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Guarantees Are Back In Style

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I think I should declare at the outset of this piece that I am a dyed-in-the-wool “whole life freak.”

I say that because whole life has served me and my clients well over many years. It has always been there, whether it be a loan for emergencies, college funds or retirement income, and it has never done less than was proposed.

Moreover, because this was my main staple as a product, I have never had to apologize for the under-performance of some of the more exotic products that were available. Since retiring, I have been an expert witness in a number of cases involving such under-performance, and I can tell you that it is an excruciating and expensive exercise for both agents and company.

When S.M.U. Professor of Insurance Chuck Gaines was on the speaking circuit many years ago, he always admonished his audience, “The most important thing about money for future delivery is–will it be there? And the second most important thing is–how much? When people get these reversed, they invariably run into trouble.” That was conventional wisdom most of my years in the field.

More recently, Ben Feldman used to say when talking about key-person insurance, “Money is entitled to a wage–but not a profit.” His point was that profit is made by people who make things happen within a business. It would appear that for most of the 90s people were selling “profit” rather than need or guarantees.

Ironically, in the cases in which I have been involved as a witness, it is clear that both the public and juries thought that the illustrations they received were guarantees, despite clearly a written statement to the contrary. Plaintiffs lawyers have fed this perception with considerable success.

Lately, things have begun to change. Some of the variable products now have certain stop-loss guarantees or other provisions to reduce the risk. But the most significant thing, I believe, is that guarantees are becoming more prized. The disappointments resulting from poor performance in 401(k)s has started to make the defined benefit pension plan attractive.

Reality has forced people to recognize that Ben was right–the wage for money is far less than the expectations of those looking for a quick profit. There is no better teacher than experience, but sometimes the lessons are hard.

I am reminded of a friend whose wife wanted to open a beauty parlor. She had the money to launch the enterprise but no experience, so she partnered with another lady who had experience running a beauty parlor. Several years later, my friend, commenting on the demise of the business, lamented, “My wife now has experience and her partner has the money.”

I am not for one minute suggesting that people should not take chances or assume risks. Rather, chance should always be kept in proper perspective and never be a substitute where guarantees are required.

Chance can cut both ways, working both for or against you. Ronald Reagan once observed, “If I had gotten the job I wanted at Montgomery Ward, I suppose I would never have left Illinois.” But I have always believed that the most important part of our mission was helping people to reduce personal risk so that their future was not left to chance, at least not from a financial perspective.

One of the reasons I have always been a big fan of the Million Dollar Round Table, is that while they acknowledge the present diversity of our business, they have remained true to our core business.

Their annual program, more than anything else, reflects the value of life insurance as a mechanism for solving some of lifes most vexing financial problems. The case histories presented at the meeting invariably demonstrate that through life insurance we can do what no other financial instrument can do. But resisting the temptation to sell more glitzy products with great expectations and few guarantees is not always easy.

A friend whose company serves the insurance industry once asked me, “Why does the insurance business need a Million Dollar Round Table? No other sales force in any other line of business has such an organization or a meeting comparable to their annual meeting.”

I responded by saying that our business is different from any other. We do not operate from a store, like a car dealership where people come to see us. Rather, we have to seek out buyers and it is a tough and lonely road and subject to much rejection.

Perhaps most important, our essential task is to help people face reality. The reality of life and death with the chance of sickness or disability is not a subject people like to confront. Often we, in making a sale, divert money from purchases that give pleasure today into a purchase of security for a family of tomorrow. That takes a special kind of motivation and commitment.

And that is what the MDRT does perhaps better than anyone else. The motivation from the annual meeting recharges our batteries for another year, thereby helping us to be more effective in helping people to understand the importance of guaranteeing that there will be money for future delivery, and at a time when it is most needed.

Reproduced from National Underwriter Life & Health/Financial Services Edition, June 24, 2002. Copyright 2002 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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