Life Insurance Objection

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Nov 23, 2009 1:11 pm

I'm looking to write a lot more Term and ROP Term policies to people ages 25-40 to start cultivating a little younger crowd that might turn into something years down the road.

 
So I've been talking to a few people that are getting married or buying houses and whatever about life insurance.
 
The first thing they say is that they are covered through work.
 
I typically say something like, well if you were no longer at your current employer, you might lose coverage, plus every year you wait to buy it, it's more expensive.  I also try to find out how much coverage they have because I don't think it's enough.
 
How do some of you guys handle the objection of coverage through work? 
Nov 23, 2009 1:26 pm
This is what I use - I've had very good success with it.
 
"Mr. Client, when is the last time you had a professional life insurance agent review your coverage?"
 
Blah blah blah, I have it through work.
 
"I'm glad to hear that.  Most of my clients do as well.  However, I was asking a slightly different question."
 
Would you remind repeating it?
 
"When is the last time you sat down to review the type of policy you have and how much coverage is appropriate for your situation?"
 
client responds
 
"Is having the right kind of policy and the right amount of coverage important to you?"
 
client responds (and if positive)
 
"Can I make a suggestion?  Let's get together for twenty minutes.  We'll know in that time whether it makes sense to add to your coverage at work or not.  Fair enough?"
 
Sometimes you just need to redirect the conversation, because the client's initial reaction is to say no or blow you off.  Hope this helps.
Nov 23, 2009 2:00 pm

Snags, I do almost exactly what you do.  The "if you leave work"/portability argument usually falls on deaf ears, since most 30-somethings often have the "I'll deal with it if the time comes" mentality.  But the bigger issue is the cost over time.  I explain to them that the policy is going to cost a little more today than their coverage through work (I explain group vs. single), but over time, the differential will be astronomical.  I actually have copies of the term schedule for a very large employer in my area, and I show them that not only will you be paying like triple what you are right now in 20 years (due to banding), but that the cost of each band will likely rise over time.  So for a little bit more today, they can save gobs of money over time - and it's convertible to permanent insurance as well (I explain underwriting today vs. at age 50, etc.), and all the reasons they may eventually want some permanent insurance. 

Usually whe people tell me they're "covered through work", I ask how much.  The closest response (after "duh, I dunno") is usually something like $50K or some multiple of salary, like 3x, which we all know is not nearly enough.  So after they tell me "oh it's great, we can pay off the mortgage and my wife won't need to worry about that".  To that, I say "great, and where is your wife gonna work?  I mean, she IS going to work, right? Can she really afford to stay home with your 3 kids under the age of 7?  Cuz, well, like, they have to EAT, and wear CLOTHES, and play little league, and go to COLLEGE.  But I'm sure by knocking off that $180K mortgage everything else will just fall into place."
I also ask the husband what he would do with those 3 kids if his wife died.  Would he still work 50 hours a week?  Would he hire a nanny?  Would he downsize his job?  I usually tell them $250K is a good number on the wife, and at least $1mm on the husband (this is based on the type of clients I usually have).  That way no childcare issues if the wife dies, and everything is taken care of if the husband dies.  And seriously, if someone can't afford like $30/mo. for life insurance for the wife (or less), then you have serious money management issues.  Often, between the husband and wife, we're talking less than $100/mo. for full coverage on both.
Nov 23, 2009 2:19 pm

Thanks guys.

Nov 23, 2009 8:40 pm
snaggletooth:

I'm looking to write a lot more Term and ROP Term policies to people ages 25-40 to start cultivating a little younger crowd that might turn into something years down the road.

 
So I've been talking to a few people that are getting married or buying houses and whatever about life insurance.
 
The first thing they say is that they are covered through work.
 
I typically say something like, well if you were no longer at your current employer, you might lose coverage, plus every year you wait to buy it, it's more expensive.  I also try to find out how much coverage they have because I don't think it's enough.
 
How do some of you guys handle the objection of coverage through work? 



What if you sold them permanent life instead?  

Or sell them convertible term with the thought of converting it down the road and keeping the health rating they received at a younger age.  You get paid twice on those

Nov 23, 2009 10:01 pm
snaggletooth:

I'm looking to write a lot more Term and ROP Term policies to people ages 25-40 to start cultivating a little younger crowd that might turn into something years down the road.

 
So I've been talking to a few people that are getting married or buying houses and whatever about life insurance.
 
The first thing they say is that they are covered through work.
 
I typically say something like, well if you were no longer at your current employer, you might lose coverage, plus every year you wait to buy it, it's more expensive.  I also try to find out how much coverage they have because I don't think it's enough.
 
How do some of you guys handle the objection of coverage through work? 


 
Snags, that is the best objection that you will ever get.  It means that they don't have a life insurance agent.   It should be a guaranteed sale.
 
My typical response is, "Great.  Let's take a quick look to see if you have the correct amount and it's at the best price."
 
It will almost always be too little and too expensive.  There are also plenty of reasons why the person shouldn't have life insurance through work.
Nov 24, 2009 1:58 pm
BerkshireBull:

What if you sold them permanent life instead?  

Or sell them convertible term with the thought of converting it down the road and keeping the health rating they received at a younger age.  You get paid twice on those

 
I'd need to learn more about it...I didn't get the insurance background that some of you have.
 
I've been looking at VUL and UL for high income earners.  I know some of you on here don't like these products, but if you over fund them they won't blow up and your fees are at 3% or so for the first few years but as you accumulate and eventually distribute, your fees are at like .75%.
 
What am I missing here?
Nov 24, 2009 3:16 pm

A lot.  Keep selling term that you can convert to permanent.  KISS.

Nov 24, 2009 3:57 pm

I have found that anytime someone gets into a bind financially (and I'm talking about higher-income earners getting laid off or something) the over-funded policy is the first to get "underfunded".  If it gets underfunded for too long, it will start to eat itself and eventually either implodes, or becomes worth so little that there is no chance of recovery without massive future contributions.  And at that point, it is not meeting the purpose that it was designed for, so you have basically way overpaid for a term life policy.  The only time I use permanent now is if I am certain that there is very little risk of them underfunding.  If the purpose is purely death benefit (either for income protection or estate planning), then there is a bit less risk.  If the purpose is overfunding for retirement, I tend to shy away from these.

Nov 24, 2009 7:42 pm
snaggletooth:
BerkshireBull:

What if you sold them permanent life instead?  

Or sell them convertible term with the thought of converting it down the road and keeping the health rating they received at a younger age.  You get paid twice on those

 
I'd need to learn more about it...I didn't get the insurance background that some of you have.
 
I've been looking at VUL and UL for high income earners.  I know some of you on here don't like these products, but if you over fund them they won't blow up and your fees are at 3% or so for the first few years but as you accumulate and eventually distribute, your fees are at like .75%.
 
What am I missing here?

 
Snags, you are missing some really big stuff.  Take a close look at the numbers.  You'll see that UL/VUL has a combination of extraordinary high insurance costs combined with extraordinarily high sales loads combined with expensive investments.
 
Take a look at an illustration.  There is something conveniently left out.  Look at a prospectus.  It is also not included.  What am I talking about?  The cost of insurance at every age.  Never sell an insurance policy with an increasing cost of insurance without understanding the insurance costs.
Nov 24, 2009 7:43 pm
B24:

I have found that anytime someone gets into a bind financially (and I'm talking about higher-income earners getting laid off or something) the over-funded policy is the first to get "underfunded".  If it gets underfunded for too long, it will start to eat itself and eventually either implodes, or becomes worth so little that there is no chance of recovery without massive future contributions.  And at that point, it is not meeting the purpose that it was designed for, so you have basically way overpaid for a term life policy.  The only time I use permanent now is if I am certain that there is very little risk of them underfunding.  If the purpose is purely death benefit (either for income protection or estate planning), then there is a bit less risk.  If the purpose is overfunding for retirement, I tend to shy away from these.


B24, you don't run into this issue with WL, just with UL.
Nov 24, 2009 11:26 pm
anonymous:
snaggletooth:
BerkshireBull:

What if you sold them permanent life instead?  

Or sell them convertible term with the thought of converting it down the road and keeping the health rating they received at a younger age.  You get paid twice on those

 
I'd need to learn more about it...I didn't get the insurance background that some of you have.
 
I've been looking at VUL and UL for high income earners.  I know some of you on here don't like these products, but if you over fund them they won't blow up and your fees are at 3% or so for the first few years but as you accumulate and eventually distribute, your fees are at like .75%.
 
What am I missing here?

 
Snags, you are missing some really big stuff.  Take a close look at the numbers.  You'll see that UL/VUL has a combination of extraordinary high insurance costs combined with extraordinarily high sales loads combined with expensive investments.
 
Take a look at an illustration.  There is something conveniently left out.  Look at a prospectus.  It is also not included.  What am I talking about?  The cost of insurance at every age.  Never sell an insurance policy with an increasing cost of insurance without understanding the insurance costs.



Ruh roh.... now you've gone and done it, snaggletooth....

Nov 25, 2009 12:50 am
anonymous:
snaggletooth:
BerkshireBull:

What if you sold them permanent life instead?

Or sell them convertible term with the thought of converting it down the road and keeping the health rating they received at a younger age. You get paid twice on those


I'd need to learn more about it...I didn't get the insurance background that some of you have.

I've been looking at VUL and UL for high income earners. I know some of you on here don't like these products, but if you over fund them they won't blow up and your fees are at 3% or so for the first few years but as you accumulate and eventually distribute, your fees are at like .75%.

What am I missing here?
Snags, you are missing some really big stuff. Take a close look at the numbers. You'll see that UL/VUL has a combination of extraordinary high insurance costs combined with extraordinarily high sales loads combined with expensive investments.

Take a look at an illustration. There is something conveniently left out. Look at a prospectus. It is also not included. What am I talking about? The cost of insurance at every age. Never sell an insurance policy with an increasing cost of insurance without understanding the insurance costs.

Hey genius.... ever hear... "All insurance is term insurance and all term insurance is annual renewable term insurance?"

the cost of insurance on term, whole life, UL, VUL, are all the same. the difference is how you cut your premium. With term you are just taking the sum of all COI for each year of the term and splitting it down the middle.

I will agree on the sales load that you are paying, but permanent insurance does have a place for some people.

But how is a 5% load on A shares any different than a 5% load on a VUL premium? At the same time, for that load, the client is not hammered 1.5% that he would be paying me or any other advisor on a fee based account, and they are getting in many cases a total subaccount fee of apx 60 bpts.

I seldom recommend VUL's, in the past 2 years, only 1 case, but it does have its place.

But to bring this back to the original point...

if a client is bringing up that objection, you are missing the boat. Group term insurance is not your insurance. At any point in time your boss can revoke that policy, or just say, hey, I am no longer paying for it anymore. where is that policy now?

furthermore, if the premiums are paid for by the employer, it is taxable. in most cases, think of group insurance as a thank you bonus in the worst case scenario. but it is not the clients insurance policy by any means.

btw, the VUL's I used were , since i know people will ask, was a 1% M&E, 62bpts average subaccount fee, 5% premium expense (what pays the commissions). 0 net loans.

And the cost of insurance, is exactly the same, term, UL, VUL.

Nov 25, 2009 12:14 pm

Ok, here we go with another VUL debate.  I want to have this debate because I want someone to show me that I'm wrong so that I can increase my income by selling the product.  First, though, I need to see how it can benefit the client and I'm still finding this impossible due to the combination of costs and human nature.


 
"the cost of insurance on term, whole life, UL, VUL, are all the same. the difference is how you cut your premium.    With term you are just taking the sum of all COI for each year of the term and splitting it down the middle."
 
The one thing that all people seem to have in common who take a pro-VUL standpoint is that they are completely unwilling to discuss the cost of insurance.   You are pretending that it doesn't matter and it's the same no matter how you slice it, so we can just ignore it.
 
The reality is that it is simply not the case.   I'm about to replace a 30 year term policy from Nationwide to one with Hartford.  With Nationwide, the cost was $2820 and with Hartford, it is $1080.  (He was standard with Nationwide and Ultra with Hartford.)  Is the extra $1800/year something that we should be ignoring?  This is a 30 year old male with $1,000,000 of coverage.
 
Look at your favorite VUL product.  How much would this person pay for coverage over the next 30 years?  I bet that it's more than $32,400.  In fact, to keep the actual insurance amount at $1,000,000, I bet that it's over $100,000.  Is this difference something that we can ignore?
 
If you had a client with a 20 year need for insurance, would you sell him a product that increased in cost annually or remained level?  What about for 25 years?  What about 30 years?  In all cases, you would go with a level product because it is much cheaper for the client.  Yet, when you switch and go with a product that is expected to last even longer, you go to one with annually increasing costs.  Products with annually increasing costs are terrible for long term insurance needs, but that is exactly what is being done with VUL.
 
Additionally, before the money even goes to start paying for this insurance, it gets hit with a 5% charge off of the top.
 
"But how is a 5% load on A shares any different than a 5% load on a VUL premium?"
 
Would you ever sell a mutual fund that had a 5% load with no breakpoints?  Would a fund with a 5% load and no breakpoints ever be in the best interest of the client?
 
"At the same time, for that load, the client is not hammered 1.5% that he would be paying me or any other advisor on a fee based account, and they are getting in many cases a total subaccount fee of apx 60 bpts. " 
 
That's right.  Instead of being hammered with an AUM fee, he is being charged a 1% M&E fee.  So, it is the equivalent of an investment that has a 5% sales load with no breakpoints AND a 1% AUM fee.   This just sounds great for the client.    At least, since it is like an "A" share with a front end load, there is no surrender charges.  Oops.  I'm wrong about that too.  It still has very large surrender charges.  This is getting better all of the time.
 
"And the cost of insurance, is exactly the same, term, UL, VUL"
 
Compare for yourself and then tell me that this is true.
Do you understand the pricing of a VUL policy?  They price the insurance very high.  This is for two reasons.  1) It is hidden.  It isn't in the illustration.  It isn't in the prospectus.   The typical VUL salesman doesn't have a clue as to the cost of insurance.  2) It needs to be high to protect the insurance company.  The insurance company doesn't know what mortality will be like 20, 30, 40, 50 years from now.  What happens when mortality is less than their worst case scenario?  The insurance company makes money and the stockholders benefit.
 
The cost of this product pretty much guarantees that if death occurs early, in hindsight, one ends up with over priced term insurance.  If death occurs late, one ends up with a very expensive investment with all gains taxed as income.  Policies simply don't last for people who live too long.  Human nature combined with insurance costs lead to this result.
 
Before you attempt to argue with me look at the COI.  It is much more expensive than anything that you could ever imagine selling your client.  You wouldn't sell an investment with this pricing structure.  You wouldn't sell insurance with this pricing structure.   How can it then be a good idea to combine two things that are bad for your client.
 
 
Nov 25, 2009 3:54 pm
anonymous:
 
If you had a client with a 20 year need for insurance, would you sell him a product that increased in cost annually or remained level?  What about for 25 years?  What about 30 years?  In all cases, you would go with a level product because it is much cheaper for the client.  Yet, when you switch and go with a product that is expected to last even longer, you go to one with annually increasing costs.  Products with annually increasing costs are terrible for long term insurance needs, but that is exactly what is being done with VUL.
 
 


 
I thought you sold ART policies?
Nov 25, 2009 5:35 pm

I love ART policies.  They are great for short term insurance needs and for when the insurance will only kept for a short period of time before getting converted. 

 
Long term, they don't make sense.
Nov 25, 2009 7:05 pm
anonymous:

I love ART policies.  They are great for short term insurance needs and for when the insurance will only kept for a short period of time before getting converted. 

 
Long term, they don't make sense.



That's an EXTREMELY risky tactic, my friend.  I sell 15 year MINIMUM if we're talking about people under the age of 52 even if they're planning to convert.

What happens when someone buys an ART with the plan to convert and then life happens and they can't?  People lose jobs, have unexpected expenses, or worst of all someone has health problems and can't afford the permanent insurance.

You've got a lot more experience than me, but I'd rather sell the 15 or 20 year and have someone pay an extra $100 per year until they convert than be the jackass that sold them something that gets progressively more expensive if/when they decide they can't convert.  The extra $100/yr you cost them isn't going to mean jack to the people who do have the means to convert to permanent insurance.

I have a list of about 20 people who have terms with us they've bought over the last 5 years who planned to convert and never did.  Obviously we'd like them to, but if they don't at least they've got 15 or 20 year terms to see them through for the next decade at least.

Nov 25, 2009 8:31 pm

BB, I wouldn't do it if it was risky.   Let's look at the absolute worse case scenario.  The person becomes unhealthy and doesn't want to covert their coverage.  They simply keep their ART.  Over the course of the 15 or 20 years, they will pay more than they would have for level term, but it wouldn't be some life changing amount. 

 
I often use both for the same client.  Ex. Client buys $2,000,000 of term coverage.  We reasonably expect to only be able to convert $1,000,000 of coverage at the most and have the expectation of converting $500,000 in the next 5-7 years.  He buys $1,000,000 of 20 year term with the cheapest carrier that we can find.   He buys $500,000 of 20 year level term from a company with an excellent WL product.  He buys $500,000 of ART from a company with an excellent WL product.
Nov 26, 2009 5:39 pm

I disagree with the statement that ART policies are "risky" expecially in this economy. I just wrote a 55 year old with two daughters, one age 7 and one that's age 2. One could argue that we need a 20 year term to at least insure the family until the children graduate from college, but they just started a business and can't necessarily afford the 20 year term right now. This is due to the fact that the insurance need was $1.5 million and that the business was in its beginning stages and not necessarily generating any profits right now. In my opinion, the duration of the life insurance policy comes third in the sales equation. First is the life insurance NEED, second is the family's budget and then we talk about the different types of life insurance after.

 
Anonymous, I'm very curious as to how you talk to your clients about permanent life insurance and how you're able to sell it.
Nov 26, 2009 11:28 pm
ChrisVarick:

I disagree with the statement that ART policies are "risky" expecially in this economy. I just wrote a 55 year old with two daughters, one age 7 and one that's age 2. One could argue that we need a 20 year term to at least insure the family until the children graduate from college, but they just started a business and can't necessarily afford the 20 year term right now. This is due to the fact that the insurance need was $1.5 million and that the business was in its beginning stages and not necessarily generating any profits right now. In my opinion, the duration of the life insurance policy comes third in the sales equation. First is the life insurance NEED, second is the family's budget and then we talk about the different types of life insurance after.

 
Anonymous, I'm very curious as to how you talk to your clients about permanent life insurance and how you're able to sell it.



Uhhhhhhhh.... This is the dumbest post of the day.

1.  You're talking about a guy whose 55 when I said that I write 15yr min level for everyone under the age of 52.  So my post didn't pertain to your prospect's situation.

2.  Everyone knows it's commonplace for 55 year olds to have a 2 year old daughter.  Thank God we have guys like you who know how to propose ART in that situation rather than some irresponsible SOB that would sell him a level term.

3.  Is this policy issued or are you still in the process?  Either you're going to get laughed out of underwriting for turning in a $1.5mil face policy on someone who doesn't have the income to justify it or this guy is making $150k+ and you sold him a $3500 ART when you could have just gotten him a 20 year level term for $8000 which he could very well afford on that 6-figure income.