Insurance Insights

Too many people kept in the dark about life insurance costs

Life insurance remains the last, largest, most-neglected asset on clients' balance sheets

Aug 16, 2016 @ 1:15 pm

By Barry D. Flagg

One of the industry's largest life insurance companies recently filed a motion for secrecy in a lawsuit against them for allegedly singling out and charging certain policyholders substantially more for the cost of insurance. This is another example of efforts to keep policyholders and advisers in the dark, denying the information essential to the prudent selection and proper management of life insurance. This is also an opportunity for advisers to develop new business by adding a flashlight, a ruler, and a bag for money, to your toolbox.

Life insurance remains the last, largest, most-neglected asset on clients' balance sheets and in their financial and estate plans. Too many clients have been kept in the dark about what they're being charged and how such charges relate to industry benchmarks for best-available rates and terms (BART). Too many clients have also been kept in the dark about what they're actually getting in returns and how this relates to historical risks and rewards of invested assets underlying policy cash values and performance targets used in setting premium, cash value and death benefit expectations.

Clients in the dark are prospects for those who carry around a flashlight, a ruler and a bag for money. Identifying these prospects is as easy as asking if they know whether the charges inside their life insurance policy are competitive or excessive, or whether actual historical investment performance on cash values has been reasonable? Clients know what they are being charged and what they are getting in performance for most every other asset on their balance sheets and in their financial and estate plans.


For whatever reason, clients aren't (yet) in the habit of asking what they're being charged and what they're getting in returns in their life insurance. Perhaps this is because pricing and performance research for most other assets is more widely available, and clients have thus been less comfortable asking these questions about their life insurance. Perhaps it's because they think life insurance is mostly the same, and don't know there's as much as an 80% variance between competitive pricing and excessive charging. Or perhaps it's because they've been kept in the dark and don't know how to ask.

Circumstances are ripe for generating new business using a flashlight, a ruler and a bag for money. Tell clients and prospects you use the flashlight to shine a bright light on the pricing and performance inside their policies, and show them the pages of an illustration commonly referred to as detailed expense pages, which reveal year-by-year premium loads, fixed administration expenses, cash-value-based wrap fees and costs of insurance charges.

Show them how you use a ruler to measure for cost savings between what they're currently being charged versus BART, whether you measure for cost savings by hand (like I did early in my career, the way engineers used to use slide rules) or use newer research and technology from the likes of LifeSpecs, Morningstar and Veralytic (the company I founded).


Tell them how much they are being overcharged (I usually explain it as the percentage greater than BART), and that you'd like to be engaged to qualify them for the cost savings that go into the bag of money.

Lastly, explain how clients can use the cost savings from the bag of money to reduce or refund premiums, increase death benefits, reduce the risk of a premium call and/or extend the duration of coverage. I use a one-page election form to quickly and easily communicate this value of the bag of money in terms of their situation. I also use an engagement letter to differentiate the use of a ruler from the policy comparisons now considered “misleading,” “fundamentally inappropriate” and “unreliable” by financial, insurance and banking industry authorities.

Barry D. Flagg is the founder of Veralytic Inc., an online publisher of life insurance pricing and performance research, and product suitability ratings. Follow him on Twitter @BarryDFlagg.


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