I have been selling life insurance since June 1980. I am 58 years old, which is the average age of a life insurance agent in the U.S. During my career, my attitude toward the value of life insurance protection has gone through many changes.
Unfortunately, the insurance industry saw every client as a nail, and every policy as a hammer, until somewhat recently. For the past several decades, the industry has been focused more on the “strategy” we used to convince clients that life insurance was important to their family’s well-being, or that the tax benefits of life insurance were so compelling to their family’s planning. But there was less focus on the actual intrinsic financial value the product delivers. The optics of many of these “strategies” create problems for the buying public, and the actual results have been even more problematic.
We spent, and I would suspect most of you still spend, a lot of time trying to convince clients that they need what we sell based on one “strategy” or another. Whether it’s death benefit for taxes, or cash accumulation for retirement, our sales pitches are stale and the industry’s dismal sales results over the past 30 years prove it. If you remove 1035 exchanges from the numbers, there has been a steady decline in new sales for at least the last three decades! And the number of new agents entering the business has been in a complete freefall.
Whether or not this trend is reversible is too difficult to answer. But what I do know is that we all need to start viewing our products through the eyes of a more sophisticated, connected and impatient consumer. Today’s consumers believe what they find on the Internet is the truth, that life insurance is for their parents but not for them, and that they will outlive the usefulness of life insurance because they “know” they will live longer than the generations before them. Of course, life insurance was designed for unknowable events in life, but try to convince a 40-year-old hedge fund manager that he or she doesn’t know and can’t control the unknowable.
I try to see the products we sell through the eyes of the people we ask to purchase them. And lately, my attitude about what is suitable, particularly for the 30–55 age group, has changed because of a number of occurrences.
First, the almost decade-long period of low interest rates has exposed many of the illustrations we used from the late 1980s to roughly 2007 for the toilet paper they were. Second, a number of insurance carriers decided that their corporate profits and C-suite bonuses were more important than keeping their promises to policyholders and agents. So they began raising the monthly cost of insurance deductions on defenseless older policyholders, the majority of whom are in their late 70s to mid-90s. Third, and maybe most important, many of our clients who were in their 60s and 70s when we sold them policies are now in their late 80s and 90s and have outlived the possibility of a reasonable positive internal rate of return on their investment.
I know that the older age market is a commission bonanza, and we always were focused on this demographic. But attitudes change, and we need to change with them. Rather than approaching the same prospects, my age and older, with the same tired sales pitches, we decided we needed to change our focus to the more under-served markets: Generation X and millennials.
Cracking this market is a lot harder than you may think. This cohort represents a huge number of very well-educated, market-savvy, internet-connected free thinkers. These people benefit from having long-living relatives with lots of insurance experience, most of which has been disappointing. We are trying to sell a 20th-century product to a 21st-century audience and the results have been unimpressive.
Finally, we have discovered the one product that not only makes unassailable financial sense, but speaks to the issues every one of these potential clients faces.
Let’s review the issues:
1. They all believe that long-term care is a problem that merits purchasing protection, but long-term care policies have a bad reputation for rising rates.
2. They all believe that life insurance is a bad financial decision for the long term.
3. They all believe that they will outlive their parents and grandparents. Most believe they will live beyond age 95.
4. Few of them trust insurance companies to be good stewards of their assets.
These are very difficult objections to overcome, and even more difficult to solve with a traditional life insurance contract.
However, there is one product that answers all of these objections perfectly. It is a guaranteed universal life product with the following features:
1. An indemnity-based chronic illness/long-term care rider that does not require a permanent disability. Benefits are 50 percent to 100 percent of the face amount, received tax free up to the federal maximum per diem. It’s limited to $3 million of total benefits.
2. A guarantee that at the end of the 25th year you can surrender and recover 100 percent of the premiums paid.
3. A guarantee that at age 85 the full remaining death benefit is paid out to the owner of the policy in 10 equal installments. The internal rate of return on that money is roughly 4.2 percent to 5.0 percent, guaranteed (return depends on age and rating).
4. Everything is guaranteed, so there are no surprises in the future, unlike stand-alone LTCi.
5. Payments can be made in as few as 10 years and the number of payments is guaranteed.
This is life insurance for the living! The cash value is irrelevant, as the benefit base is the death benefit. It’s a no-lose proposition: The policyholder will collect the entire death benefit during their lifetime, unless they die prematurely, in which case their beneficiary receives it tax free.
When we discuss this product with prospects, we refer to the death benefit as the “benefit base.” We almost never get into a discussion about death. This is a policy that insures your life.
Framed this way, prospects are free to imagine how the policy can work for them. Here are a few ways.
This is a retirement back-stop.
What if your client does a great job of saving and investing but the markets tank just as they hit their 80s? No problem; the full death benefit will be paid to them in 10 equal installments, so they can feel free to be a little more aggressive with their investing style. Conversely, if the client has done so well that the payout of the policy is icing on the proverbial cake, they can feel free to contribute their individual retirement account to charity or make larger gifts to their children and grandchildren.
Make a trust the owner of the policy.
If the client requires long-term care or has a serious chronic illness, they can pay for those costs out of their taxable estate. They can direct the trust to take the maximum payout from the policy. Because the rider is an indemnity-style payout, proceeds go into the trust tax free and avoid estate taxation.
If the client wants out.
For whatever reason, clients can surrender the policy at the end of the 25th year and recover 100 percent of their premiums.
Look at this as a long-term zero coupon bond.
It’s basically a bond with extremely low credit risk and a conservative but reasonable return. Every portfolio needs an anchor like this.
The policy is priced very competitively with others that do not provide these options, and there are no others (that we know of) that can provide all of them.
This product has renewed my sense of enthusiasm with our industry. For the first time in our corporate history we are closing almost every sale we initiate. Granted, these are singles and doubles, not the home runs we would all like to have. But I can’t say enough about the positive change in attitude of our customers. Other than outright cost, this product answers every objection we have ever heard from prospects.
I am hopeful that other carriers will get into this space and make these options even more competitive. But for now, I strongly recommend that you seek this product out and build your marketing around it. This is the future of life insurance.
Ron Sussman is founder and chief executive officer of PolicyAudits.com and CPI Companies. He counsels high-net-worth individuals through risk management analysis and life insurance planning strategies. Ron may be contacted at [email protected]