Archive for April, 2009
During this recession many people are turning to term insurance as a way to fill the void left by decimated investment portfolios. Like me, most believe that the hole will eventually fill back up, but in the interim who wants to leave their spouse with a 401k that has been downsized to a 101k.
The other thing people have in common right now is that they want to watch their budget and spend the least amount possible on what they do need to buy, life insurance being no exception. So, not that this age old practice needed an open door, but what an opening for those agents and agencies that make their living shamelessly using bait and switch sales tactics.
Bait and switch has become more prevalent than in days gone by simply because there is so much competition via the internet for your business. It is not uncommon for people to get half a dozen quotes and, if they happen to inquire on the wrong website, a site that resells their inquiry, they may end up fielding calls from 15-20 or more agents. Some sites sell leads to multiple buyers and buyers have found a way to defray their cost by reselling leads. Sick little practice, but that’s not really the point. The point is the amount of competition.
There is a mindset with many agents in the world of life insurance today that getting the application wins the game. If an agent gets you to apply and take an exam you have invested in that agent and, even though it is a perfectly acceptable practice, you are not likely to apply with a second agent concurrently because the first agent has told you what you want to hear. Albeit subconsciously, when you choose that agent, almost always due to him or her giving you the lowest quote, you have placed that agent on a pedestal that they have conned, rather than earned their way on to.
And I always hear, “Well, if he doesn’t come through with that rate I’ll dump him and give you a call”. Hello!!!!! Bait and switch works precisely because statistics show that most people won’t do that. They have been through a 1-3 month application process and when the baiting agent calls and tells them the bad news, that the approved price is higher (switched) than the quoted price, but you probably won’t do any better anywhere else and since you’ve already invested this much time, well, the prudent thing would be to go ahead and put it in force, you do. Most of the time you really do. And you never call the agent back that quoted accurately to start with.
So, while I think agents that knowingly use bait and switch are scumbags, it takes two to tango and if that scumbag you’re dancing with lied to you once (the low quote you really didn’t qualify for), he will lie to you again (you won’t do any better anywhere else) and then he will never service your business because he knows that at some point you will come to the realization that he’s a scumbag.
So, assuming you really want to know the truth, how do you ferret out a bait and switcher right up front? First, always get a second quote. If one quote is higher, ask that agent why their quote is higher than the other quote and be honest with them. Tell them what company the other agent quoted and the price. If they tell you a reason that you won’t qualify for that lower rate, armed with that information go back to the first agent and ask them to provide you a copy of the underwriting guidelines they are using to conclude you qualify for the low rate. If they produce the information and it appears they are quoting accurately, call the higher quote agent back and see what he has to say. This may sound like work, but remember, if you dance with the scumbag it means you have helped him stay in business so he can keep on doing it to other people. If they won’t produce the underwriting criteria for you tell them you won’t do business with them. If they say that it’s true that you don’t qualify based on the written criteria but that they can probably get an exception, they’re probably lying. Don’t do business with them or at least don’t apply just with them.
Don’t be adverse to running dual applications. If you do them at the same time you can get it done with one exam and when both companies are done underwriting you will have the facts in front of you and it simply becomes a business decision. It has been taken out of the sales arena.
Bottom line. Don’t be too quick to bite just because the bait looks good. Remember, they wouldn’t practice bait and switch if it didn’t work and honestly I think most people, deep down, would prefer to do business with someone honest. Do your homework and find out if they’re honest before the hook is set.
April 23rd, 2009
Sleep apnea can be nearly a life insurance non issue if it is well controlled, or deemed mild enough by a doctor not to necessitate the need for using a cpap. But it can become an issue when it’s not mentioned to your agent prior to the application process.
I had a client recently who wanted to make some changes in the amount and term length of his term insurance. This is a client who, on the previous application, had received a preferred plus rating. I asked if there had been any health changes or health testing that showed anything abnormal since our original application and the answer was no, so we proceeded with the best price based on his apparently still stellar health.
Everything went fine until the company acquired his medical records and found that within the past two years he had been diagnosed with sleep apnea. Since this didn’t seem to fit into my questions about changes or tests I called to see if I had misunderstood him. When asked this time he indicated that he had been referred for a sleep study but was pretty sure he didn’t actually sleep long enough for them to complete a study and he said that no one had told him he had sleep apnea or that he should be using a cpap.
So I asked him, even though he said it wasn’t a complete test, where we could get a copy of what was done. A few days later he faxed me a copy of the sleep study and it definitely showed a diagnosis of moderate obstructive sleep apnea with a recommendation for use of a cpap and further testing on a cpap. Then came the confession. He disagreed with the doctor and the sleep study so he therefore decided it wasn’t relevant.
From the standpoint of a life insurance underwriter, if a test is done and you are diagnosed and treatment is prescribed, unless you get a second opinion (not your own) refuting the first diagnosis, it stands as a fact. Whether you agree with it or not isn’t swaying an underwriter and choosing to just ignore the doctor is a swift way to a decline. Just in case you might ever want to apply for life or health insurance, never ignore a doctor’s recommendation to get a test and never ignore the doctor’s recommendation based on the results of a test. You can disagree, but those recommendations stand in the absence of another doctor providing an over riding second opinion.
If he had told me about the sleep study and his decision to ignore it we could have saved him the time of a new exam and application. I would have made it clear that until the sleep apnea issue was dealt with, he should just keep his current insurance, which is what he is now going to do.
Bottom line. There is a time in all of our lives when we hear something from a doctor that we don’t like or we think is just wrong. We have to deal with it. In this case if the moderate sleep apnea was being treated, my client could have received the best rate class with Prudential.
April 22nd, 2009
I got a Matrix Direct email today that may shed a little more light on one of the reasons AIG isn’t cutting it. AIG’s American General Life owns the big on line agency Matrix Direct. Not a bad idea for a company that has done so well on line to have their own mega agency!
The thing that kind of threw me with their advertising was when you click on the tab for “companies” and get a list of notables such as ING Reliastar and Prudential. At the top of the list is American General and at the bottom of the page in the fine print section is a note saying that Matrix Direct is a subsidiary of American General.
Now there’s certainly nothing illegal about the whole deal. I’m not even sure there is anything overtly stupid about it. It was just one of those things that struck me as truly odd. Here is an agency that is wholly owned by a life insurance company. So the life insurance company is claiming the profits of this agency on their books. The agency is selling for a lot of companies and therefore American General if profiting from the sale of insurance for other companies.
Bottom line. I guess I think it’s a good idea if it will help AIG make a little money that they can throw toward their debt
April 22nd, 2009
Here in the Rockies we have avalanches and then we have these small chunks of snow that break loose and roll down slopes forming pinwheel looking things. Some of them look kind of like a cinnamon roll.
Well, that was a weird way to start to say that our efforts and results for getting affordable life insurance for those with bipolar disorder are beginning to snowball. A few successes has turned into referrals and a lot of traffic to our blog and website and the more cases we work on the more interest we are getting from companies and the more interest we get from them the more affordable the rates become. Hey. It’s a good thing going on.
The bulk of our clients seem to have two things in common. First is a bad experience, usually a decline, in attempting to get life insurance and being crammed into a pigeon hole marked bipolar. Second is unfortunately finding an agent who either isn’t familiar with bipolar disorder and so doesn’t ask, or an agent who knows a little about bipolar and is afraid to ask the tough questions. I know most people would prefer to be asked good questions up front and told what their real chances are than not be asked questions and given false hope or fed to the wrong company. Experience is what we bring to the table.
So, what’s it take? What is that an underwriter wants to see to consider someone with bipolar disorder at standard or better rates? How do you stay out of the pigeon hole? The following is a list developed over the last two years that has a lot of approvals attached to it for people who had been declined, sometimes several times previously.
1. Someone who has not been hospitalized for bipolar disorder other than for diagnosis?
2. Someone who has not attempted suicide or had bouts with suicidal ideations?
3. Someone who is compliant with their treatment, both medications and regular followups? There seems to be more favorable rates given to those who are on anti seizure medication vs anti psychotic medication and single medications vs multiple.
4. Someone who is leading a stable family life or social life?
5. Someone who is exhibiting a stable work life?
6. Someone who is not on disability for bipolar and does not have issues with drinking or drugs? If there’s a problem here, then the answers to 3, 4 and 5 are no.
Bottom line. There are an amazingly large number of those with bipolar disorder who fit this criteria, so, while we can’t help everyone, we can help many of those who have heard horror stories and are afraid to apply or have been the leading character in one of the horror stories.
April 21st, 2009
Can you feel it building? It started as a trickle around the first of the year with the announcement that a few companies were considering either discontinuing or raising the rates on the universal life no lapse guarantee products. It didn’t take any huge leap of assumption to see that this was going to impact longer term insurance products as well.
Well, it isn’t a trickle anymore. With several companies like Prudential having changed their UL-NLG policies and term insurance rates, now ING Reliastar and Lincoln National have announced deadlines for increases in their term insurance rates. What we’re seeing is an about face in the most competitive of companies. The only upside to this news is that so far the rates increases haven’t been too dramatic and they certainly aren’t a return to the pricing we saw 10-15 years ago.
Having said that, it would be a drag to miss the opportunity to lock in today’s pre-change rates if you are considering any substantial amount of insurance. And it would definitely be a drag to miss the opportunity to get rid of one of those cash cow universal life, variable universal life or whole life policies with the best permanent product and rates in the history of life insurance, the universal life with an external no lapse guarantee.
Bottom line. People will buy when they need to buy, but an agent who isn’t warning clients and prospective clients about the changes coming is missing an excellent chance to be a real financial adviser.
April 20th, 2009
I’ve shared my opinion plenty of times, the fact that I believe that 95% or more of life insurance needs for the average people out there are term insurance needs. There is no reason to be buying whole life, universal life or variable universal life.
Dave Ramsey doesn’t mince words when it comes to this topic and I admire him for that. Too many dance around the periphery and never nail down exactly what they believe in. To put it bluntly, whole life or universal life eat up an inordinate amount of money on a cost per thousand basis. It costs more for each thousand dollars of life insurance you want to leave your family.
That being said, the more you spend per thousand, unless money is just not an issue, the less life insurance you will be able to buy. At age 40 $500,000 of 20 year term insurance at the best rate class would cost about $430.00 a year. The same amount of whole life insurance would cost about $5000 per year. If you really have $5000 a year to put into this project, consider buying term and investing the difference in mutual funds. Even this recession doesn’t change the fact that there are plenty of mutual funds out there that have historically produced 12% or more return, but let’s use 10%.
We would be generous to say that the whole life policy would have generated $80,000 in cash value in 20 years. With mortality cost and policy expenses it would be doing well to produce that. If you invested the difference between the whole life policy and the term policy, $4570 per year at 10% for 20 years produces $288,000. 5 more years and it will have produced enough to replace that life insurance policy with cash. Self insuring. What a concept!!
There is one area where I believe Dave has missed the mark in saying no to all permanent insurance. There really is no substitute for permanent protection for estate tax purposes. I do agree with Dave that it shouldn’t be done with a cash value policy. Far and away the best permanent product is a universal life with an external no lapse guarantee. Permanent term insurance if you will.
Bottom line. Cash value policies benefit two of the three parties involved, the company, the agent and you. It’s not you.
April 20th, 2009
There are several options available for paying your life insurance premium. To see it advertised you would think that the only options are monthly.
Of course the reason for advertising monthly rates is well known. Giving a potential customer sticker shock by making them think they might have to pay $240 for term insurance all in one whack is a no brainer when you can keep them focused by saying $20 a month, or even the famous pennies a day approach.
But let’s talk options because they are in fact very important. Being a graduate of the Dave Ramsey Financial Peace University (remember Dave’s Town Hall next week), I can tell you that budget is everything in your financial life. If it’s not budgeted and comfortably so, there is a point when something else will get in the way and you won’t pay that life insurance bill. Lapsed life insurance isn’t going to help your family if something happens.
Even though annually, once a year, is the least expensive way to pay for your life insurance, getting a large bill once a year at least in my world throws everything off. The other options are semi annually, quarterly and monthly. Generally the only way you can pay monthly is by automatic bank draft. All of the options other than annually incur something of a surcharge or, as the companies like to put it, the annual premium is actually a reduced option.
To put this in perspective let’s assume your life insurance annual premium with Prudential is $1000. Each company has a factor for determining the different payment modes. With Prudential if you want to pay semi annually that factor is .52, or $520 every six months, $1040 a year. If you want to pay quarterly their factor is .265, or $265 every three months, $1060 a year. If you want to pay monthly their factor is .09, or $90 per month, $1080 per year.
For those who are more concerned with interest lost versus ease of budgeting they often pick annually. As for me, the ease of the monthly bank draft and the peace of mind of knowing that I’m not going to accidentally lapse something, is worth the additional charge.
Bottom line. Make sure the total cost of your life insurance is affordable and make sure you budget your payments so that you can maintain the valuable coverage.
April 18th, 2009
I know Selectquote blows a cork every time I say something about them, but I have contended in the past that their after the sale customer service is non existent and I would just like to reiterate that point.
As discussed in a recent post, there is actually great value to having your life insurance reviewed annually. It only takes a few minutes and can help ensure that your policy is still set up to meet your needs and wishes, and can also potentially save you money if a better rate has come available.
I am working with a client that got their last term insurance policy through Selectquote 10 years ago. He had actually contacted me because he had read about customer service in a blog post and on our website. When I asked him about his customer service experience with Selectquote he shared that since he bought the policy 10 years ago they hadn’t called, written or emailed.
Bottom line. This customer needs to have his life insurance for a longer period than he originally purchased and had his policy been reviewed annually, this would have come to light sooner saving him money.
I understand that Selectquote can’t possibly do annual reviews when they sell 100,000 or so policies a year, so if customer service is an important value added to your life insurance policy, you might seek out an agency that still believes that service doesn’t end with the sale.
April 18th, 2009
Some years ago Reliastar, a perennial powerhouse in the term insurance business, seemed to fall to pieces. They quit communicating with agents and their underwriting started to take so long that agents that cared actually started to be concerned about the length of their underwriting process in respect to the fact that people do occasionally die unexpectedly.
At that point we made the choice to quit recommending them to customers. It simply seemed prudent to take customers to companies with comparable rates that we could count on to do an expedient job of underwriting and issuing policies.
Then we got calls from them saying they had addressed the issues and they were back and ready to compete. At first I used them very cautiously, but when it seemed they had indeed changed, we added them back into the portfolio and started recommending them more freely. For about a year and a half that worked very well. Because of some of their unique underwriting on family history and private pilots, it was good to have them available.
But they seem to have fallen off the precipice again. Underwriting has slowed to a snail’s pace and they have all but cut off communications between underwriting and agents. It’s gone on long enough that it doesn’t appear to be an anomaly and is suspiciously in the same time frame as their lay off of 1000 or so employees. They are officially suspended from our use again unless their is just an overwhelming reason to use them.
Bottom line. Other companies have gone through these phases as well, but I can’t remember any that have been as challenged in the service area as much as ING over the past 5-6 years.
April 18th, 2009
With the economic meltdown and/or recession and/or whatever is going on, the question of life insurance company ratings and their financial stability has received its’ fair share of scrutiny.
In an effort to demystify some of the ratings stories and bring some reason to the table I would like to share with you some information that probably isn’t that easy for a non agent to come up with. Let’s start with a spreadsheet of eight companies I use fairly frequently showing their ratings from the different rating agencies and a compilation of relevant financial information. For those unfamiliar with some of the terminology this cheat sheet can help.
One of the myths that people are dealing with right now is that life insurance companies are getting bailouts from the government. There is TARP money available for insurance companies that own or are affiliated with banks, but the truth is that while it has been offered and a number of insurance companies have actually purchased banks so that they could qualify for it if they need it, there just hasn’t been much, if any action on that front.
Insurance companies are uniquely positioned to be able to pull through these rough times because of the large profits they’ve had in years leading up to now, an income stream that hasn’t been impacted the way, for instance, automakers or other manufacturing industries have, and their huge reserves that they have to carry by law. While plenty of insurance companies have taken a beating on Wall Street, their rough ride has, like so many companies, not been a true reflection of their profitability.
Back to ratings for a minute. In the ratings and financial report provided there were ratings from the 5 major rating agencies and a “Comdex” score. Each uses slightly different criteria to come up with their rating. Here, from their own websites are how each assesses a company.
1. AM Best
2. Weiss (The Street.com)
3. Fitch
4. Moody’s. Moody’s must think they are exceptionally fascinating. Look around page 13 or 14 for relevant rating explanations.
5. Standard and Poor’s. I found very little relevant information on S&P just as I have generally found very little emphasis put on S&P ratings.
The tool I have found the most helpful in rating’s analysis is the Comdex rating. Simply put this ranks a company on a percentage scale against all of the other rated life insurance companies (about 1100). If a company is rated in the 90th or higher percentile you know you are dealing with a company that over the spectrum of all the rating agencies ranks among the top 10%. Would I put any huge weight on a company that has a 94%. Simply put, no! The only tangible difference I have found in the actual companies is that those rated at or within a few points of 100% tend to be large whole life or universal life, cash value companies. They are there due to their huge cash reserves, or should I say your huge cash reserves, not because they are a better managed or more stable company. I guess there is one other tangible difference that is fair to note. The companies at or near 100% are the most expensive insurance providers in the country.
Bottom line. Are ratings worth looking at? Absolutely. If there was a Swamp Life of Vermont, I suspect that ratings for that company might tell a very compelling story. Should you run from a company because they don’t have the highest rating available? Absolutely not. There are a large number of old, stable, profitable life insurance companies who believe as I do that cash value policies are one of the biggest rip offs out there, so their ratings reflect, not a lack of stability, but a lack of your cash and possibly a higher level of integrity. Just like the higher rated companies they too have to carry reserves to meet their obligations.
April 17th, 2009
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