I just got my new issue of Insurancenewsnet magazine, one of those industry publications that occasionally has some very good information and occasionally has some of the most lop sided, half truthed articles you can imagine.
Obviously I wouldn’t have brought it up if there wasn’t one of the aforementioned articles in this month’s issue. In the life insurance business there is an organization called the Million Dollar Round Table, MDRT, a kind of club you can join if you reach certain levels of premium sold during any calendar year. If you qualify you are eligible to go to their annual meeting and hear speakers tell how they sold sooo much insurance. Now that’s some fun.
The article I referred to above was written by Guy Baker, President of MDRT. His article entitled “The Money Box, A Proven Way to Illustrate Permanent Life Insurance”, was I found, well, a joke. Maybe this is the method you use if you really don’t want to show your potential client a whole life illustration. Instead you tell them a story, which he compares to Jesus telling parables.
Mr Baker’s love of whole life insurance becomes apparent early in the article. He is a cash value kind of guy and makes that cash value the central figure in his parable, er, story. He calls it “The Box”. Kind of a visual thing. A box full of money. The Box is the hero in the story because without The Box, according to him, you can’t afford to have life insurance that is permanent. Remember that point.
He compares whole life with The Box against buying term insurance for life. When the term insurance is going up every year (he calls this the curve), reflecting the true mortality cost, with whole life The Box kicks in and starts paying part of the cost so that insurance will remain in force forever…..maybe!
Quoting from his article I would like to share where his parable all breaks down. “All life insurance is term insurance. The only difference is whether you pay the mortality costs or you let the earnings in The Box pay the curve. So you have a choice. You can either fill The Box or you can pay the curve.
There is one other issue. The performance of The Box is based on the earnings from the general account of the insurance company or from equity sub-accounts. If earnings are higher than illustrated, then you don’t have to put as much into The Box. The Box can get smaller. But if the earnings decline due to poor performance of the underlying investments, then The Box will need more money. The Box must have enough in it to pay the curve.”
First, I just have to say that I think it is just precious the way Mr Baker capitalizes “The Box” and doesn’t capitalize “the curve”. Kind of like he’s subliminally making Whole Life better than term. Cute!
In the article he says “Based on actuarial facts, the sum of the mortality costs at life expectancy averages 74% of the face amount (regardless of age, policy or carrier) Why? Life insurance is a mathematical science.”
He says that mortality costs (term costs) at life expectancy equals 74% of the face value. The actuarial assumption is that at life expectancy 50% of the insured people are dead. He goes on to say that when 2/3 are dead the mortality cost is 119% and when 95% are dead the mortality cost reaches 240%. The only way to overcome this according to him is The Box.
So, since this MDRT whiz seems to think that there are still only two products in the world, whole life and yearly renewable term, let me muck up the waters with a third option. There really is a term for life product out there, call a universal life with a no lapse guarantee. No Box, just fully guaranteed level premium and death benefit carried just like term insurance with company reserves.
Using this product and never having to worry about whether The Box was under funded, I ran illustrations on myself that showed that if I bought $1,000,000 at my age 56, at age 106 I would have paid in 56% of the face value and at age 116, a point where I’m really certain that there won’t be 5% still living, I would have paid in 69%. And the policy, if I do happen to still be around, will stay in force and unless I live to be 145 or something around there I will have never paid in the face amount of the policy.
Bottom line. If you’re going to compare your sales techniques to the parables of Jesus, I think there should be some effort to bring the level of discussion up to, if not biblical, at least a standard of full disclosure. His Box and curve comparisons are bogus in the real world where new products have overcome and replaced the need for his story.
And for reasons that I think are now obvious I highly recommend you choose an agent who uses illustrations rather than stories to explain his products.