A few years back I read an article in a trade publication and, well, I was much younger then and easily riled. I am still getting comments on the post I wrote about that article.
In the life insurance business there is an organization called the Million Dollar Round Table, MDRT. MDRT is a kind of fraternity you can join if you sell enough life insurance during any calendar year. If you qualify, and pay your dues, you are eligible to get stuff to hang on your wall and go to their annual meeting where you spend a few days with hundreds of other life insurance agents. Now that’s some fun.
The article I referred to above was written by Guy Baker, then President of MDRT. His article, “The Money Box, A Proven Way to Illustrate Permanent Life Insurance”, was I found, well, a joke. Rather than reviewing an actual illustration of what can and what might happen to the policy, you tell the client a story, which he compares to Jesus telling parables.
Mr Baker’s infatuation with whole life insurance becomes apparent early in the article. He believes that all insurance should revolve around cash value and makes that cash value the hero 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. It’s wrong so it’s important to keep that thought handy.
He compares whole life insurance 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, he asserts that with whole life The Box kicks in and starts paying part of the cost so that insurance will remain in force forever…..theoretically!
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 them”.
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, (or if your agent doesn’t sell the policy with guarantees) then The Box will need more money. The Box must have enough in it to pay the curve.” Some agents will convince you that you can pay less and company performance will make up the difference. I talk to people all the time who have found that not to be true but can no longer find the life insurance agent that sold it to them.
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!
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, an option that has been around a lot longer than his article. There really is a term for life product out there, called a universal life with a no lapse guarantee. In Europe they’ve called it term to age 100 for a long time. No Box, just fully guaranteed level premium and death benefit carried just like term insurance with company reserves. And the products available here generally guarantee the death benefit to age 121 even when premiums stop at 100.
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. If you have any questions or would like to see illustrations comparing whole life and no lapse costs, call or email me directly. My name is Ed Hinerman. Let’s talk.