Yes, believe it or not, life insurance agents make money by selling life insurance. This generally isn’t a problem. It is a commission only business though and the truth is that if you don’t make sales you can’t buy food. For those agents who have weathered some years and food isn’t the issue, the focus can shift to making more and more sales to support whatever lifestyle they have grown accustomed to.
This doesn’t create any problems with term life insurance. With term there aren’t really any options in the way it is presented or sold. It is what it is. Usually a 10, 15, 20 or 30 years guaranteed level premium term, or perhaps a return of premium term policy. Bottom line is term life insurance is a hard product to misrepresent. I’m not saying it can’t happen, it is just harder.
MISREPRESENT? Why would a life insurance agent misrepresent something. Well, life insurance is a very competitive business and with the internet, and independent life insurance agents competing with captive career agents, it often comes down to who presents the best price. Now, I heard someone shout, “hey stupid, what’s wrong with the best price?”
OK, before I get booed off of my own blog, let me explain. We are now going to shift to universal life and whole life policies. Now we have products that are more complex. There are guarantees, but there are also assumptions. If I base the life insurance quote I present you on assumptions, something that may or may not happen, the price is lower than if I base the life insurance quote on guarantees, something that will absolutely happen. A lot of times the price difference isn’t huge, but when a client doesn’t understand all of that insurance mumbo jumbo, they trust the agent selling the assumptions and ask for the lowest price.
The guy that was desperate for the sale wins. He gets his commission and buys his food. The customer, on the other hand, is left with a policy that is not guaranteed, and statistics would show that the policy sold in that way is more likely than not to fall apart, become extinct, lapse, fail, etc. The customer loses the money he has put in and is left without the life insurance he was told he would have. This happens so often that it is no wonder some people aren’t real fond of life insurance companies or agents.
How to avoid it? When you sit down with your independent life insurance agent to get your universal life or whole life insurance quotes, insist on seeing the guarantees. If the agent starts trying to get you to focus on the current assumptions (also known as non guarantees), bring them back to the guarantees. If they try to go back to the assumptions, walk out. DO NOT DO BUSINESS WITH THEM!!!!!
If you already have a universal life or whole life policy and don’t know what the guarantees are, go to an independent agent other than the one you bought it from and have it reviewed. Why, you ask, should you go to another agent? Because if you don’t know what the guarantees are, you were more than likely sold assumptions. Agents that sell guarantees drive the point home. We’re proud of it. And, if the person did it to you once, they will try to do it again and that means they could potentially get paid twice for the same wrong thing.
This post is somewhat dated. Life insurance underwriting is changing and evolving continually. For more updated information check out some of the key word links. If you have a specific question or topic you need information for do a search. If you don’t find the answers you need contact me and we’ll make sure you get the information that is important to you.