The Insurance Game
A Prepared Client Is the Honest Salesman's Best Customer
By Morey Stettner
Special to The Washington Post
Page B05
The Washington Post
Monday, June 3 1996
One of two things is certain: Either you will live or you will die. If you live, you will need money; if you die, your family will.
A successful life insurance salesman tells me that he uses the "one-of-two-things line" to convince people to buy a policy. He likes it because it's easy to memorize and hard to argue with.
There are more than 600,000 agents out there ready and eager to sell you some life insurance. They'll call, write, send e-mail, and even show up at your door to introduce themselves. To earn a living, they must make you ponder your death and spend thousands of dollars on a boring, complex product that you file away and promptly forget.
It's a tough way to make a buck -- and not a particularly pleasant way to spend an evening.
But there are ways to make the process easier. If you're thinking about buying life insurance, the first step is to hold three meetings with highly recommended agents and listen to their sales pitch. By getting referrals from friends, family, and co-workers, you can line up interviews with reputable agents and invite them to assess your insurance needs and suggest solutions.
Greet them with an open mind. The majority of agents are not out to swindle you. Most of them yearn for your respect and can get defensive about their industry's lowly reputation. Agents just love to compare themselves to doctors, lawyers, accountants and other trusted professionals with impressive credentials and specialized knowledge.
"Above all, let your agent try to help you," says Joe Livingston, a Bethesda-based agent for New York Life Insurance Company. "I run into people who say, `I want this policy. My friend said to get this.' Give the agent a chance to work with you, and make sure the agent explains what the different policies will do for you. The problem is, some people have a fear of accepting what an agent says."
The best agents will not launch into a sales pitch right away. Instead, they will ask you about your medical history, net worth, family plans, and long-term financial goals. While such personal questions can seem a tad nosy, an agent needs to gather this information before proposing a product that fits your needs.
Beware of motormouths who dominate the conversation. If they start telling you about their personal history (from birth on), or brag about how much life insurance they carry on themselves (as if they're your trailblazing role models), that's Strike One.
Also be wary if they insistently tell you what they're not: "I'm not a fast-talking salesperson." "I'm not in this job for the money." "I'm not a life insurance agent -- I'm actually a financial planner/retirement specialist/estate counselor/asset accumulation adviser/pension plan administrator . . ." That's Strike Two.
Finally, take a step back if the agent starts talking up a certain type of life insurance policy without first getting to know you. For example, an unscrupulous salesperson may try to instantly steer you away from "term" insurance in order to whet your appetite for a "cash-value" policy that pays the agent a higher commission. That's Strike Three.
The best strategy is to arm yourself with knowledge so that you don't have to rely blindly on a salesperson's pitch. In fact, most agents prefer to work with clients who make an effort to understand the products.
There are two main types of life insurance:
Term insurance spans a specific length of time. It's payable to a beneficiary only when an insured person dies within the policy term. It fills a temporary need for insurance (for example, until children reach college age).
Cash-value policies (also known as whole life, universal life, or variable life) cost significantly more than term policies, but that's because you are buying more than pure life insurance. A portion of your premium goes into a separate tax-deferred savings fund that accumulates interest -- cash value -- over the life of the policy.
Cash-value life insurance is a good idea only if you meet these three requirements:
1. You are absolutely sure you want life insurance in force for at least the next 20 years, if not longer.
2. You are absolutely certain you can afford to pay the high premiums over the next decade or two. (Remember, term insurance is less than half the price.)
3. You want your life insurance policy to double as a long-term investment vehicle, an alternative to investing your savings on your own.
A good agent will weigh the pros and cons of term and cash-value insurance, taking into account your age, assets, saving habits, need for insurance over time, and other factors.
During the first meeting with an agent, you should do more than answer lots of delicate questions about your finances, health and future plans. Your goal is to interview as well as be interviewed. Here are some questions you can ask:
Do you specialize in a specific type of insurance? (Most agents focus on certain product lines, such as life, health, disability, auto, or homeowners'. It's almost impossible for even the smartest salesperson to be an expert on all types of coverage.)
Do you sell life insurance for just one company, or do you represent more than one? Which carriers do you represent, and why did you choose those companies? (Many insurance salespeople are independent agents, which means they can sell you products offered by more than one insurer. Other agents only represent one company, such as State Farm or Allstate.)
How long have you sold insurance? How long have you been in this location? How long have you sold insurance for this company or these companies?
Are you licensed to sell life insurance in this state? (Never work with an agent who is unlicensed in your state. You can check the agent's name with your state insurance department if you are unsure. Agents who sell variable products, such as variable life insurance and annuities, must also be registered with the National Association of Securities Dealers.)
Can you tell me how much commission you earn? (A large chunk of the premium in the early years of a cash-value policy covers agent commission, so it's entirely appropriate to ask how much is involved. Agents earn less commission for selling term insurance, but you still should know the amount.)
What happens if I change my mind after I pay the premium? Will I have surrender fees or any other charges?
If you're looking for more clues about the agent's background, do some detective work. "You can check with your state insurance department to see if the agent has had any disciplinary problems," says Doug Tillett, director of media relations for the National Association of Life Underwriters. "Or you can just find another agent that you're more comfortable with."
Also ask whether an agent has earned any professional designations. The following credentials indicate that the salesperson brings a certain level of technical know-how to the table: Chartered Life Underwriter (CLU); Chartered Financial Consultant (ChFC); Life Underwriting Training Council Fellow (LUTCF).
Regardless of whether an agent has these initials on a business card, the key is finding someone you can trust. One way to put an agent to the test is to ask about discounts that can lower your premium.
To compete against low-cost carriers that sell directly to the customer via toll-free phone lines (thus saving on agent commission), some insurance companies that sell their products through agents have introduced term and cash-value life policies that are sold at discounts of as much as 20 percent. But because agents and companies will rarely talk about them, you may never hear about these offerings: Money magazine reports that discounted policies can reduce the agent's commission by 50 percent to 75 percent.
How do you find out about a discount? Once an agent has recommended a specific policy, ask whether there's a lower-commission version available. If the agent says no -- and you want to know for sure -- call the insurance company and check with the marketing department.
There are other ways to pay less for life insurance. Most insurance companies reduce their rates for nonsmokers. One carrier even offers a discount for runners who submit official results from a race at least 10 kilometers long with their policy application.
Perhaps the most confusing aspect of buying cash-value life insurance is making sense of policy illustrations. These computer-generated pages are filled with columns of numbers that purport to show what you can expect to pay for that specific policy, along with the cash value you may accumulate in the years ahead. The illustration is not a contract, but unwary shoppers are known to use these projections as a basis for buying a policy.
Illustrations may appear official, but they are merely guesses of future results based on the assumptions an agent feeds into the computer. It's the old "garbage-in, garbage-out" trick. For instance, an agent who assumes you will earn a generous rate of return -- say 14 percent -- over the next 20 years can point to a pot of gold waiting for you when you're ready to retire.
Another danger of illustrations is the issue of what's guaranteed and what isn't. An accurate illustration should tell you (in big print, not little print at the bottom of the page) the guaranteed premiums (the most you ever have to pay) and guaranteed cash values (the minimum that the insurer is obliged to pay you). Some illustrations do not clearly distinguish between the guaranteed figures and best-case scenarios.
Problems also can occur when agents give you incomplete illustrations. In some cases, consumers who read the fine print find this warning: "This illustration not valid without footnotes." But there's no footnote page. Sometimes a column marked "guaranteed cash value" is left blank.
A trustworthy agent will warn you of all this when presenting a sales illustration. You will be told which assumptions are used, which numbers are guaranteed (and which numbers aren't), and what kind of fees and charges are imposed if you cancel your policy in the years soon after you buy it.
Once you're ready to buy, make your check payable to an insurance company. Never leave the "pay to the order" line blank or write in the agent's name. In rare cases, agents have embezzled premiums from individuals by pocketing the cash and sending the consumers phony insurance contracts in return.
If all this makes you antsy, relax. A little knowledge can go a long way. A competent life insurance salesperson can provide an important service and help you gain peace of mind. And you'll be ready when an agent comes calling and warns, "Your family depends on you. Don't let them down. Now I've got this policy to show you . . ."
Morey Stettner, author of "Buyer Beware: An Industry Insider Shows You How to Win the Insurance Game" (Irwin Professional Publishing, 1994), lives in Silver Spring.
© Copyright 1996 The Washington Post Company
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