A modest proposal for a change
in the term insurance sales process, and an appeal to the vendors who provide term quoting tools.
Guaranteed level premium term insurance has been a remarkably resilient product—a market leader for more than 25 years. Yet we have reduced the selling process to a commodity spreadsheet exercise in which the only value offered the consumer by brokers and general agents is the search for the lowest price.
In many cases, the spreadsheet experience leaves the client underinsured or with coverage that virtually expires before the need does. Yet one simple step can be taken to more fully engage the client, helping him understand the compromise he is making when cost is a family budget issue.
History
In the 1970s and for much of the 1980s, the dominant form of term insurance was guaranteed premium select and ultimate annual renewable term insurance (or its graded premium whole life equivalent). Rampant replacement activity in the 1980s caused primary carriers and reinsurance companies to retreat from this product form. Attempts at innovation ensued, and ultimately guaranteed level premium 5- and 10-year plans gained traction (the first major player I recall was Midland Mutual, followed quickly by Federal Kemper and First Colony Life).
The consumer appeal of knowing that the price was guaranteed and would not increase was huge, and in time (a long time—sometimes our industry is slow to see the obvious) level premium plans were available for every period from 10 to 30 years. General agents kept a relatively small stable of companies offering term insurance, choosing them based on competitiveness, compensation, service, underwriting and the strength of their relationship. Brokers relied on their general agents to direct their cases to the right carriers.
Flash Forward
It was inevitable that someone would realize that a multicompany tool to compare term prices would meet with high demand, and spreadsheet software began to emerge from third party vendors in the 1990s. Armed with comparisons across a dozen companies, brokers began to demand that their client be placed with the carrier with the lowest price. Transparency in term prices is a good thing—all else being equal, the lowest price should win—yet spreadsheet selling has some serious shortcomings, including:
• The dilution of other valuable aspects of a product and company—service, financial strength, underwriting, compensation model, convertibility options, special benefits—offered at no cost by the company.
• A barrier to product innovation (the spreadsheets’ comparison capabilities drive product design).
• The temptation of jumping to the spreadsheet as the first step in the sales process. Brokers ignore the critical step of quantifying the need and, unconsciously or consciously, compromise the amount of life insurance needed or the duration of coverage needed when faced with a “budget.”
I’d like to focus on the last point. A modest change in the way we sell could increase the value of our advice to consumers immeasurably and, quite possibly, lead to increased sales.
A Modest Proposal
How often do budgetary constraints drive a sale? Is it more common to hear “Present me with the face amount you think I need for the period I need, then we’ll compare and make a choice,” or “I can afford a premium of only $900 a year, so present the best plan in that ballpark”? I suspect the latter.
Then we “fiddle” with the spreadsheet until we have something to present. And that is usually a comparison of premiums across a constant face amount for a constant term period. By doing this, we’ve neglected to tell clients how much they need, and we’ve made some decisions for the clients that they’re quite capable of making themselves.
What If?
We first quantify a client’s need. We can do this by using the Life Insurance Foundation for Education’s “Human Life Value Calculator,” which identifies an individual’s total lifetime value to the family. It’s so simple you can do it in less time than it takes to microwave a bag of popcorn. (It’s available at www.lifehappens.org/life-insurance/human-life-value and many other places.)
Using the stated budgeted amount, present an array of term plans across a variety of term periods and designs, solving for the face amount purchased by the budgeted premium as the initial premium for each plan. This “face solve” capability is absent from the currently offered quoting engines and is the “appeal” in the subtitle of this article.
Then, sitting with the client, cover the need and review the shortcomings each choice would represent to the ideal plan. The client can choose where to compromise—face amount or plan design—or choose to increase his budget!
The sidebar, entitled “Term Premium and Face Amount Comparison” uses this “face solve” capability across a variety of term plans to help the client choose the right coverage.
A simple proposal? You bet—perhaps even trivial, but I was raised to believe the most important aspect of life insurance was the face amount in force today as well as the day survivors need it. The current process shirks our responsibilities to American families when it shortchanges the amount of coverage.
Are the term quoting software vendors reading this?
