In 1970, I met with Dr. Dan for the purpose of estate and business planning. He was 40 years old and had an optometry office. We agreed that he needed $300,000 of protection. I suggested whole life. He explained that he had a profit-sharing plan and expected fully to fund that; he intended to retire at age 65 with the practice worth about $1 million. He said he would not need cash values in the future because of his business assets and the retirement plan. He insisted that he only wanted term insurance, which he intended to terminate at age 65.
I explained the attributes and shortcomings of relying on term for permanent planning, but he was adamant. Through the years, we had many meetings to review his program and circumstances. His position on term did not change. We added more term and replaced some with newer policies in the years of the term wars. I did get him to an attorney, and he did wills and trusts, but there was no movement on the term insurance position.
He retired around age 68, about five years ago. It was at a time when the profit-sharing fund was not where he anticipated it would be, and the practice did not sell for as high as he thought it would. A few months after that, he telephoned me to say he had gotten his term premium notice, and it seemed like it had gone up quite a bit. I told him it had and that had been the pattern for the past three decades. He did not realize it because he always gave the notices to a secretary to pay. He asked what could be done, and I invited him into the office.
We met, and I explained that an option was to lapse the policies. He said he could not do that because he wanted the coverage and now had some high blood pressure and a bit of sugar diabetes. I further offered the options of paying the premium or conversion of all or part of the face amount. He opted to pay the premium.
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The following year, he called me with the same observation of a rise in the premiums. I asked, “When can you come in?” I offered him the same three options. He paid the premium. The year after, the conversation was the same, with the added sharp comment, “I can’t hold on, and I can’t let go.” The next year, Dan called and spoke to my secretary, Lori. She said I was in and asked if he wanted to speak to me. He said, “No, Burt only wants to sell me whole life.”
The next year, his wife called for him and spoke to my secretary. She ended the conversation by sarcastically asking, “Why didn’t Burt sell us whole life?” I called her back, and she blamed their plight of high premiums on me. I asked her please to come to the office and I would lay all of Dan’s files on our conference table so she could examine 30-some years of records, including all the studies I had made for conversions through those years. I told her my notes of meetings also would be included, with comments made to me by Dan, some of them not so kind. She declined. The policies still are in force and still are accelerating in cost. Something has to happen sometime. What? I can’t anticipate.
When universal life (UL) first hit the market in the early ’80s, I made a note in my flashcards that said, “UL is a product that will require some tending.” Enter variable life (VL) and a couple dozen other interest-sensitive products, and we have found a new meaning for the words “service” and “total immersion.” I have a couple of rate books going back over 100 years. One is from 1886, and one is from 1905. Anyone in the business less than 10 years would know nothing about these. He or she would know rate bytes better than rate books.
Going back to those years, only three plans were available to producers: whole life, limited pay, and endowment. They didn’t have super-select life, non-driver, left-handed life, non-cholesterol life, the challenger, the maximizer, the pinto, the jaguar, T-2000, three-step life, econolife, modular hopeful life, or a host of other plans whose names do not describe what is inside the contracts and make one wonder how they got through state insurance commissions. And they still made a living.
Today, anyone can sit down at a computer and run an illustration that is thicker than the entire rate book was a few years ago. We have more stuff stuffed inside there than 200 years of actuarial science. Some of us are so adept with our machines that we reinvent the deal each time we sit down to run an illustration. Sometimes, when I ask for various proposals to start putting a case together, I get scared when I look at the volume of paper that comes in to glare at me. Think about how happy the office supply stores are when we start a file for four shareholders for two face amounts each and a couple of variations of term, variable, or whole life.
Sometimes the producer might look at a client file and see two illusions — oops, illustrations — for the same prospect and find differences that confused him or her, even though it was he who ran them. Then he starts searching for what the differences are. Was a certain rider checked or not checked? Male or female? Smoker or not? Dividend variations? Various interest assumptions? And a lot of other detective-type steps until he gets himself on track.
In the late 1960s, I was the chairman of an Agents and Managers advisory committee for a certain company. We were having a meeting at the home office. About seven agents and 10 department heads and officers were in attendance. The company had a massive conference table that accommodated all of us. I was sitting at the table’s head next to the president of the company. We were following an agenda, but there was a lot of time for tableside caucuses and side discussions. At one point, the volume of conversation had risen while these discussions took place. There was a sudden break in the discussion where only one voice was heard. An assistant actuary was sitting next to the actuarial vice president when he thought he was whispering, but because of the abrupt lowering of volume, his voice was heard all around the table asking, “Do the agents have rate books?”
His question more than three decades ago was prophetic for what was to come. Well, we don’t have them anymore, and the rates are a moving target. Even now, some of our computers are being changed by wireless, e-mail-style technology.
Going back to those old days when I got my first rate book, the only plans were whole life and endowment. The term insurance section was a few loose sheets as an insert at the back of the book. We hardly ever used it. It was a different day for insurance. Compared to today, we weren’t even selling “life” insurance. We were selling “death” insurance: itty-bitty policies of $2,000 and $3,000 for burial and final-expense purposes. Obviously, these sales were whole life. For those who had savings or education in mind, endowment fit the recipe. Having some insurance for 20 years and then getting the face amount and dividends in a participating policy was palatable to those who wanted to fulfill a financial goal, such as college funding. It was a secure way to save money. We were not so sophisticated in those days.
To my unscientific observations, it was during the 1960s and early 1970s that we realized life insurance was only money and could do anything and everything that money could do. Many of the illustrious departed members of the MDRT and some of today’s senior, veteran producers brought us out of a bygone era of life insurance and put the world into the enlightened age. But like the evolution of the Bronze Age, the Iron Age, the Stone Age, and the current Hair Spray Age, we will go on to new uses and applications of our current insurance age. The younger gals and guys will take us forward, and I thank them in advance.
I am 72 years old and have been in this profession for 48 years. I’ve been fortunate enough to see this evolution. Going along with that, there are separate, distinct, and purposeful uses and goals for all the kinds of insurance we have and the variations that will come forward. There are definite and precise needs for whole life, term, interest-sensitive products, and annuities. Each has its separate yet inter-connected purpose. Every policy, no matter what kind, is a combination of endowment and term. It is like a teeter-totter: a combination of protection and cash value. As one goes up, the other comes down. By a combination of premium and timing, life insurance basically is nothing more than a merger of time and money.
I sell about 60% permanent insurance, 25% term, and 15% UL or VL. Every producer has different numbers. Each has a use and need, and it is the producer’s job through proper fact-finding to suit the prospect’s wants and needs. I remember the watchword when UL first evolved around 1980. The stock market was becoming better known, and the goal was to merge the disciplines of protection and investment in one vehicle. UL’s developers proclaimed that the clients could determine their own desires, and if they chose, they could take the risk and a little gambling spirit themselves and not rely on the insurance company to prescribe what the guaranteed cash values would be some time in the future. This tied into the mixing and matching and flexibility of premium, cash value, protection, and period of the policy. The late John Savage, one of the innovators and icons whom I mentioned, had a saying: “If you are going to die right away, I will sell you term insurance. If you are going to live a long, long time, I will sell you endowment insurance. If you don’t know, let’s go straight up the middle with whole life insurance.”
We all have had the unpleasant experience of meeting with clients or their advisers to re-explain and resell the idea of UL or VL when the interest earnings did not meet projections. They forget the idea of projections versus guarantees and may interpret one as the other. Maybe it is a matter of selective memory or fixing blame. Minds are expansive and enthusiastic, and memories are short. They forget the caveats, which are put on the printouts. Paper doesn’t care what is written on it, and the printer only spits out what instructions have been inputted. We are aware of the lawsuits that have been leveled against certain companies, and we have compliance departments to guide and monitor agents’ actions.
The word “traditional” has a ring of guarantee to it. An interest-sensitive product that fully is funded and understood can be exactly the tool a particular client wants. A little slip in calculations or circumstances, however, requires some reacting or re-balancing. How many clients are ready for the effort, upset, and disorder in their lives?
The public reacts precipitously to certain market conditions. In the bad times, we hear them talk about putting all their money in “cash.” Why? Because they want guarantees. “New and improved” may be only the fashion of the day and not designed to be enduring. If the client is absolutely sure the need is for only a specific and exact time and there are no contingencies for insurance beyond the target date, term insurance is the perfect recipe. That is traditional and exact.
Is life insurance bought or sold? The answer is sold, but only after the client fully explains the desires and the producer does a proper job of matching the product to the stated specifications. It is our job to be the architect of the clients’ futures rather than the repairman of erroneous assumptions.
I contend if the producer were the most computer-literate person in the world, wanted to develop the perfect policy for all circumstances, and sat down for as much time as it took and used all the factors of goals, time, premium-paying capacity, potential pitfalls, longevity, and inflation, at the end of the session, no matter how long it took, he or she would have reinvented whole life. Nothing is simpler on the face of financial expositions. In fact, going back to when I first started using the rate books, we even didn’t have calculators. We did it by hand and by brain. Usually we had a one-page sheet that we filled with these guarantees and dividends, and we worked off these. I have many policies still in force where the numbers have held up right on point. There were no caveats about the cash values and the paid-up values. A guarantee was a guarantee. There were explanations about the dividends. But for all of these, the dividends have outpaced the projections through the years.
Whole life is a sleep-well product. I never have had to say, “I’m sorry” to anyone for having sold whole life. This is opposite to the painful meetings we have had explaining why the perceived values are not the real values and why the policy will require more years’ premiums than the non-guaranteed projections. I love when clients come into the office and we review their summary sheets and the options are all in their corner rather than restrictive and disappointing news regarding contracts in jeopardy.
Think about the phrases we use to explain our most traditional product: whole life, straight life, or permanent. Nothing is straighter than those expressions to describe a product in one or two words.
Permanent: What more can one say about a product? So I won’t.
Straight life: Again, it is hard to improve upon the simplicity of this word. I wish I knew the origin of it because it sure tells the story without glamour, glitter, or glitz. It is from the rate book straight to the result, which is anticipated without curves and detours. It does what it is supposed to do when it is supposed to do it.
Whole life: This is the basis of it all, and the name again is completely descriptive of what it does. It is in force for the whole of life. After the policy is placed in force, it is there forever. All the policy owner has to do is pay the premium in a timely fashion. After the payment of the first premium, all the policy rights reside with the owner forever. The insurance company only has one right, and that is to accept the timely payment of premiums. The policy owner may make changes and exercise such rights as loans, surrenders, assignments, beneficiaries, and frequency. The insurer only has the right to accept premiums that are paid on time.
The deal is permanent, straight, and for the whole of life.
The traditional products we have are term and whole life. These are the straightforward, uncomplicated products we sell. The textbook definition of term is “protection in force for a stated period.” If it is airline insurance, it is in force for the flight. This is the shortest term there is. Get off the plane, and the term is finished.
Then there are choices of how long one chooses to have the coverage, from one year to life. The variable is the premium. As all of us tend to do, we talk about our business all the time. Many years ago when my daughters were small, I was doing a post-mortem on a case at dinner. One of the children asked, “What is term insurance?” Dori, who was probably 8 at the time, said, “It terminates.” It can’t be said better than that.
Term insurance is like renting an apartment. The rent continually rises, and the tenant owns nothing. The landlord dictates the conditions.
Permanent insurance is like owning a home. The payments remain level or complete themselves, and the owner creates equity.