Look For The Loss

The late, great John Newton Russell Award recipient, Isaac Kibrick, popularized the concept of “looking for the loss” in connection with insurance selling. Isaac’s theory was that insurance is best used as a means of indemnification for a loss and that a person’s needs could not be properly met without probing for loss probabilities.

Many examples of this concept in my own practice spring to mind, but one in particular stands out. I was pursuing a company lead on someone who had requested information about a pension plan. The prospect was 68 years old and had just turned the management of the family business over to his 40-year-old son. He explained that his son had agreed to continue to provide him a stream of income for his own retirement, but he felt it was now time for the business to start a pension plan for his son and the other employees.

At this point, I asked the prospect, “What would happen to your plans if your son were to die?” He thought a minute and then replied, “I’d be in a helluva mess.” The result of this brief exchange over this potential loss was a substantial key man policy on the life of the son. After that was completed, and with the future of the company and the father’s retirement income somewhat better assured, we then went on to explore the company’s pension needs.

I recall this concept and the incident because it seems to me that today so often the search is not for the loss, but rather the admonition is “look for the gain.” It is instructive, I believe, to compare these two concepts.

First of all, the loss I exposed could not have been covered by any product other than life insurance. Therefore, competition, insofar as other products were concerned, was eliminated. On the other hand, the pension plan could have been funded by all sorts of products and I could have wound up in a competitive morass if I had taken the path of least resistance and addressed what he thought was his most pressing need.

This point is also often missed in non-qualified deferred compensation or salary continuation sales. Such plans do not have to be insured and often they are not when the emphasis is placed upon creating a gain in the employee’s book account. However, if the company considers that such plans create a loss of cash when it comes time for the payments, then there may be interest in insuring the employee to recapture that lost cash.

In other words, the insurance is not essential if the only objective is deferring income, but it is essential if the company wants to cut its losses.

Other financial products invariably have as their objective gain of one sort or another. Moreover, it is a gain that cannot be timed to meet a specific objective on a certain date. I would not want to be characterized as being opposed to gain, for I certainly am not. I am simply raising the question of what product is best suited when there is a probability for loss and timing is critical.