The ’80s were filled with great agent confrontations, which in many cases led to a flat-out street fights between agents with different insurance philosophies.
In one corner, you had the “buy term, invest the difference” gang, who were famous for saying they could sell you 10 times the amount of death benefit for the same amount of premium as a typical cash value insurance policy.
They would sell the concept of “the law of decreasing responsibilities and the law of increasing wealth.” They believed you should separate your life insurance policy and your savings instead of combining them.
They usually used an American Funds mutual fund, projecting a lifetime return of roughly 12 percent. They did this while bashing the cash value policy you might have bought from a close friend or relative (which often led to sour relationships after the new agent got a hold of your policy).
These agents sold fear and betrayal like no one else in North America. If you had a cash value policy before they showed up, you walked away afterward wanting to call the agent who sold you the policy every four-letter word you could think of.
These agents were proud to call themselves “termites,” since all they believed in was selling term insurance. Anyone who sold anything else but term life was referred to as a “trash value agent.” The termites got their playbook from the famous union leader Jimmy Hoffa, who ran his organization with a bunch of ragtag people who made others think their only priority was to correct an injustice.
In the other corner, you had cash value agents, who believed in selling you a permanent policy that would last you a lifetime. These agents felt that term insurance was a pure profit play for the life insurance company because they rarely paid out.
Cash value agents sold you on the concept of building cash value on a permanent policy, in which you would see returns around 3 to 7 percent. On the cash value side, the agents looked more like actual life insurance agents: They wore a nice suit and tie and looked like they were running for Congress.
The career life agents selling permanent insurance were upset because they saw “termites” as unqualified agents making the industry look bad. These agents felt a permanent policy was a better choice than term because permanent would protect the family for the rest of their lives. Not to mention their policies wouldn’t make you feel like you were throwing your money away on a policy that would eventually lapse.
Both sides had their own convincing arguments about why they were in the right and the other side was in the wrong. They each carried policies from competitors to show clients what bad policies they were selling.
It was very polarized and similar to today’s political scene: Each side really couldn’t stand the other. You could see the look on an agent’s face change when his client mentioned having a policy from a competitor’s firm.
The truth is that both the term and cash value agents of the past several decades were selling mediocre products compared to what we have today. The great thing about free market capitalism is that, through competition, companies will constantly work on designing products that will out-perform the competition; and that’s exactly what ended up happening to the life insurance industry.
On the term insurance side, products went from inadequate terms of 10 to 20 years, to now terms of 30 and even 35 years. The product eventually overcame the famous objection that families bring up: “What happens to all the premiums I pay to the life insurance company if I end up not dying?”
Originally, the termite agent would answer by explaining the law of decreasing responsibility (i.e., that there was no longer a need for life insurance when the policy lapses because the kids would be grown and the house would be paid off). That sounds good in a perfect world, but unfortunately we’re not living in a utopian society.
In many cases, life-changing events alter our financial plans, such as weddings, elderly parents in need of long-term care or assistance, college costs, a brother or sister in need of a financial bailout, etc.
So what do you do when you’re 62-years-old living in a house with a $200,000 loan, but you no longer have a life insurance policy? (Set aside the fact that estate planning laws, having changed over the years, favor having more life insurance in later years.)