Life insurance policy replacement: Are you doing what's right for your clients?
By Lew Nason
Insurance Pro Shop
Consider the vast majority of highly successful agents very rarely replace policies. It’s why they are trusted, respected and referred.
There have been several articles on ProducersWEB recently that explain how to properly compare existing permanent cash value life insurance policies with the new and improved policies being offered today. What follows are my thoughts on what they are doing and why replacement of existing cash value life insurance policies is just wrong.
If you want to know one of the main reasons why the life insurance industry has such a bad reputation, then all you have to do is look at the people who are allowing indiscriminate replacement of existing cash value life insurance policies. Replacing existing policies is churning and twisting. Yes, there are a few cases where a policy was funded improperly or loaned to the hilt and cannot be saved. However, replacement of an existing cash value policy should only be a last resort.
Consider, there is always going to be a new policy that appears to be better than the existing policy. If an agent looks hard enough, they can always find justification to replace an existing policy, at least in their own mind. However, do we replace all whole life and traditional UL policies with new and improved index UL policies because they appear to illustrate higher cash values with less premiums? The questions you should be asking: What is the client giving up? What’s the message we are sending to consumers?
Over the years, there have been several relatively new and aggressive life insurance companies that produced payout projections beating anything the traditional stalwarts were offering. But it was all a paper mirage. Many of the companies were highly-rated companies that were eventually taken over by their state insurance commissions because they became insolvent. Here is a quick explanation of why replacement of policies is bad and should be only a last resort.
1. Bad for the industry. When we replace an existing policy, aren’t we telling the client that they made a bad decision and bought the wrong product and/or the agent who sold the policy sold them the wrong product, didn’t do their job, etc? Is that the message we want to send to our clients? Won’t you and the industry have more credibility if you tell them they made a great decision and you find a way to conserve the existing policy?
2. Bad for the insurance company. There are a lot of costs to the insurance company to issue a policy. The more we replace policies, the less time the companies have to recoup those costs. So, the more expensive those insurance policies will become. Accordingly, in order to stay competitive, the insurance companies must lower or remove some of the exceptional internal policy features — internal policy features such as guarantees, loan rates, convertibility of term riders, etc.
3. Bad for the agent. If you replace an existing policy, then aren’t you actually telling your client that it’s OK to replace your policy when the next agent shows them a more competitive policy? And, when you are replacing a policy, are you also giving them the impression that you are only after a new commission?
4. Bad for the client. In most cases, in order for the newer policies to be more competitive, they have eliminated exceptional internal policy features that were offered in the older policies, such as low interest rates for loans, higher guarantees, etc. Plus, the client may have to satisfy limits in the new policy that have already been satisfied under their current policy. For example, surrender charges and the two-year "incontestable" clause.
Helping your clients to feel good about what they have and keep what they have it is the right thing to do. Consider the vast majority of highly successful agents very rarely replace policies. It’s why they are trusted, respected and referred.