I t’s easy for salespeople — including life producers — to fall into a rut. They become acquainted and comfortable with certain products and find themselves making “cookie cutter” recommendations. They’ve heard the client’s questions many times, so it seems easy to come up with the answers.
Unfortunately, this approach may be efficient, but it doesn’t always work. The client may feel that you are not listening, that you are simply answering questions they aren’t asking and therefore recommending products that don’t fit their needs. But each client has their individual concerns. And unless they are addressed to their satisfaction, they may become dissatisfied and contact someone else.
When considering a client’s options, their individual situation plays a role in what product they choose. Here are several products that can be considered, depending on your client’s needs.
Universal life products
Few advisors even think about UL today — and for good reason. During the last two decades of the last century, these were hot products. Many life agents were dazzling consumers with illustrations with returns of 10 to 12 percent. Today, many of those who bought these policies have discovered that the 1 to 4 percent guarantees aren’t enough to maintain them, leaving more than a few of these customers both surprised and dismayed.
In addition, double-digit interest rates are history. Even plans that were conservatively sold (based on interest rates a few hundred basis points below the current rate back in the 1980s and 1990s) have eroded to the point where most of them will no longer carry the death benefit for the period of time it was originally intended.
Because of a consumer outcry for better-performing UL plans, insurance companies designed the current generation of these plans: the secondary guarantee product.
These secondary guarantee plans, sold either as individual products or jointly in a survivorship plan, function like a level term policy to age 100 and beyond, with minimal cash value build-up but with an emphasis on the death benefit protection. These plans keep the death benefit in force even when the policy values are depleted. Special policy reserving techniques used by life insurance companies make these secondary guarantees very attractive to consumers.
Advisors selling these types of plans need to understand and explain to consumers how the secondary guarantee works for the plan they are presenting. Sadly, there are a great number of policyholders who have already jeopardized their lifetime guarantees and don’t even know it because the advisor didn’t understand the catch-up provision.
Insurance companies have responded to complaints by consumers who have lost valuable secondary guarantees by not paying close attention to meeting payment requirements. To overcome this problem, insurance companies are offering various types of grace period protection. So-called “catch-up periods” offer clients greater flexibility, recognizing that policyholders may be faced with extenuating circumstances. In the same way, some companies offer UL products with guaranteed cash values.
If you have clients who purchased these types of UL plans four or five years ago, it is worth visiting with them to make sure their guarantees are still intact. If they aren’t, they probably can’t be reinstated. This could be a sales opportunity if the client is still insurable.
Finally, there is a newer UL plan in the brokerage marketplace known as index UL. It is ideal for consumers who want the secondary guarantees but would also like to benefit from historically higher interest crediting by being able to tie their account growth to any one of a number of indices, such as the S&P.
Low-cost whole life
Perhaps you have clients who are hesitant about purchasing a secondary UL plan that does not offer any cash value in the later years. If they seek a cost-efficient, guaranteed-premium policy with substantial cash build-up, there are several newer whole life plans now on the market. These plans are priced at a fraction (15 to 25 percent) higher than the secondary UL products but are significantly less than the traditional participating whole life policies offered by the big mutual insurance carriers. In addition, the straightforward design does not require term blending or the introduction of non-guaranteed elements.
The major benefits to these new plans are simplicity, guaranteed premium, guaranteed cash value, and guaranteed death benefit. Consumers like plans that are simple and easy to understand.
These plans can be funded on a single or limited-pay basis, as well as paying premiums for life. Most products like this have a guaranteed return of premium starting around the 15th policy year. With secondary guarantee UL plans, you can have a return of premium as a death benefit option.
Return-of-premium term life
Many of today’s term life customers know they can easily buy term insurance online. They can do a Google search and come up with “the lowest price” in a few seconds.
While the cost for ROP term is somewhat higher, clients will be eligible to have some percentage of their premiums returned after five years, as the policy begins to develop surrender value. Over the course of the term, the surrender value grows until, at the end of the term, they receive the sum of the premiums that were paid into the policy. It now becomes an asset under management that needs to be reinvested into either another life or annuity product. In some cases, clients use it to purchase or convert to a single pay paid-up final expense policy. In effect, it can really be two sales in one.
This approach makes good financial sense with a 20 or 30-year term, but it’s less attractive if the term is less than 20 years. One of the ironies of this type of term plan is that the cost actually goes down the longer the coverage period is rather than increasing as it does in regular level term plans.
Simplified issue plans are another alternative for speedy issue. There is no blood test, just a few medical questions and possibly a telephone interview with an underwriter. Clients pay a little more for the speed and convenience, but they will get a policy in a few days rather than a few weeks or even months. In effect, this makes the life sale a transaction.
With these options available, there is really no reason to lose sales to “the Internet,” particularly since you can offer your client choices that may otherwise be completely missed. Remember, life insurance is still “sold” and not “bought.”
Critical illness coverage
Although critical care insurance has been popular in Europe for many years, Americans are just now beginning to purchase the coverage. Essentially, it pays a policyholder a lump sum upon the diagnosis of a critical illness or condition.
When someone hears that a friend or neighbor has lost their home because they couldn’t meet the mortgage payments because of cancer, a heart attack, stroke, Alzheimer’s disease, multiple sclerosis, kidney failure, or any number of other critical illnesses, they resolve that they don’t want that to happen to them.
This is no minor issue with many people, particularly since it’s estimated that a high percentage of mortgage defaults are the result of a critical illness. Women can be particularly sensitive to this issue. It’s not necessary to tell them that 92 percent of working Americans cannot survive financially if they are off the job for more than six weeks. They know what’s in the bank account since they most likely pay the bills. They’ve seen what has happened to friends and relatives. So they ask, “What would happen to us if we lost even part of our income?” You may say that it would be better for clients to purchase disability income protection. But what if the client is not disabled by a stroke or cancer incident? This is where critical illness insurance can meet a need.
There is another reason for recommending critical care coverage: Claims are paid immediately and are tax-free, and there’s no waiting period as there is with disability income coverage.
The addition of a return-of-premium rider can make this coverage particularly attractive, even if it increases the cost. If they live and don’t use any of the benefit, they get a universal life product, and advisors may very well find a positive response.
Gregory E. Schwabe, FLMI is the national marketing director for First American Insurance Underwriters, a Needham, MA-based insurance brokerage that specializes in supporting agents in all 50 states with life insurance, long term care, and annuity products from more than 35 insurance companies. He can be reached at 800-952-0820 or gschwabe@faiu.com.