Twenty plus years ago, an enterprising agent developed a marketing concept he called “Premium Offset Plan.” The idea called for a policyholder to pay the full premium on his or her policy for a measured number of years and then use the accumulated dividends and future dividends as an offset against future premiums. The reduction in annual premium outlay could be substantial and in most cases, if properly executed, in time offset the entire premium.
The concept proved to be very popular as it appealed to the side of human nature that does not object to owning life insurance, but abhors the payment of premiums. It was also timely because a tax reform act had eliminated the deductibility of personal interest, thereby reducing the attractiveness of minimum deposit plans used by high bracket taxpayers to lower carrying costs for their insurance.
But then we started “.” Confidence was so high that this concept would, in future years, eliminate premium payments altogether that the popular nomenclature for the plan became “vanishing premium,” a much more marketable term. Aggressive marketing of vanishing premium became pandemic, and the publics expectation of the product rose beyond the industrys ability to deliver. When premiums did not vanish, or suddenly reappeared, disappointment turned to anger and then to lawsuits. The resulting settlements were costly to the business from an economic perspective as well as undermining our credibility.
The foregoing underscores a truism that is often overlooked. When government reacts through the courts or legislative bodies, the popular notion is that it is attacking us or at best, sticking its nose where it doesnt belong. Invariably, industry trade associations, trying to soften the blow, are accused of being reactive and urged to become proactive in warding off government. Fact is, the opposite is true. The private sector is the innovative party and government is the reactive one. Government, at many levels, reacts to what we do, and when we push the envelope, you may be sure it will provoke such reaction.
This leads me to my current concern, which has the potential for results similar to those produced by the vanishing premium episode. I refer to the marketing of Equity Index Annuities. Note that I said my concern is the “marketing” of these annuities. I will leave it to others to measure the merits of the product itself.