We left off the other day with a description of Protective Life’s universal life conversion product, a product that simply defies the imagination. Since they introduced….no wait. They forgot to introduce the product. Since they gave their loyal term customers a bad UL suppository, agents and clients alike have been trying to figure out, beyond conversion for the terminally ill, what good is it.
Let me reveal a bit about how old I am and why this sticks in the throat of those of us who have been in the insurance business a lot longer than the actuaries Protective Life put your life in the hands of. A conversion option for most of the 40 years or so that it has been around has been a win/win situation for the customer and the company. It was an awesome planning tool for the customer, not having to commit to permanent life insurance before their permanent needs were clear. It was an awesome estate tool, allowing parents and grandparents to convert multiple smaller policies from their term policy for different uses such as charitable giving life insurance or smaller inheritance policies. It allowed those who were uninsurable to keep insurance even though it cost a lot more. By the way, that cost is what sinks the adverse selection argument. It is those that are sickest that are least able to afford a converted policy.
And the company won. They just pocketed all the premium for the term policy and then they get to raise the rates and keep good paying customers.
So back when I started in the business a conversion was talked about by companies and agents, always making sure the customer knew how important it was. It was the gold nugget in a life insurance policy that ensured and insured that there was always a happy ending possible. Back then the wording was “conversion without evidence of insurability to whatever permanent product the company has available for that purpose. Truth is most of them allowed you to convert to your choice of all of their permanent products. Somewhere in the 90’s as term prices plunged you could see companies starting to hedge a bit and maybe restrict the conversion product to just one or two. But they were available and they were permanent and they were the planning tool or the life vest that companies has always talked about.
Only for a moment I am going to take the hot light of dislike off of Protective Life. They claim there has been a change in adverse selection and I suspect there is some truth to that. Life settlement companies have made it possible for the sickest of the sick to sell their policies to companies that convert them and use them as investments. There is no doubt that today many more converted policies are paying out the full death benefit because of that. So, even though Life Settlement companies portray themselves as offering s service and giving people money where they might not have any, they have also tipped the balance from the right proportion of good healthy conversions to an imbalance that has put companies in a precarious situation.
Ok, enough slack for Protective and companies that didn’t plan for this. When Protective was getting million and millions of people to drink the poison thinking that they were not only getting fantastic term prices but they would then have access for conversion the product that was kicking the industry’s behind, a UL guaranteed to 121. This option was as competitive as they could have ever made it but in the middle of the heat of the race their actuaries forgot to tell them that life settlements were growing and growing fast and that the race now appeared to be a race to a cliff, a race that spelled disaster for the winner. Or the actuaries did tell them and the board ignored them. Protective knew as they sold dirt cheap term to convert to dirt cheap universal life with a guaranteed no lapse feature, they knew they were closing in on the cliff.
But imagine if you will that when an insurance company is in a competitive race like that, all of their loyal, faithful customers are on board with them and whatever decision the company makes, trickles down to the people who have supplied all of the money all of those years. And imagine that rounding that last turn toward the cliff, the company knows what happens when if they win but they’ve never so much as hinted what might happen to the customers or the agents who were their advisers. So they run headlong toward the cliff, yelling and holding their hands high and with millions of customers right behind them, at the last second they stop and the customers not knowing, never having been told anything about this possibility, run over the cliff. Bad stuff, but not as bad as it gets.
Protective continues to sell the dirt cheap term policy but changes the conversion to a product that a call Bad UL. And they don’t tell the new customers or the agents. They told me it was only temporary while they came up with a more fairly priced fully guaranteed product. That didn’t happen for years and fairly priced is the mind of who is being given to. The other day I referred to a current client who was told their Protective conversion would cost $19k annually and would only be guaranteed 10 years, the same product Protective told me was temporary. But they did offer a guaranteed permanent product whose premium was $51,000 a year.
Bottom line. If there was ever a time when Protective truly cared about their customers, it’s past. They want your money. They want your new business, but heaven help you if you are an established customer. You’re over the cliff. Unimportant customer mush at the bottom and all because Protective had stupid actuaries or the people in charge were too greedy to listen to sound actuarial advice. If you have any questions or want some help with your Protective dung heap policy, call or email me directly. My name is Ed Hinerman. Let’s talk.