed insured, pressing a button and getting the cost for the insurance. It doesn’t work that way. There are many different input screens and many fields per screen. There are figuratively infinite ways to make a product, and I can assure you one thing, it’s close to guaranteed that your customer doesn’t understand what went into it. Most of those decisions were made without their input and without an understanding of the options and possible consequences.
I can build a paid life insurance policy with a $10,000 annual premium or $100,000 annual premium which supposedly does the same thing. My most illiterate client can tell me they’re probably not the same thing, but my quickest client couldn’t tell me how.
Who knows why a given proposal was initially submitted? Is this the product of the day? Is this something the insurance carrier is insisting on for reasons that may not be in line with the best interests of the policy owner? Is it for commission purpose? Is it simply because it is the product in which the primary carrier of the agent specializes? Was this product the most recent wholesaler that came to the agent’s office talking about? Maybe another policy with that insurance carrier was the one that was taken for that cruise to the islands to get over the hump to the next council level? Was the variable taken off the table because the agent does not have the proper licensing? Is the indexed UL not in the mix because the broker-dealer won’t allow it?
Most policy owners accept things they don’t properly understand for fear of looking foolish, and they take it at face value that whatever is suggested is right for them. Things need to change. I have to deal with the consequences of this traditional process every day. Typical policy placement is like moving pages on a desk for signatures, as you see in a mortgage closing. You know what I mean. Most people have no idea what they are signing. It’s inevitable, but what are the consequences?
You know what the insurance carrier does every time it hits the fan? They remove all signatures that show that the owner of the policy has understood everything. If he didn’t understand, why did he sign it? There is no help. No one cares what was said because words have no meaning if they are not immortal. Dozens of pages long insurance ledgers are theoretically in the name of consumer protection. In fact, when things go wrong or a product is misrepresented, they do the opposite and are often used against consumers.
We all have to admit that it is essential that customers ultimately have trust. George Michael knew what he was talking about. You just have to believe. But is this a good idea? What about the “trust but verify” line of reasoning? I think there is something in it.
Almost every day I see the results of life insurance transactions that involve more money in the form of private equity deals, real estate transactions, business acquisitions, etc. Almost every one of these deals will involve tax and legal advisors, consultants, appraisers, inspectors… the list goes on. Investigating deals one way or another can bring to bear tens or millions, or even millions, of dollars of advice. But in life insurance transactions of similar magnitude? you know the answer. Maybe it’s time to rethink this. I have seen people lose millions. I have also seen that people pay nominal fees which saves lakhs.
educate the customer
Go back to the different products and how to make them. What can one take at face value while I can show that a guaranteed policy may not be the best option for the customer, or the best way to get the biggest death benefit is to buy less ? The time has come to accept what we all know; Your customers have a chance to snowball in their heads to figure it out for themselves. It just can’t be. I have tested it in court. They must have a lawyer. It’s just the way whether you or they want to believe it or not. They should be educated enough to be a participant in the decision making process. It will take some time and commitment and a little bit of money, but isn’t that worthwhile?
Bill Boersma is a CLU, AEP and LIC. Further information can be found at www.OC-LIC.com, www.BillBoersmaOnLifeInsurance.info. Call or email 616-456-1000 [email protected]