Term-Only License Is Dangerously Wrong

To The Editor:

This is in response to the letter from Louisiana State Representative Shirley Bowler in the May 9 issue regarding her advocacy of the proposal for “Term-Only Life” insurance licensing.

Rep. Bowler has her heart in the right place–she wants to help the under- and uninsured portions of society. But she is dangerously wrong and misinformed in her solution–that states need to apply a unique and easy licensing examination for agents who would just sell term insurance.

These agents would not need to learn about the differences between term and permanent coverage, the advantages of term insurance as a rider to a whole life policy, or the needs for disability or medical coverage–which might be more important and more appropriate for some families.

Let’s set the record straight for Rep. Bowler, who surprisingly serves on the Executive Committee of the National Conference of Insurance Legislators.

Term is less profitable for companies than permanent coverage. Not true. Life insurance companies make more money, for less effort and less sales supervision, on term life insurance. The support and service requirements for permanent coverage, with cash values, loans, dividends, non-forfeiture values and settlement options are extensive. With term insurance there is little more than receiving premiums, paying a very few claims and the discontinuance of policies for non-payment.

There are neighborhoods where only term insurance is needed. Nearly every neighborhood in America probably needs some term insurance–from those with million-dollar homes to those in small apartments. But to assume that lower income families need only term insurance is a terrible fallacy and a disservice to the families that desperately need the semi-enforced accumulation afforded by cash value coverage. Should those policies also have term riders? Most likely. When the lower income family has cash flow distress, the permanent policy might be self-continued. With the term coverage, the policy is dropped–just when it may be most necessary, since disability often precedes death.

It’s not as profitable for commissioned sales representatives to bother with term. Well, if that is true, then why would they sell a less profitable product? Let’s assume an agent sold a term-only policy for an annual premium of $100. He or she might earn $80. But if a combination whole life and term policy were sold for $300 (helping to accumulate values) the commission might be $240. Which commission offers the most incentive for the agent?

The potential sales force does not need the sophisticated, but irrelevant, knowledge of permanent coverage. If that’s true, we would have one group of physicians educated just to dispense pills and another trained just to perform surgery. How could a term-only trained agent distinguish which client needs term only, permanent coverage and term rider, permanent coverage only, disability or medical coverage? Would you feel comfortable going to a physician who only recommended immediate surgery?

Agents should be trained to sell only the coverage their customers care about. Clients need to buy the most appropriate form of coverage, in an amount they can afford. But until they have been counseled and sold by a fully knowledgeable agent who is licensed to sell all the products, they will not be getting objective advice. A term-only agent could sell only term, so all persons will look like term prospects. The result–no objectivity!

There is a diminishing number of qualified agents. Yes, Rep. Bowler is absolutely right. But, the solution is not in releasing thousands of undertrained, underlicensed and non-objective agents; it is for the life insurance industry to find another source of agents. We have to look no further than Asia where there are growing numbers of women selling life insurance–permanent and term–in a very credible fashion. Some started as housewives looking for part-time income and have ended up earning more than their full-time working husbands. But they all take the same training and pass the same exams as all other agents. These women sell all the products and now are preparing to sell unit-linked (variable) products.

The limited license for term-only agents is a solution to real quality of life problems. No, Rep. Bowler, it is a solution to the greed of some life insurance companies that want to sell the most profitable product. Furthermore, I suspect they want to sell it in the areas of our society that have the least sophistication and education. In addition, I suspect that their cost per thousand for these term-only policies will be enormously greater than a quality term rider on a permanent policy. Lower income families need better qualified agents, because their capacity to recover from economic mistakes is less than the more affluent members of society.

Term-only agents–the right problem, but the wrong solution. Rep. Bowler has her heart in the right place (assuming she is not on the payroll of some term-only life company). The insurance industry is not adequately serving all aspects of our society. We need creative recruiting solutions. We need to learn from companies, like Taikang Life of China that hired 40,000 new agents in 2003 and had most of them still under contract a year later. We also need for companies to rebuild their training programs to embrace part-time agents and retirees looking for a supplemental income.