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What To Do When The VL Client Says, Oops, I Bought the Wrong Product

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It happens every day in our line of work. Clients wonder if they purchased a product that best meets their needs. This is normal behavior.

Throughout the 1990s, the stock market experienced unprecedented gains, and with those gains, the market attracted more and more consumers. But now, with the recent stock market volatility, you may have customers concerned with the performance of their variable life product.

I even had one client call to ask, “What do the brackets mean on this quarterly statement?”

Obviously, the client had been following the upward bound performance of the products investment divisions through the good times, but never saw a negative return and so didnt understand the meaning of those brackets that earmark investment losses. He wanted me to explain them!

Some irate clients may even want to switch to another life product that they believe is a better choice.

Im the first to agree that not all clients belong in a variable life product. However, I also believe that switching from one product to another doesn’t make sense for everyone, either.

Here are some suggestions for dealing with your clients, especially in these more volatile times, based on my own experience.

Keep emotions in check. Emotions influence client behavior and decisions. Life insurance is an emotional purchase, but emotions alone should not drive all decisions.

With a variable product, there needs to be an intellectual and rational component. When emotions drive decisions, clients typically panic when the markets drop, instead of considering that the down period may be a good time to buy.

It’s really a simple supply and demand issue. When supply is low and demand high, the price goes up. Conversely, when supply is high and demand low, the price goes down.

Explain losses. Any losses within a variable product are only on paper and not realized unless a client decides to “get out of the product.”

If a client gets out now, he might have bought high and sold low–obviously this may not the right approach to profitable long-term investing. Plus, the professional asset managers within the variable product lose money when the divisions experience losses. Those asset managers want positive returns as much as the clients do, and will work hard to turn their divisions around into positive territory.

Honor your clients needs. Most variable life products in existence today offer a multitude of investment divisions that should match up with a client’s needs. Here are a few steps you need to take before and after selling the policy, and what you should tell clients about recent market volatility.

Before the Sale:

1) Conduct a “risk assessment” profile. Most insurance carriers offer either a paper questionnaire or computer-based system that helps clients clearly identify their risk/reward tolerance.

2) Offer a variable life product that includes an automated system that will “rebalance” a client’s investment divisions. As the divisions gain and lose value at different rates, clients may find a greater proportion of their money in divisions with more risk. Rebalancing keeps the investment in line with goals.

3) Encourage a recurring premium schedule and explain dollar cost averaging. Single premiums in variable life products mean your clients must have impeccable market timingotherwise, single premiums lack purchasing power. Regular interval premiums often result in buying shares at a lower average cost per share.

After the Sale:

1) Review and validate client responses to the risk assessment profile. Objectives can change, so you need to make sure you continue to understand fully your client’s wants and needs. Reassess the situation and transfer funds into more appropriate divisions as needed.

2) Explain the down market in terms clients understand. Most clients understand the supply and demand concept, and this keeps emotions out of the picture. Variable life products are long-term products. Don’t focus on the daily ups and downs, but instead look at five- to 10-year performance.

3) Professional money managers within the products vary in focus and discipline. Explain where the money managers fit in the market and where they like to invest. Align clients with managers that match their needs.

4) Review the income, equity and specialty style boxes. Show clients where the most stable and volatile divisions fall within the style boxes.

One question you may be wrestling with today is, should clients get out of the market now?

Most likely, your clients did purchase the right product, but may have not directed premium to the right divisions, or at least not for todays market. So work with your clients until you clearly understand their needs and investment objectives.

If you have a client nearing retirement, I would consider replacement, but only in dire circumstances. Replacement opens up a whole new set of questions, rules and regulations.

As for me, I’m telling my clients they should focus long-term, continue to invest through the low period and enjoy the benefits that come from a long-term outlook.

is a director of business solutions for Principal Financial Group in Birmingham, Mich. E-mail him at [email protected].

Reproduced from National Underwriter Life & Health/Financial Services Edition, July 20, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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