Every effort to sell life insurance is backed by something increasingly rare in society – a promise that is backed by a reserve. That promise is then verified by an independent insurance commissioner and scores of accountants who scour the company’s books to ensure that there are sufficient funds to cover that promise. Continuing education and an ongoing capital review are yet other layers of protection for that promise.
Now, let’s think about this – and the many other added features of the promise. Some features have built-in guarantees to protect the promise from being diluted by inflation. Some have added benefits to protect the insured person in the event of a disabling event that disturbs (or destroys) their quality of life. These attributes are also reviewed and verified to ensure that the promise will be kept.
Your accountant? No such guarantees –
maybe a membership in the American Institute of Certified Public Accountants, which is a reputable organization. Your surgeon? Good luck – if you think our compliance paperwork is a nightmare, the burden is on you, the agent and the carrier. Just about everything you sign in a clinical setting absolves the physician and the hospital from keeping any promise. An architect? Check the contract wording the next time you have a home built or redesigned.
Yes, there are many promises that exist, from the Good Housekeeping promise of satisfaction guaranteed to the L.L. Bean promise of lifetime replacement on a pair of boots.
Yet none of these promises – none –has the strength, scrutiny or importance of a life insurance policy.
I suggest that when you present to clients, you always mention analyst ratings. But we know as a society that some of these analysts did not fulfill their fiduciary responsibility during the 2008-2011 economic meltdown. A few of them are no longer in existence, fortunately. Others have a new charter, higher requirements and differing standards to measure and evaluate the actual “strength” of the company under scrutiny.
Personally, I suspect that we will see more gaps in some of their analyses. Thus, while you should always mention ratings – and they do indeed matter in a very significant manner – you also should remember the history of that company. Some of you are affiliated with companies that have eight decades or more of success, and you will be able to supplement these insights with the company’s performance of payouts to those who lost a loved one.
With the kickoff of a new year, may I also suggest that you do everything possible to push back against the increases in low-level term policies? While it is true that many are able to afford only a term policy, and pundits such as Suze Orman love to tell customers why they are wonderful (and don’t forget to invest the difference!), I’ve never seen an empirical study that suggests consumers do invest any difference. However, there is abundant evidence that while most term insurance covers burial expenses, it rarely pays for a child to attend four years of college. It almost never allows a loved one to live in a manner comparable to the lifestyle they had while the insured was working. It almost always is a promise that is kept, but it is inadequate for most clients.
As I suggested in this column last year, there are a few companies that worry me. Their reserves are under heavy scrutiny. At least one major company failed to file required Form 10-K reports with the Securities and Exchange Commission for an extended period. Once any major company fails to keep a promise, all companies – regardless of brand, reputation and the quality of their agent force – will suffer. You have a stake in this. You have a responsibility to read industry reports, pay attention to these issues and ensure that when you say you are affiliated with a reliable, high-performing company that keeps its promises, you have the facts.
I am so proud that the women and men of this industry – from underwriting to sales, from home office to agent – understand the wisdom behind what Solomon S. Huebner called the importance of “human life value” when he created The American College in 1927. Now, we need to revisit the basics in a fast-moving economy and ensure that we have the resources – financial as well as technological – to keep every promise. At your kickoff meetings, ask more questions, demand transparency and lift your knowledge of the basics.
Cheers for a productive and successful 2014!