Every once in a while I talk with a client who explains to me what they need from their life insurance policy and what the last agent they dealt with sold them and it leaves me wondering if the agent heard anything the client said. Or, perhaps, the last agent just sold them the most profitable (for the agent) thing in their portfolio?

Case in point. The insured is a developer who took out a policy at age 50 to cover the ongoing debt of his development corporation, about $500,000. When we talked he told me he had $500,000 in force and that was all he needed because the corporate debt never exceeded that amount. He had in fact consulted a “friend” insurance agent some years before specifically to lower the amount of insurance from $1,000,000 to $500,000.

The insured is wealthy and really doesn’t need the insurance, but “just didn’t want his wife to hassle with the corporate debt if something happened to him”. She is an officer of the corporation and would succeed him as CEO and really would not lose any income. All he wanted was life insurance.

The “friend”, who is also a Northwestern Mutual agent sold the insured a $500,000 whole life policy that is costing a little over $12,000 annually. That is his guaranteed level premium to age 100. He is currently 64. The policy has performed very well, accruing $210,000 in cash value and purchasing an additional $125,000 of insurance with dividends. He now has a $625,000 policy (remember he thought he still had $500,000?) with $210,000 of cash value. My question is why? What part of this scenario did his “friend” misunderstand?

The client wanted $500,000 worth of life insurance. He didn’t need and still doesn’t need anymore than that. He took the policy out at age 50 and could have purchased a 30 year term for around $2,000 a year. Remember, this is a key man insurance policy covering him as CEO. Will he still need that coverage at age 80? Knowing his drive and health it’s possible, so he could have purchased a universal life with a no lapse guarantee for around $4,400 per year that would have had level premiums to 100 and guaranteed coverage with no further premiums for life.

So, when I asked him if I could offer a proposal on his life insurance he said sure, but since he had it with a “friend”, it needed to save substantial money for him to consider. I ran a proposal that uses his current cash value of $210,000, doing a 1035 exchange into a single premium universal life with a guaranteed death benefit to age 120 with no more premiums ever. The face amount is $676,000. We can whittle down the size of the 1035 and buy a paid up $500,000 policy if he wants and he can take the extra cash value and go fishing. Substantial savings? His annual bill goes from $12,000 to $0.

So, why did his friend sell him a policy he didn’t need? Because the insured was wealthy and the friend wanted an ongoing annual income from him? The friend did what was best for him and not for the insured? The friend didn’t have his hearing aid in?

Bottom line. Ask your agent why their plan is best for your long term goals. Ask your agent if there are other ways to consider providing the same coverage. Ask your agent to give you three options to consider and ask your agent how much money they make the first year from each option and how much they make each year you renew. Then get a second opinion from an independent agent.

Have you been declined or rated for life insurance, or believe you might have a hard time being approved? We can help get you, your family, or your business approved for life insurance at fair rates.

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