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Dec 20, 2009 12:59 pm
ChrisVarick:

I work for one of the big mutuals and our company has slashed dividends this year which is why our "non guaranteed current" side looks horrible. This is one of the main issues that I have with participating whole life if the client is an aggressive investor, sure the 6% after tax fund is not guaranteed, but neither are dividends. Don't get me wrong, I sell a lot of whole life and I am a believer, but when a client asks you "wait, i'm paying extra premiums for something that isn't even guaranteed? I rather just put my money elsewhere and have access to it from day one"


Don't bother showing illustrations to clients in the selling process.  The only thing that you can do with them is promise that they are wrong.
 
Do your aggressive investors believe that all of their money should be aggressive?  If that is the case, don't bother with WL.  The reality, though, is that even aggressive investors can benefit from some conservative money.  Only use WL as part of the conservative part of their portfolio.
Dec 24, 2009 12:03 am
deekay:

Stop selling WL based on CSV, start selling it based on the permanent death benefit and flexibility it offers, and you won't have to answer that question.  And for what it's worth, when appropriate I sell GUL.  But for a 27 year old that's looking for permanent coverage, I'm struggling with how GUL will be better than a WL/term mix.





 
For the record, I stopped selling on cash value a long time ago. I use to when I first started, but quickly learned my lesson. However, clients do not like the GUARANTEED column of the death benefit either. As the agent, I try to sell the guaranteed column first. Guaranteed level premium, guaranteed pay off date, guaranteed cash value. If have faith in the dividend paying ability of my mutual carrier, then I put them in WL. However, I always show UL as well (if they already believe in the value of a permanent life insurance policy).
Dec 24, 2009 3:05 am

Chris, why do you always show UL as well?  I just showed you that for your 27 year old, a WL/term combo is equal to or better than the GUL that you sold for every single year from both a cash standpoint and a death benefit standpoint.

 
Not selling "cash value" has nothing to do with non-guaranteed rates and guaranteed rates.  It's about the fact that the strength of WL is the permanent death benefit.  You sell it based upon the death benefit and the fact that the surrender value and the death benefit will only increase and never decrease..   You really want to try to get to the point that the sale is made without an illustration and the illustration is, at most, just reinforcing what you have explained to the client. 
 
Just like selling based upon the non-guaranteed side can burn you, it also makes no sense to sell based upon the guaranteed column.  Keep in mind that the guaranteed column is based upon the worst case scenario happening every single year.   Selling based upon guarantees DOES NOT mean selling based upon the guaranteed columns.
 
Selling based upon the guarantees, to me, means promising the client that the illustration will be wrong.   When I'm explaining guarantees, I'll say something along the following (while looking at the non-guaranteed side):
 
"I already promised that this illustration will be wrong.  In general, if interest rates tend to be higher than they are now, the policy will probably perform better than illustrated and if interest rates are lower, it will perform worse.  However, let's assume for a minute that nothing changes for the next 20 years and the policy performs exactly as illustrated.  You will have exactly $331,219 for your cash surrender value and $632,421 for your death benefit.  What is GUARANTEED is that in the following year, the cash surrender value will be higher than $331,219 and your death benefit will equal or be greater than $632,421.  We just don't know if it will be higher or lower than what's illustrated."
 
"Let me also take a minute to explain the guaranteed columns.  Everything in the non-guaranteed columns is assuming that you put your dividends back into the policy.  What would happen if you took all of your dividends in cash?  The death benefit will always remain the same and the cash surrender value will equal the initial death benefit at age 121.  If just one year, you leave your dividends in the policy, the policy is guaranteed to perform better than the guarantees."
Dec 27, 2009 1:52 am

Anonymous,

 
I admire and appreciate your dedication to this forum and all the information you have provided me. I still need to respond to your previous post, but am nearly collapsing on my bed as we speak. I will post my answer in the morning, but I did want to know something...how much of your client's portfolio do you put in whole life insurance? For example, 80k household with 2 kids and a mortgage payment. I have a very hard time convincing myself to talk to them about permanent insurance given their financial and economical situation.
Dec 27, 2009 7:12 am
ChrisVarick:

Anonymous,

 
I admire and appreciate your dedication to this forum and all the information you have provided me. I still need to respond to your previous post, but am nearly collapsing on my bed as we speak. I will post my answer in the morning, but I did want to know something...how much of your client's portfolio do you put in whole life insurance? For example, 80k household with 2 kids and a mortgage payment. I have a very hard time convincing myself to talk to them about permanent insurance given their financial and economical situation.

 
Thanks.  My goal isn't to sell permanent insurance.  My goal is to do what's best for the client.  For instance, the subject of permanent insurance doesn't even start to enter the conversation until they have accomplished the following:
 
1)Emergency Fund
2) No high interest debt
3) Health Insurance
4) Disability Insurance (work coverage is seldom adequate)
5) term life insurance
 
Even if they have accomplished the 5 previous things, permanent insurance might not make sense. 
 
As a guess, for your mythical $80,000 client, they probably will be buying $1,000,000-$1,500,000 of insuance with almost all of it being term insurance.  If they are buying any permanent insurance, it is going to be a small amount.
 
Ex. After taking care of all of the basics, they can afford to put away $500/month.  Based upon their risk tolerance, we determine that 20% of their money should be put away in a conservative manner.  At the most, $100/month will be going into permanent insurance.
 
Type of insurance is always handled as a secondary issue and not a primary issue.
Dec 27, 2009 10:44 am

I have a very similar philosophy to anon's when it comes to term vs. permanent.  What I will add sometimes is a small WL policy for final expenses, in addition to the term insurance.  So, even if they never convert a penny of their term, they'll have a way to pay for final expenses that is more economical than paying with 100-cent dollars.

Dec 27, 2009 9:11 pm

Good stuff Anon.
Thanks.

Jan 23, 2010 1:48 pm

Anon~

 
I like your thoughts.  Me and you have very similiar philosophies in leading clients through the planning process......your talk has a very familiar ring to it....after 5 1/2 years I recently left a very large, quite, mutual to establish my own planning firm.
 
I think you would appreciate the "Investment Philosophy" that I share with every single client and I have on the wall of the reception area in my office: 
We will not address investments until:
1.)  You have income that exceeds your debt
2.)  You currently have 4 months of living expenses in an emergency fund
3.)  You have fully addressed ALL of your risk management planning needs, to include:  Health, disability, life, and possibly LTC depending on age.
 
Regarding this conversation about whole-life, I believe cash-value life insurance through highly rated mutual companies is an asset-class that all of my clients need to evaluate.  Part of my investor risk profile ask the client to draw a circle that represents their entire investment portfolio....I then ask them to draw a slice that represents how much of this portfolio do they want to insure WILL NEVER lose anything.  After the recent downturn the slices are getting larger and larger.  I submit that for a portion of this slice we have to consider high cash-value life insurance through a quality mutual.
Jan 24, 2010 12:15 am

Great philosophies - very similar to what I believe.  I enjoy reading your guys' posts to keep an open mind to what other professionals are doing so that I am not always just looking at in-house ideas.