IN “Navigating the path to product suitability”, I started a series of articles to suggest ways for agents to implement a structured approach to arriving at a safe and secure product recommendation. The approach is based on matching the prospect profile and intended use of the policy with the functional characteristics of the product, including premium flexibility, guarantees, efficient accumulation and distribution of cash, investment access and flexibility and what I consider a sleeper characteristic, service intensity. I started with premium flexibility. Now I will talk about guarantees.
Readers may recall that in the first article, I noted that in real time, each functional characteristic should not be considered independently. Rather, they are a set of “concentric circles,” primarily because the presence or absence of one can affect the presence or absence of another. Nowhere in the suitability discussion is there more concentricity than between premium flexibility and warranties. Yes, other features will quickly demand attention, but together, these two can make a show of their own.
I'll add one more note before I resume. My discussion assumes a certain clinical, heuristic, almost rote approach to the approach I describe. This is necessary because if I did otherwise and delved into the true complexity, nuance and human dimension of each characteristic, I would never complete the mission. So, on behalf of agents who do this for a living, let me admit that these things are much easier said than done.
Defining our terms
It is important to clarify early on that all policies have at least some guarantees, which in colloquial rather than actuarial terms may include the insurer's promise not to credit less than a certain interest rate or not charge more than certain insurance costs and expenses.
The guarantee we are talking about as a functional characteristic is the insurer's commitment to the policyholder that, “As long as you faithfully pay this premium, we will faithfully support the specified death benefit for a target age, regardless of policy performance”. In practice, the prospect should see the difference in premium associated with different warranty durations and, of course, be shown, shown and reminded again to properly measure the risks associated with surviving their life expectancy predictions.
In certain flexible premium policies, this warranty is called “secondary” because it is secondary to other warranties already built into the policy. From a marketing standpoint, however, rest assured that the secondary warranty is the main reason people buy these policies and, in turn, the main reason agents sell them.
Setting the scene for the presentation
A guaranteed premium for a cash value life insurance policy? What don't you like? Perhaps a lot, especially after the prospect hears the full story of how warranties can affect the cost of the policy, its premium flexibility, ability to build cash value, investment flexibility and effectiveness in a particular planning application. To be clear, warranties work differently on different types of products. But that makes the story behind each product that much more interesting.
Tell and Tell
As with premium flexibility, the agent should use a “show and tell” approach to conveying the warranty story. The “show” is the explanation of the warranty, how it works and what will be required of the policyholder to keep the warranty in effect. There are many variations on the theme here. If the policy under consideration is guaranteed universal life (GUL), then the discussion begins and ends with the premium and the time frame determined for its payment. But if the policy is a variable guaranteed universal life (VGUL) or another that offers investment flexibility, there may be an additional requirement to stick to a certain investment mix or allocation to maintain the guarantee. I've found that the carrier's product guide can be very helpful here. The prospect's response to the story is, hopefully, “I get it.” “Showing” involves the use of policy illustrations, translated into the key of “what if,” to visually unfold the story, column by column, in the hope that the prospect will respond with “I see.”
Throwing the other shoe
So far, the easy part of the discussion has been telling and showing the type of single product. The agent has ample material and illustrative skills to do so. The hard part for the agent now, at least technically, involves dropping the other shoe and explaining why the prospect might not want the warranty. By the way, my narrative assumes that the agent will remove that other shoe because they are “product agnostic,” a concept I introduced in “How Life Insurance Agents Can Protect Themselves While Protecting Others.” An agent who is not product agnostic may find reasons to end the conversation right here, at the guaranteed product.
In simpler terms, dropping that other shoe begins by showing the prospect another type of product that, while functionally similar to the first, does not offer the same guarantee. So, for example, the agent who just showed a GUL policy with its secondary guarantee must now show an illustrated UL with a scheduled price that, while adequate to support the death benefit for the target age, is extremely sensitive to product performance. Incidentally, while involving a more complex and in-depth discussion that will bring even more functional features, the same illuminating comparison should be made between whole life (WL), variable universal life (VUL), GVUL, and indexed universal life (IUL). ), which often compete with each other for prospect endorsements and premium dollars.
This side-by-side, feature-by-feature comparison is a big step toward helping the prospect understand what the warranty brings to the table and takes away from it, both functionally and economically. A critical part of the comparison is to show how each product would fare when placed in the customer's intended planning application. For example, the prospect who is simply looking to secure family safety coverage can take comfort in the fact that he doesn't have to worry about price increases. Lack of some other functional features, especially premium flexibility, is not a concern for them. But the prospect who intends to use the policy as an investment vehicle or to house the policy in an irrevocable life insurance trust funded in a gift tax efficient manner may be hampered by the limitations imposed by the guarantee or the lack of other features. functional. Again, the comparison becomes more complex, nuanced and, yes, concentric, when other types of politics are involved. But the point remains.
The end of the game
After receiving a thorough presentation of competing products, many prospects will say to the agent, “All things considered, I understand why I would want the warranty, and I understand why I wouldn't. My feeling is that the safety is worth it.” But another prospect may well conclude that, “Your excellent presentation has enabled me to see what the warranty gives me and how much it costs me. In terms of economics, I can see the differences in premium and value for money in later years. I can also see, or rather estimate, what the guarantee would cost me in terms of lost flexibility in how I intend to use the policy in my financial planning. I mean, just look at what happens if I skip it or drop a premium or, on the other hand, increase it, which I might as well do. After all, I don't need or want the warranty and I certainly don't want to pay for it. I'll go with the other product and depend on you to design it right, recommend a careful financing model, and service it regularly.” In either case, the prospect will have benefited from the guidance of a professional agent and will have made an informed decision. Also, in each case, the agent's file will reflect the full details and show, together with supporting materials, to leave no doubt that the client's decision was truly informed .I mean, just in case someone asks.
Experienced agents will know that I stacked the decks of the above prospect responses just to make my point. In real life, a certain prospect might say, “Yeah, I get it, but I'll go with the 'cheaper' product, period.” These agents know they may have an uphill battle with this prospect in the years to come.
Things are about to get more interesting
By no means will this competition between guaranteed and non-guaranteed products be limited to the fairly straightforward context of GUL and UL, respectively. The much more interesting context includes WL, VUL, VGUL and IUL, a context in which the remaining functional characteristics are further complicated by licensing, operator affiliation, regulation, practice risk management, agent culture and a host of other factors. This is the subject of the following article. I guarantee it.