Why sell permanent Insurance?

[Crabcake Johnny]

The great thing about capitalism is over time things that are of value don't need to be "hard sold." They become things that are sought out. This is why time-shares, Rainbow vaccum cleans and freezer plans will always be "hard sale" items. It's because the overwhelming majority of the people see no value in them therefore a slick saleforce needs to be employed.

Permant life has been around forever yet simply doesn't generate the interest needed to sustain itself without a "hard closing" salesforce.

Basically, "it is what it is." Simply put, Americans don't see the value in permant life problems - never have and never will. These are products that will always need to be sold by people with amazing closing skills and normally done by bashing the returns of other investments. The same life salesmen who bash these other products seldom possess the training necessary to compare what's available. They only training most life insurance agents recieve is well....next to no real training.

And while we're at it, I sell life. I'm with 5 life insurance companies and have received zero training. Zero. So now I'm supposed to traverse the state of Maryland and compare perm life vehicles to stocks, bonds, CDs, REITs, DRIPs, and ETFs?

If you're looking for safety with much better returns then life products how 'bout bonds?

I'm not saying there's no place for permant life but let's all just admit it: Our average client doesn't have enough money to buy perm life at the proper face amount.

So what ends up happening more times then not is one of two things:

1) Perm life sold with a very low DB (then what's the point?)
2) Perm life sold with the correct DB and it chews up almost all of the client's disposable income.

The exception to this rule and very wealth clients - which NONE of us on this board target nor land. So save me the bs.

And lastly, the percentage might be the same of commission, but you don't make the same in actual commission. Sell me my 30 year term policy at 90% and you would have made $1,080 off me. But sucker me into the same DB for perm life and you would have made around $6,000 off me. Just a tad bit of difference.

 

[Crabcake Johnny]

"The worst problem with term insurance is that so few policies ever pay out"

I find this incessant argument amazing. Most people will never use their auto or homeowners insurance. God willing (except for wellness) we'll never use our health insurance.

These are things people pay for and never expect to use. If my house burns down I'm protected. Is my house gonna burn down and am I pissed that I paid for the insurance if it doesn't?

I have a rideron my policy covering my wife's wedding ring. Am I pissed 30 years from now that she never lost her ring and all those premiums were wasted?

I have 30 year term if I die. If I do my wife is very well protected. If I don't die I'll be quite happy - not pissed.

 

[NHB_MMA]

The great thing about capitalism is over time things that are of value don't need to be "hard sold." They become things that are sought out. This is why time-shares, Rainbow vaccum cleans and freezer plans will always be "hard sale" items.

Well, my sister has a timeshare investment and planned a family vacation for us all last August. It was very nice and she has been very pleased with it. I have no idea what she paid for it and how it works, but I know they're not stupid people. I approached my brother-in-law about WL and he sounded...well...like you.

Permant life has been around forever yet simply doesn't generate the interest needed to sustain itself without a "hard closing" salesforce.

Actually, from what I've read, the "buy term and invest the difference" philosophy, which I largely agree with, has really become most popular in the last couple decades or so.

These are products that will always need to be sold by people with amazing closing skills and normally done by bashing the returns of other investments. The same life salesmen who bash these other products seldom possess the training necessary to compare what's available.

No credible insurance agent would sell me WL by bashing other investment vehicles. I don't see that from most of the guys I'm around. I did know one that said he could blow away a Roth IRA with a WL and I haven't talked to him much since.

Different products are available for different needs and risk tolerances which is key. In the securities industry, it is an ethical violation to continually recommend the same course of action to every person you meet. I view the insurance industry in similar fashion to an extent. I wouldn't buy from an agent that had nothing good to say about numerous products that had obviously been purchased by millions over the years.

They only training most life insurance agents recieve is well....next to no real training.

Amen.

So now I'm supposed to traverse the state of Maryland and compare perm life vehicles to stocks, bonds, CDs, REITs, DRIPs, and ETFs?

No. I wouldn't do that. I wouldn't compare perm insurance to investments. If asked, I would give the pros and cons, but it is simply at the end of the day an ultra-conservative asset that is only one piece of the pie, for most people.

If you're looking for safety with much better returns then life products how 'bout bonds?

I would say slightly better returns if you're talking investment grades bonds, and then paying taxes on them annually. No death benefit, obviously. They're apples and oranges, maybe in the same orchard, but two different things.

I'm not saying there's no place for permant life but let's all just admit it: Our average client doesn't have enough money to buy perm life at the proper face amount.

So what ends up happening more times then not is one of two things:

1) Perm life sold with a very low DB (then what's the point?)
2) Perm life sold with the correct DB and it chews up almost all of the client's disposable income.

Only a portion of the death benefit should be in perm. Most agents I know look at presenting the idea of 250K in perm and about 750K or 1M in term as well. It IS ABSOLUTELY UNETHICAL TO INTENTIONALLY UNDERFUND A DEATH BENEFIT FOR THE PURPOSE OF GENERATING A LARGER MONTHLY PREMIUM. We can agree on that.

The exception to this rule and very wealth clients - which NONE of us on this board target nor land. So save me the bs.

Yeah, I'd love to have a few dozen high net worth clients. 8)

The other thing I was referring to is people that are likely to end up sued, because life insurance is shielded from judgments and creditors. As I've said before, an agent in the office I will be working in presented the idea of 4000K per month in a WL plan to a pair of married physicians (think they need their assets protected? LOL) and their CPA endorsed the plan. The CPA is well aware that there are investment vehicles with higher returns. I would say attorneys, bar owners, contracters, and other such individuals that are more susceptible to litigation would be wise to put a PORTION of their planning in a life insurance vehicle.

And lastly, the percentage might be the same of commission, but you don't make the same in actual commission. Sell me my 30 year term policy at 90% and you would have made $1,080 off me. But sucker me into the same DB for perm life and you would have made around $6,000 off me. Just a tad bit of difference.

Again, I don't know any agents that walk into a middle class household and try and sell a life insurance plan based 100% on permanent insurance for a DB. I don't doubt for a second that they're out there, but I don't know any. Most would only suggest a portion of the DB in perm coverage.

 

[NHB_MMA]

"The worst problem with term insurance is that so few policies ever pay out"

I find this incessant argument amazing. Most people will never use their auto or homeowners insurance. God willing (except for wellness) we'll never use our health insurance.

These are things people pay for and never expect to use. If my house burns down I'm protected. Is my house gonna burn down and am I pissed that I paid for the insurance if it doesn't?

I have a rideron my policy covering my wife's wedding ring. Am I pissed 30 years from now that she never lost her ring and all those premiums were wasted?

I have 30 year term if I die. If I do my wife is very well protected. If I don't die I'll be quite happy - not pissed.

I see you're point, but what I was really getting at is that term becomes unaffordable. Term insurance is MORE expensive in the long run--if you keep it long enough, which no one really does. That is why so few pay out, but it goes back to the point that we're just hoping for good outcomes when we say "I'll need life insurance till age 60". If a portion of the life insurance is in perm then it will always be there if we later find out we could use it, but it has become cost prohibitive at that point.

 

[Crabcake Johnny]

I think a lot of the point is that it's life insurance companies dreaming up these insane products, over-charging clients for them, mainly in the way of fees and paying agents huge commissions.

Some agents want to tout an annuity that pays the agent a 10% commission, obviously more in that to the MGA - probably 15% then a 10% bonus to the client?

So out of $100,000 there's $15,000 in commissions for the life company to spare and another $10,000 to "bonus" the client? Where in the living hell is all that money coming from? IT'S COMING FROM YOUR CLIENT!!!! Some of these products are simply profit factories for the insurance company and agents have huge fish hooks in their mouths.

And despite any of thousands and thousands of profession articles that are written by literally everyone who's actually TRAINED in the area of finance that exposes these life products as the over-priced crap that they are some life agents just choose to put their hands over their ears and yell "LA LA LA LA LA LA LA LA." And their training is coming from where? All their vast years investing in the market? Yeah...right.

A life vehicle returning 5% with 2% chewed up in fees netting 3%? Heck, that's not much more than my savings account. Shit - for 3% buy a tax free muni!

 

[NHB_MMA]

http://www.fool.com/Fribble/1997/Fribble971029.htm

John, I wanted to reply to this one in a separate post, because the other article had some good advice, but was biased against permanent insurance. This Motley Fool article is just written by a flat-out dumbass. I can't say anything more glamorous about it.

Let's look at a couple of quotes:

And children certainly don't need life insurance. Face it; as much as we love our children, they're not income producers, but asset drainers, so there's no income to insure.

So there are no funeral expenses with burying a child? Put them in a paupers grave? What about loss of household income? Think the wife might need to take an extended leave of absence from work to pull herself together? Does the husband too? Maybe the marriage itself will be on shaky ground and they need to work on it. It's happened before.

Very, very stupid reasoning to suggest that the only reason for life insurance is to insure the income of a working individual.

Now, I want to state upfront that I could be mistaken about this, but I'm pretty sure that someone in another thread brought up that if you open a normal IRA or Coverdale plan for a child it is an asset that is counted AGAINST a student when determining eligibility for financial aide. Again, I'm relying on what someone else posted somewhere (I believe on this forum, but I'm not sure). Someone out there will know the answer I'm sure. Okay, assuming that is true, why not a VUL? The term portion of the insurance at that age would be next to nothing.

The only Foolish alternative is to buy as much term insurance as you need to provide an income stream for your family should you die (figure how much by looking at your income, any social security benefits your spouse would receive, other insurance policies from your employer, etc. and calculate how much money at 12% - 15% growth a year would replace your income and pay off any outstanding debts). The difference between those premiums and what you'd be paying for the whole-life alternative should be invested Foolishly.

The irony is that the "Foolish" advice is indeed foolish advice. How much money would be needed to replace your income to your survivors at 12% to 15%? Give me a break.

John, I've read you and James throw haymakers all weekend about what is a realistic return and what is not. I find some middle ground and don't completely agree (long-term) with the numbers either of you have thrown out. Sorry, but James has to be laughing his ass off at this article...and it truly is full of shit.

When you die and leave a wife and children behind, they need steady, dependable income that is not going to vary greatly from month to month. They need a bond-based investment portfolio that is going to truly act like your paycheck does today, not gain 30% this year and lose 15% next year. Those are the only type of investments that have even a shot at those kind of returns. Nothing will pay out even close to that if it provides a steady stream of income. You're looking more in the range of 6%, probably 5% to be safe.

The irony is that the Foolish plan that trashes all permanent life insurnace is the one that is going to leave survivors underinsured, because when the wife takes that insurance check to a financial adviser and asks for the steady income replacement of 12% to 15%, he's going to look at her and say "Are out of your f**king mind?"

If these guys are the gurus of "buy term and invest the difference" and I work for a company that advocates permanent insurance, I suddenly feel much better about the ethics of what I do for a living.

 

[NHB_MMA]

I think a lot of the point is that it's life insurance companies dreaming up these insane products, over-charging clients for them, mainly in the way of fees and paying agents huge commissions.

Some agents want to tout an annuity that pays the agent a 10% commission, obviously more in that to the MGA - probably 15% then a 10% bonus to the client?

So out of $100,000 there's $15,000 in commissions for the life company to spare and another $10,000 to "bonus" the client? Where in the living hell is all that money coming from? IT'S COMING FROM YOUR CLIENT!!!! Some of these products are simply profit factories for the insurance company and agents have huge fish hooks in their mouths.

And despite any of thousands and thousands of profession articles that are written by literally everyone who's actually TRAINED in the area of finance that exposes these life products as the over-priced crap that they are some life agents just choose to put their hands over their ears and yell "LA LA LA LA LA LA LA LA." And their training is coming from where? All their vast years investing in the market? Yeah...right.

A life vehicle returning 5% with 2% chewed up in fees netting 3%? Heck, that's not much more than my savings account. *** - for 3% buy a tax free muni!

I will get 4% for annuities. I don't know many that pay 10% and they may not be around in 10 years either. They're not my area of expertise, but my understanding is that all of money gets deposited in the investment. I think the commission is basically paid by the company and would be taken out of any fees with any early surrender, which are certainly there and should be disclosed. At least that is what some guy from Kaplan said in the training class. It could be bad information.

 

[Crabcake Johnny]

"Well, my sister has a timeshare investment and planned a family vacation for us all last August. It was very nice and she has been very pleased with it. I have no idea what she paid for it and how it works, but I know they're not stupid people. I approached my brother-in-law about WL and he sounded...well...like you"

I'm not a time-share trasher - especially since we own two. My point about time-shares is unethical salesman mark them up horribly and greatly exaggerate the benefits. They are touted as a deeded investments not unlike owning property and grow in value. In fact, you can't dump those things off for a fraction of what you paid for it and if you want one just go to Ebay. The salesman at say Westgate in Orlando will want you to buy one for about $25,000. You can grab one for about $5,000. They also make it seem like trading is like picking up the phone and saying "I'd like to trade to the Grand Cayman Islands!" After the lady on the phone finished laughing she'll tell you it's a 3 year waiting list.

Again, just another industry where you have to do homework not to get conned. We own Fairfield and the Royal Mayan in Cancun (actually don't "own" the Royal Mayan since it can't be deeded.") But time shares are actually a fantastic concept for many reasons. Case in point is my wife and I will be saving about $1,000 off our Disney vacation this year by trading. We hit Cancun for the cost of the maintanence fee - running around $800 per year. A good room conquerable to what we stay in would cost $300 a night or $2,000 - and that's IF you can find one available. So we save about $1,200. Actually, we go with my wife's parents since it's a three bedroom condo and split the cost. So it's $400 for us to stay a week in Cancun. Not too shabby.

 

[NHB_MMA]

There has never been better advice ever given that watch who you're talking advice from. The rule is to only take advice from people who are in the position you'd like to be in and from those who are experts.

Who are we to listen to? Some paycheck to paycheck life agent with zero financial training and experience or millionaires who are trained and educated in finance? Hmmm....that's a toughie.

So they're right about every single thing then, for everyone's situation?

But screw them - they must be unethical whores since they don't tout life vehicles as part of any investment portfolio.

Right. If they're saying no permanent life insurance for ANY situation, they're giving poor advice. There are also folks out there with more money than you, James, and I will ever earn put together times at least 10 with permanent insurance.

But of course, they're wrong and guys like James curbing cars on the side because he's a failed insurance agent must be right. Right? James is doing so great at in this industry that he's lining up a rug doctor business - and he's my beacon for advice?

No bust, but you're brand new in this industry and James engages in illegal side businesses. Safe to say neither of your are rich or have any portfolio really worth talking about. So I'll choose to take my advice from industry experts who are themselves millionaires.

I don't know anything about James and illegal activity, nor anything about him setting up a side business. I can't speak to that. I can only say that James has been helpful at times and always polite, even when I have disagreed with him.

I also have to laugh since I've been actively investing for over 15 years. I know what my portfolio is, how's it's done over the years and (and this may come as a shock) I can sell life insurance!

Your investment results have been impressive and I'm happy for you. John, I like you and hope your fortune continues. I don't wish anything bad on you for the sake of winning this debate. But do I THINK you'll continue to average 16% on your funds for the long haul? No, I would expect you to be somewhere around 12%-13%, which is still very impressive. You've been getting that for 10 years, but I don't think it will go on to that extent for the next 10 or 20 years. I don't think there is any trackable index that has performed near that and if you're in sector funds you have to know when to get out at the right time...and the wrong time appears overnight it seems. Still, I hope I'm wrong. I hope you get 18% or 20%. And even if you do, there is a possibility you just had some good luck on top of your investing skill. You might be on the right side of the Bell curve.

So why am I not touting all these wonderful life products? I can sell them too! It's because I have a conscience, I'm very well trained and actively invest so I can seperate the fact from fiction and reality from scare tactics.

Now, that is what I take issue with...that a person is a scumbag if he sells them period. I've already acknowledged that an agent should not take all a person's planning money and put it in WL, unless the client knows EXACTLY what he's doing and specifies it. The DB should not be entirely in WL for most people either. I've repeatedly said those things. If you saying I have no conscience at all if I sell ANY WL to anyone then I have a real problem with that statement.

Life insurance products are not investments, but for the sake of argument let's pretend they are. Are you aware that it is fraud according to securities laws to knowingly sell a product that goes against investor objectives? John, if you were in the securities business and you went around putting old people with fixed incomes in these 15%+ funds you talk about, you would end up in prison at some point.

And lastly, you're digging on Dave and Tom Garnder? Really - so what type of research have you done on them.

Who? I never said anything about those guys. That article with the terrible advice about income replacement was by a guy named Robert Sheard.

Really - so what type of research have you done on them. I mean, except for creating one of the worlds largest financial education companies what are they good for? They've only published 8 books, are renowned experts and self-made millioniares. But what do they know compared to you and James? I'm sure you could sit down with them and set them straight on a great many things!

I'm not disputing that these guys have made 12%-15% or more per year over the long-haul. But it's easy for experts that give general advice to throw out these aggressive scenarios. They're not appropriate for income replacement! Period. A publication can offer general investment advice and trends in most any fashion it chooses, without liability, but it is FRAUD for a registered rep to analyze an individual's personal portfolio and make clearly inappropriate recommendations. It is punishable by five years in prison

Call the Securities Administrator since you have talked to the insurance regulators in Maryland before. Tell the Maryland Securities Administrator you talked to somebody that recommended a fund for a widow you know that recently got a life insurance settlement and this fund would pay 12%-15% per year in income replacment, with very little fluctuation, a steady realiable income, and almost no chance of loss of principal, because that's what income replacement is. Tell him another guy told you that sounds impossible and that you're looking at more like 5%-6% growth for such an income need. See who is right.

Maybe Motley Fool provides great advice for long-term investors looking to reap capital gains. All my comments were directed towards that one author and article. But that particular piece of advice that suggested those return for an income replacement need following the death of a breadwinner was probably the worst financial advice I've ever heard tell of. That is as bad as some of the horror stories I've heard about some of the most deceitful life insurance salesmen out there, let alone a good life insurance agent.

I swear there's no better free entertainment on earth then watching broke insurance agents talk on message boards. Heck, my wife wants to watch TV at night but you can't buy this kind of entertainment.

:P I don't know what to say. I'm glad I've entertained you...but you haven't disproven a single thing I've said about that article. Not one thing.

I can just picture some of your guys sitting down with financial experts and saying "Ok, this is where you're all wrong."

Umm...if financial planners that did specific advice to individual clients read my comments, they'd be nodding their heads in unison. Go to a financial forum (there has to be something like this for financial planners) and see if you can get regular, steady income replacment for a beneficiary at 12%-15% and see what they say.

 

[NHB_MMA]

I'm not a time-share trasher - especially since we own two. My point about time-shares is unethical salesman mark them up horribly and greatly exaggerate the benefits. They are touted as a deeded investments not unlike owning property and grow in value. In fact, you can't dump those things off for a fraction of what you paid for it and if you want one just go to Ebay. The salesman at say Westgate in Orlando will want you to buy one for about $25,000. You can grab one for about $5,000. They also make it seem like trading is like picking up the phone and saying "I'd like to trade to the Grand Cayman Islands!" After the lady on the phone finished laughing she'll tell you it's a 3 year waiting list.

Again, just another industry where you have to do homework not to get conned. We own Fairfield and the Royal Mayan in Cancun (actually don't "own" the Royal Mayan since it can't be deeded.") But time shares are actually a fantastic concept for many reasons. Case in point is my wife and I will be saving about $1,000 off our Disney vacation this year by trading. We hit Cancun for the cost of the maintanence fee - running around $800 per year. A good room conquerable to what we stay in would cost $300 a night or $2,000 - and that's IF you can find one available. So we save about $1,200. Actually, we go with my wife's parents since it's a three bedroom condo and split the cost. So it's $400 for us to stay a week in Cancun. Not too shabby.

Yeah, I know it is an industry you have to watch you don't get taken for a ride. Yet, I loved what I saw of the brochures my sister and her husband had. Seemed like a pretty good deal for those that will use it and maximize the benefits. Something I'd like to check out when I get more disposable time and income, and perhaps a family of my own. Maybe I'll come back here and ask you for advice on yet something else, John.