INSURANCE MARKETING ISSUES
LET us look at sales conduct in relation to life and health insurance. For life and health agents, past abuses have centered on twisted and deceptive advertising.
Misleading illustrations and important contract clauses typed in fine print and easily over looked by customers and other unethical acts. Regulators have responded with replacement policy forms, insurer fines, agent reprimands, and revocation of licenses in worst cases.
Further, stiffer competition, declining interest rates and thinner profit margins have impacted on how insurance companies and agents do their work. The bottom line is that agents are forced to work harder and smarter. In lieu of sitting back and waiting for the market to improve, industry forecasters say that agents must accept new roles to survive.
Agents due care and sales conduct will be more important than at any other time in our insurance industry’s history. This will involve a commitment by agents to polish skills and acquire a systematic approach to filling client needs.
Before determining the amount of life insurance needed by a client, due care would involve the agent and client in a discussion concerning the various types of life insurance available. Such as; annual renewable term, deposit term, decreasing term, level term, whole life, modified whole life, single premium whole life, universal life, variable life, and so on.
The detailed attributes of these different policies are best left to a course on basic life insurance. However, it is critical, under due care, that agents recognize the pure risk involved and counsel their customers on the proper choice. For example, persuading a client to accept a high monthly premium whole life policy with a settlement payoff that leaves a significant financial gap at the death of a breadwinner, is not exercising due care.
This is not to imply that whole life forms of insurance are inappropriate. Rather, there are situations where a client’s age and situation call for the agent to consider future estate settlement costs and liquidity as prime directives in making policy choices.
There may even be conditions where due care by the agent might involve a recommendation for a client to carry little or no life insurance at all. For instance, issues regarding life insurance needs for single people, non working spouses and children are often debated among financial planners and agents alike.
One process for determining an estimate of the amount of life insurance needed is called capital needs analysis. Financial planning courses cover this process in considerable detail and typically include a sample capital needs worksheet. For purposes of proper sales conduct by agents, factors to consider by agents include; Capital needs for family income. Most families are able to maintain their standard of living with about 75% of their bread winner’s income.
Depending on the skills and resources of the surviving spouse, this fund may be large enough to provide life time income or for a specified period of transition, capital needs for debt repayment.
Typical debts to consider include house mortgages, business debt, etc. A decision can be made to totally liquidate the debt or to use life assurance proceeds to set up a fund to make payments for the life of the loan or a specified period. Other capital needs might include; college education funds for surviving children and estate settlement costs. Simply final expenses can be costly.
Uninsured medical costs and funeral expenses are one aspect. Additionally, current assets available for income production, liquid assets; such as savings accounts, investments, real estate, pension plans, etc, are currently available for income produc- tion or liquidity needs to offset the stated capital needs.
Anything less could leave the client underinsured. Lesser amounts may be purchased where the client cannot afford the premiums or makes the choice to carry less. If there are additional concerns, such as a client’s long term health, the agent might be advised to disclose his recommendation even though a more expensive policy with less coverage is purchased.
On going monitoring of capital needs is necessary to plan for new client objectives, repositioning of debt, inflation, estate settlement changes and potential health problems that may prohibit coverage in the future. Another due care consideration concerning life insurance is ownership or title of the policy.
Agents should recognize conditions where it would be beneficial to keep life insurance proceeds out of a client’s estate by using a life assurance trust or alternative ownership. Due care may be sufficient where agent disclosure of estate tax consequences of life assurance owned by a client and a proper referral to a competent estate planning lawyer is pursued.
Questions that need answers are numerous; what existing death benefit sources does the client have? Group life, survivor’s income, individual plans, association group life plans, pension plan death benefits. Who is insured? Is someone contributing economically who must be added? Do all death benefits, along with available assets, meet client objectives? Are there other needs to consider such as dependents with special needs? Are there any business debts or personal debts? Is there existing life policies that can be cash surrendered or tax exchanged to more efficient plans? Is waiver of premium available?
Is this a desirable benefit for this client? Is there accidental death benefit or double indemnity? If so, is this desirable or can it be dropped in favor of a lower premium? Is coverage guaranteed renewable and to what age? Is the client’s health stable enough to change policies? Is coverage decreasing term? Is the balance sufficient? Are there policy dividends? Is the client making the best use of these dividends? Or, would reduced premiums be recommended? What are the settlement options available at death? Lump sum, payment options, insurance trust, etc. Is there a plan for the common disaster, involving both husband and wife?
Statistics have surfaced which indicate that the average person is three times more likely to suffer a lengthy disability than die. Providing a source of financial income in the event of a major disability is probably the most overlooked portion of client financial planning.
By definition, a disability can be a temporary or permanent loss of earned income due to illness or accident. Essential disability questions are; how much monthly protection is needed? Is an individual policy needed to supplement work plans? When does protection need to start? 30, 60, 90 days etc, can the client self insure for a period of time?
Does the client have discretionary income to buy needed protection? Is the coverage non cancellable or guaranteed renewable? Can a block of insured’s, including your client, be canceled? If multiple policies are owned; employer, association or individual; will the benefits of one be reduced by the other? Is there a case for eliminating a policy?
Is there an employer supported uninsured sick pay plan available? What is the definition of a disability in the client’s policy? How severe? How long? Does the policy include occupational and non occupational coverage? Will the company remove it? Will another company write without a waiver? Is there a waiver of premium benefit? Would this be necessary for the client?
Similar to life assurance, due care analysis by the agent involves need analysis. Through inquiries and available financial documents, the agent should determine the current after tax income needs of the client.
This amount could be reduced by expenses that might be eliminated due to the disability. For instance, if a client is homebound, he/she will not need to cover transportation costs of commuting to work or other work related expenses. Look out for part VII.