Life insurance sales tactics
Karyl Raber
Last week my husband and I met with a life insurance salesman, and I just
needed to share some of the more 'creative' aspects of the sales pitch.
The product was something called a 'balanced plan', and was a strange
hybrid of a whole-life policy and a mutual fund investment, (is this what
is termed 'Variable Life'?) and was sold through a partnership with Ozark
National Life Insurance Co. and NIS Financial Services. Basically, after
the first year, 50% of the premium goes into 'The Pioneer Fund', a growth
& income mutual fund which has averaged (I believe) about 12% return over
the past 30 years.
We went into the evening fairly well-prepared, with the financial
calculator warmed up and a copy of the Jan '97 Kiplinger's Mutual Fund
issue - as well as some numbers we had run in advance.
The point that we found most ridiculous (but didn't realize exactly how
ridiculous it was until after the salesman left!) was his opening example,
supposedly based on a 'real' couple. He said that 30 years ago they
opened their 'plan' with a ($1500 ? ) lump sum into the mutual fund and
$250 a month in premiums/investments, and they are now receiving $40K a
year in income - which is less than the rate that their investment is
growing. Hubby ran the numbers at the time and they seemed reasonable,
UNTIL we started talking about how nice it would be if we had a huge lump
sum to start with, and it dawned on us just how huge a chunk of money $250
a month must have been 30 years ago! I remember my mother saying
something about how she & Dad thought early in their marriage that they'd
be 'pretty well off' if Dad were to earn about 10K a year, and how the
3-br house they lived in at the time I was born cost all of 16,000. Hmmm.
If I'm doing my math right, that's about 30% of my father's *gross*
income at the time. Anyone know what 'average' salaries were back in the
mid 60's? Even if the 'average' salary was double Dad's 10K, we're still
talking about 15% of *gross* pay...
The other point I thought was pretty ridiculous was that the Pioneer Fund
(with its 5.75% front-end load and .6-ish percent annual fee) was a
*wonderful* fund for us to invest in. Now, the overall returns didn't
look too bad, but there are plenty of other no-load funds out there with
as good or better returns and comparable expense ratios. Besides, at age
30 (me) and hubby at 35, just about *every* advice I've read is that we
should be putting the majority of our $$$ into some more aggressive
funds... He also kept neglecting our existing 401K accounts and the
impact they would make on our retirement situation. According to various
calculations I've done, we'll be in fairly good shape for retirement even
if we don't increase our investment percentage substantially - even
neglecting any possible social security income.
Finally, I knew he was someone I didn't want to do business with when he
suggested I cash in my 7-year old whole life policy and invest the cash
value in his plan. When I tried to get him to give me an 'apples to
apples' comparison, he kept giving me examples of what my $$$ would be
worth if I directed my current ($100/mo) premium *plus an additional $100
a month* into the plan he was selling. Sure, the resultant numbers looked
good, but I could almost certainly do better if I were to take that $100
and invest it elsewhere... And if I *were* to decide to pull out of my
existing policy, I can pretty much guarantee I wouldn't buy *another*
whole life policy with the $$$!
Now, I'm not saying that his program is necessarily a bad one for
*everyone*; I would imagine it would be OK for someone who needed a
regular, forced investment plan and not a whole lot of $$ to put into it -
and didn't want to make any effort at all to select and track a fund.
One of the big selling points of the fund was the $50 minimum investment.
Am I being overly critical here, or was this sales pitch really a bit
misleading? We have definitely decided to go the 'buy term, invest the
difference' route, and have the forms just about ready to mail to open a
mutual fund account and add to it on a monthly basis through an automatic
investment set-up.
Does anyone know anything about the companies involved? I understand that
the Pioneer Fund is a pretty solid fund (one of the first mutual funds),
but the other funds in the Pioneer group honestly don't look too
impressive to me.
Thanks for all the info & advice I found on this list when I first started
looking for advice on the 'term vs. whole / universal life' question...
Karyl
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@->-- @->-- @->-- @->-- @->-- @->-- @->-- @->-- @->-- @->-- @->--
Karyl Raber **** I've gone to look for myself. ****
kra...@primenet.com **** If I should return before I get back, ****
Phoenix, Arizona **** Please keep me here! ****
@->-- @->-- @->-- @->-- @->-- @->-- @->-- @->-- @->-- @->-- @->--
Paul C. Simpson
Karyl Raber <kra...@primenet.com> wrote:
Karyl,
You did exactly what you should have done...you prepared for the
interview and you asked questions. The investments that you make
should always be done after taking the steps that you did. My own
comments about what you wrote about are: There are many funds that
have paid 12%...but was that 12% shown in the sales material that the
salesman was supposed to have given you prior to any discussion about
a mutual fund? It is the law that a prospectus must be given out to a
person before a representative discusses anything on mutual funds.
Usually a prospectus only has investment results over the past 10
years...how did he get 30? The product that you were offered by this
salesman appears to be a very high commission product that you get
screwed on as soon as you sign the application and write a check. I
believe he could have made a much better offer with other products
that are available from many life insurance salesmen.
>The product was something called a 'balanced plan', and was a strange
>hybrid of a whole-life policy and a mutual fund investment, (is this what
>is termed 'Variable Life'?) and was sold through a partnership with Ozark
>National Life Insurance Co. and NIS Financial Services. Basically, after
>the first year, 50% of the premium goes into 'The Pioneer Fund', a growth
>& income mutual fund which has averaged (I believe) about 12% return over
>the past 30 years.
>
>We went into the evening fairly well-prepared, with the financial
>calculator warmed up and a copy of the Jan '97 Kiplinger's Mutual Fund
>issue - as well as some numbers we had run in advance.
>
Thirty years ago my own housepayment for my 3 bedroom 2 bath home was
less than $120 per month so the $250 per month the saleman so glibly
assumed you could have been paying for the past 30 years is probably
ridiculous sine he was talikng about much more that the average family
was paying for their monthly mortgage. Incomes of over $15,000 at that
time would have placed you in the top %5 of wage earners in the USA.
RILife
Karyl,
I believe you and your husband were wise in your approach. I know that as
an insurance salesman, I like it when my clients are well prepared and
'come to the table' with a very good handle on key issues and a keen idea
of where they want to be in 20 or 30 years.
As far as the actual plan that your salesman recommended, I'm really not
in a position to say if it is a good plan or not. I simply don't have
enough information.
What I would like to do is to use your note as a 'springboard' to talk
about ethics, as that seems to be an underlying theme. Just for clarity
purposes let me emphasize that the following is *not* what a direct result
on anything I have picked up from your note. It is a tangent -- an
outgrowth of your note. Please do not take any offense at it as it is not
directed at you or anyone.
There is a sterotype given to insurance salesmen. We are all familiar
with it. And that prejudice is that he or she is out to "sell you
something" that probably isn't in your best interest because he or she
lives on a commission income. What's worse is that the sterotyped life
insurance salesman is one who is obnoxious and would simply love to make
your financial life miserable to suit his own ends.
Sadly this stereotype is just like any other. There are some who fit this
mold, but not everyone. In fact, of all the experienced insurance agents
I have met in 8 years of sales, I can count the number of agents who meet
this discription by using the fingers on only my right hand. The vast
majority are highly ethical people who genuinely want to sell what is in
the client's best interests.
When I meet with clients, I occasionally hear horror stories of how they
were treated by a previous agents. I apologize to them for how they were
treated, and then use an analogy to help set the proper perspective.
Everyday 10,000 flights depart carrying hundreds of passangers. We hear
only about the ones which crash and take the lives of innocent people. We
don't hear about the 9,999.9 which arrive at their destination safely.
Similarly, the vast majority of ministers, rabbis, and priests are highly
ethical, sincere people who take their Divine responsibilities seriously
and with the utmost respect for God and their fellow man. Which do we
hear of more in the national news: The sincere ones or unsincere?
When I first started in sales 8 years ago, I cringed when anyone called me
"a salesman". They could have called me *ANYTHING* but a salesman and I
would have been thrilled! What was worse is that when someone asked me
what I did for a living, I couldn't look them in the eye and say, "I sell
insurance". I was afraid of what they would think of me. I knew I
offered sound advice to my prospects and clients, but was afraid they
would reject me and my ideas if they knew I earned a commssion on sales
(like they didn't know already!!).
After a few years it finally dawned on me that if I wanted my clients to
recognize the good advice I was giving them, I had to be transparently
truthful with them. Reading Zig Ziglar helped me recognize that I
couldn't expect people to respect me unless I respected myself and treated
my job as a proud profession. To fix that, I started introducing myself
as an "insurance salesman". I even started telling people up front that I
live strictly on a commission income, and therefore I can't be objective,
but I can be *fair*. So if the ideas I share with them make sense, and
they like the way I treat them, I ask only that they do business with me
and share my name with their friends and associates. Need I say that my
sales since then have been going up dramatically and the quality of my
relationships with my clients has also taken a quantum leap?
To wrap up this overly-long note, I have some concluding thoughts for
Karyl and anyone else concerned with their insurance salesman.
(1) Do your homework - know where you want to be in a few years.
(2) Recognize sterotypes for what they are. Don't assume the worst about
your salesman. If one gives into stereotypes, who really has the
problem? (I have to chuckle when I read certain nationally
recognized columnists when he/she/they pooh-pooh all sorts of
prejudice but then later show hypocritical
strains when it comes to insurance salespeople)
(3) Verify the salesman's ethical standards. If the person holds
himself or
herself out as anything but an agent (eg, 'Financial Planner'
without the CFP or ChFC designation), be on guard. If in doubt,
check him out. Simply ask this question early on: "How are you
are compensated?" If the response in any way indicates that he or
she doesn't earn a commission, politely excuse yourself at the
first appropriate moment. Make a few calls to find out if what
he/she said is true. If not, don't do business with him or her. If you
get a straight answer, you know you are very likely to have an
honest salesman in your home. Welcome him or her!
(4) If all indications are that the agent is an upstanding salesman,
listen to what he or she has to say with an open mind. He or she
may very well have good ideas that will suit your needs.
Sorry for so much bandwith! Hope it is somehow helpful.
Daniel Chase,
Newport RI
CoalitionF
>>Finally, I knew he was someone I didn't want to do business with when he
suggested I cash in my 7-year old whole life policy and invest the cash
value in his plan.<<
That's a tactic called "churning" or "twisting" and has gotten a whole lot
of agents at some very big companies (MetLife, N.Y. Life and Prudential,
to name a few) in quite a bit of trouble with regulators and the general
public. Beware this type of ptich.
Mike Diegel
Coalition Against Insurance Fraud
Washinton, D.C.
Chuck Weinstein
Karyl has demonstrated conclusively why one should only deal with
someone who subscribes to the NALU or CLU Code of Ethics. Assuming her
information was straightforward, the agent she spoke to was much more
concerned about his/her commission than the appropriateness of the
advice. You were looking at Variable Life Insurance, not a "Balanced
Savings Plan". Depending upon your circumstances, which you did not
elaborate on, this might be a good plan, but the way it was being sold
to you would make me back off in a hurry. The agent was being deceptive
and dishonest with you. Did he/she leave any materials with you? Was a
prospectus provided? Did he/she make a good effort to ascertain your
circumstances? If the answer to any of the above is "no", I would file
a complaint to your state insurance dept.
Pioneer is a generally good family of funds. According to a study by
Dalbar Financial Services, the average person who works with a
professional attains a 10% better return over the years than one who
invests solely in no-load funds without help. This, in large part,
comes because a trained professional uses a logical approach to
investing your money instead of an emotional approach. It is not that
load funds outperform no-loads (or vice versa, according to the
Investment Company Institue), but because we do our level best to help
people choose a strategy and stick with it, rather than buying last
year's hot fund or one recommended by a financial magazine. BTW, the
ten highest circulation financial magazines have recommended a total of
234 funds since January, 1997. Just a guess, but I doubt you will be
happy with what you get by investing in all of them.
Work with an ethical agent. Believe it or not, we're out there.
Chuck Weinstein, CLU, ChFC in San Francisco
Cm...@ix.Netcom.Com
The above is not a solicitation to sell securities or insurance.
Robert C. Thomas
On the other hand, if you are pouring money into a poor product,
continuing to do so might be the best course. Some replacements
are in order, and are not properly "churning". Rolling a whole life
product into a variable product might be a good idea. Then again,
it might not. It is not, however, as you imply, always bad.
skibum
CoalitionF <coali...@aol.com> wrote in article
<19970317153...@ladder01.news.aol.com>...
> >>Finally, I knew he was someone I didn't want to do business with when
he
> suggested I cash in my 7-year old whole life policy and invest the cash
> value in his plan.<<
>
Sheldon Jolson
In article <332FA9...@ix.netcom.com>, cm...@ix.netcom.com says...
>Pioneer is a generally good family of funds. According to a study by
>Dalbar Financial Services, the average person who works with a
>professional attains a 10% better return over the years than one who
>invests solely in no-load funds without help.
I would certainly take issue with this. Results from peer reviewed
journals appear to take the opposite position.
>This, in large part,
>comes because a trained professional uses a logical approach to
>investing your money instead of an emotional approach. It is not that
>load funds outperform no-loads (or vice versa, according to the
>Investment Company Institue), but because we do our level best to help
>people choose a strategy and stick with it, rather than buying last
>year's hot fund or one recommended by a financial magazine.
So you are stating that helping a client stick with an investment
approach is what improves return, not the investment itslef. I
can see that. But the 10% figure is clearly bogus in any case
unless all you do is tell someone to take money out of the bank and
put into the stock market. And then a drastic change in risk
should require a drastic adjustment to return differential.
- sbj -
Robert C. Thomas
Sheldon Jolson <s...@panix.com> wrote in article
<5gsjf3$5...@news1.panix.com>...
> In article <332FA9...@ix.netcom.com>, cm...@ix.netcom.com says...
>
> >Pioneer is a generally good family of funds. According to a study by
> >Dalbar Financial Services, the average person who works with a
> >professional attains a 10% better return over the years than one who
> >invests solely in no-load funds without help.
>
> I would certainly take issue with this. Results from peer reviewed
> journals appear to take the opposite position.
>
Well, on the one hand we have a specific source, i.e. Dalbar Financial
Services.
On the other hand, we have your general reference to "peer reviewed
journals".
This is a pretty interesting assertion, "10% better return over the
years...." It'd
be good to know, if true. Can you be more specific in your refutation???
Cheers, skibum
Sheldon Jolson
In article <01bc3862$c85cb2c0$9f733bc6@oemcomputer>, ski...@swcp.com says...
>> >Pioneer is a generally good family of funds. According to a study by
>> >Dalbar Financial Services, the average person who works with a
>> >professional attains a 10% better return over the years than one who
>> >invests solely in no-load funds without help.
>>
>> I would certainly take issue with this. Results from peer reviewed
>> journals appear to take the opposite position.
>Well, on the one hand we have a specific source, i.e. Dalbar Financial
>Services.
For one thing, I ignore "studies" that aren't performed independently,
and also independently verified for accuracy. Would you accept a study
by PFS at face value on the merits of term versus whole life?
The literature in mutual fund performance is vast and it should not be
necessary for me to do a complete literature review for you. However,
I will give you two recent references:
Journal of Finance, March 1997 (Vol. 52 Num. 1) "On Persistence in
Mutual Fund Performance," Mark Carhart
"The results do not support the existence of skilled or informed mutual
fund portfolio managers."
The Review of Financial Studies, Winter 1996 (Vol. 9 Num. 4)
"Survivorship Bias and Mutual Fund Performance," Edwin J. Elton,
Martin J. Gruber, and Christpher R. Blake.
"...a failure to eliminate survivorship bias can lead a researcher to
spurious conclusions about the effect of fund characteristics on return."
>On the other hand, we have your general reference to "peer reviewed
>journals".
>This is a pretty interesting assertion, "10% better return over the
>years...." It'd be good to know, if true. Can you be more specific
>in your refutation???
As I said, I guarantee that this ignores risk and could be as simple
as an advisor telling you to take money from a risk-free bank account
and put it into a risky mutual fund. This is not a method of improving
your risk/reward ratio.
I do not have the article, nor have I seen it, but since 80-90% of
funds do not beat the market, I fail to see how an investment advisor
can add 10% to my return when articles, such as the first one I
mentioned, show they have no impact on return.
- sbj -
Robert C. Thomas
Peace! I gotta agree. Too bad, it would have been nice if that 10% were
true.
Bob