Yesterday I offered a post about term insurance versus whole life. There was on piece of the puzzle I left out, a particularly disturbing one since, first and foremost a life insurance agent should be all about making sure there is enough death benefit to take care of the family.
I have a young couple as clients who came to me a few years ago concerned that they might not have enough life insurance. They had been sold whole life policies by a Northwestern Mutual agent who had started out suggesting $500,000, 6 times the husband’s annual income, but they insisted that whatever insurance they bought had to fit within their budget. (Dave Ramsey would have loved them for that) Being the dutiful Northwestern agent that he was, he didn’t let go of whole life. He came down to their budget and ended up selling this young couple $150,000 worth of whole life, not quite 2 times the husband’s annual income.
Based on their age and income and family situation this couple felt like they needed at least $1,000,000 on the husband and at least $500,000 on the wife. They admitted that they got all wrapped up in the agent’s pitch about the cash value aspect and all of the advantages it would have down the road and finally just signed on.
We were able to get this couple into 30 year term insurance for the amounts they felt they needed and stay within their budget. This is the point I get hung up on with agents that are wholly sold on whole life. To the detriment of the family’s needs, they will stick to their guns and under insure them rather than go to a term product and make sure that the family is taken care of completely if something happens. All the rap about cash value wouldn’t have done these folks any good if the husband had died. The family income would have been gone and the widow and three children would have had just a fraction of the money they needed to carry on.
So why did this agent beat them down in death benefit and stick to whole life when it made no sense for the clients? Whole life insurance is insanely profitable for life insurance companies so they spend more than just a little training time teaching agents how to keep turning clients back to whole life and how to make sense of too little insurance. They of course also remind them of the commission and renewal advantages of whole life just in case the agent has a conscience but is able to be swayed by money.
Bottom line. The most important components of a life insurance sale are the client’s needs and their budget. The needs should be met and the budget should remain intact.