Policy Review: An Obligation Or An Opportunity?

Policy Review

“I don’t get paid to do those.” “I don’t have time to do those.” “Let Policy Services do those.” “What the heck are those?”

Bring up annual policy reviews to 90 percent of the producer population and these are some of the common retorts to the seemingly sensible suggestion. While each of those ripostes may have some degree of merit, the real reason annual reviews are not conducted on any type of regular basis can be summed up in just one word. Fear. Fear that the client will ask a question the advisor can’t answer; fear that the product sold did not perform as well as anticipated; fear that the advisor won’t be able to explain the myriad charges, fees, loads, credits and returns that make up these often complicated products. And that fear definitely has merit. The statements generated by the carriers can often be incredibly complicated to understand, let alone explain. So much so that it’s been said one would need the Rosetta Stone to decipher the true meaning of these yearly accounts.

While the complexity of the products and the fear of embarrassment, or worse, losing a sale, may be valid, it does not reduce the need for a thorough annual review on nearly every type of life insurance policy owned. Life insurance applications have been on the rise in 2020 for obvious reasons. According to the MIB Life Index, application activity increased 3.4 percent in Americans under 44 in the first part of this year. While the simplest form of insurance, term life, made up 23 percent of all sales in the first quarter, some of the more sophisticated products such as indexed universal life, whole life and variable universal life overwhelmingly made up the majority at 68 percent of market share. It’s fair to say that term insurance can be thought of as a “set it and forget it” type of product and as long as the client systematically pays the premium established at the time of purchase, over the entire length of the policy, on time, they can probably feel confident that their death benefit will be there throughout the length of the term period. Regardless, the majority of the products sold, now and in the past, do not afford the clients the same attitude of invigilance. Indeed, with fluctuating caps, participation rates, interest rates, dividend scales and the uncertainty of COIs coupled with the flexibilities of planned premiums, these products need to be looked after on a regular basis.

The Los Angele Times once ran an article depicting the story of an elderly couple who, after making regular monthly premium payments for over 23 years totaling thousands of dollars, were forced to increase their monthly premium payment by a rate of 2,000 percent in order to keep the same death benefit they originally purchased. Unfortunately, this is not a rare occurrence for clients who may have purchased VUL or fixed UL hoping that the illustrated rates, which made sense at the time, would sustain the policy for the rest of their lives.

Policy holders relying on dividends to offset premiums are likely also to face danger. The danger for them is that their contract’s success probability is predicated on the insurance company’s ability to pay policyholders a dividend based on a projected scale used at the time of purchase. One major whole life carrier has seen a decrease of nearly 20 percent (19.28 percent) in their dividend interest rate from 2010 to 2020 and an over 46 percent decrease in the past 20 years. Given the rate of declining dividend payouts over the last decade, a decade by the way in which the American economy saw unprecedented bull market returns, what can whole life policyholders expect as we move into vast economic uncertainty? In fact, we have already seen carriers experiencing the largest spreads between their dividend interest rate crediting and their current bond interest earnings—meaning that policy holders can expect dividend scale payouts to be reducing at a rate quicker than they’ve experienced ever before.

Perhaps most at risk for potential disaster is trust owned life insurance or TOLI. The Uniform Prudent Investor Act of 1994 clearly sets standards for all trustees in managing and investing trust assets including life insurance. Section 2 of the UPIA titled “Standards of Care,” goes so far as to give specific direction toward the responsibility of the trustee to systematically monitor and document all trust assets. In STOLI situations, not only should insurance policies be reviewed but per legislation they must be reviewed.

We’ve discussed why insurance advisors don’t do annual reviews and it’s clear why they should do annual reviews but the real question that needs answering is why insurance advisors want to do annual reviews.

It’s been said, and I very much believe it, that a producer’s opportunity to generate revenue is limited to three sources. The first and most obvious being new business acquisition, which tends to receive more attention than any of the others. And why not? There are few things more attractive to a salesperson than the thought of fat, juicy leads. We all love the idea of being introduced to hundreds of new, qualified and engaged prospects. You don’t have to look much past your outlook in-box to see that the overwhelming majority of spam ads are focused around lead generation. Generating brand new prospects is the life’s blood of any sales organization, however it’s only one-third of the total opportunity to generate revenue for the firm.

Any good sales person understands that their best prospects are their existing clients. It’s a fool’s notion to assume that once a client has purchased an insurance or financial product that they are never going to need another product that the original sales person has the capability to sell. An incredibly large percent of consumers who purchase an insurance or financial product today will purchase another one within the next five years. An incredibly small percent of them will purchase it from the original advisor. Why? Because that original advisor has not kept in touch, has not made the client aware of other products that they can provide and has not consistently conducted annual reviews.

If generating new prospects is the life’s blood of a sales organization, then asking for referrals is like going to the blood bank. An advisor could spend hundreds of thousands of dollars per year acquiring brand new prospects while the easiest and often most lucrative prospects cost only a conversation. The trick is that the conversation must take place with an existing and satisfied customer. What better time to have that conversation and ask for those referrals than after taking the time to explain how the customer’s financial vehicle (which you sold) has performed over the past year, over its lifetime, and what it is likely to do in the future. With clarity comes confidence and with confidence comes a satisfied customer. Social psychologists talk about the Law of Reciprocity which in a nutshell states that when someone does something nice for another, the recipient will have a deep-rooted psychological urge to do something nice in return. In this context, what better way for a satisfied customer to show appreciation than to refer you to other like-minded peers?

Let’s assume two-thirds of an advisor’s revenue generating opportunities require regular meetings with existing clients and consumers who own insurance and financial products. Let’s also assume that those clients desperately need help to gain clarity and understanding of what they own and how it will affect their futures. If those assumptions are true, then the only logical conclusion is that the most successful practitioners of the future will find the resources necessary to understand how to decipher and explain a policy statement. They will make the time to conduct annual reviews with all of their clients and, if possible, any other policyholder that will sit down with them. The often unapparent truth is that not only does an advisor get paid for conducting annual reviews, they might get paid more for conducting annual reviews than they do for anything else.

LifePro Financial Services, Inc. | 888-LifePro (543-3776) | Ben@lifepro.com

Ben Nevejans, president of LifePro Financial Services, Inc., has been in the financial services industry for more than 21years. Upon graduating from Plymouth State University with a Bachelor of Science, he moved to San Diego, CA, and soon after joined LifePro.

Since then Nevejans has been directly involved with many aspects of the insurance, annuity and investment industry including sales, recruiting, customer service, marketing, supervision and leadership. During his tenure he successfully oversaw the opening and operations of a satellite office in the greater Boston area and currently leads a team of highly intelligent, energetic and engaged individuals dedicated to the success of independent advisors.

As a frequent article contributor, and former Board of Directors member of the National Association of Independent Life Brokerage Agencies (NAILBA), the Risk Appraisal Forum and an active member of the Allianz Life, National Life and North American Life Advisory Boards, Nevejans’ opinion is often sought out as an industry leader and expert. He is an active member of Finesca, the National Association of Independent Financial Advisors (NAIFA), and the National Association of Fixed Annuities (NAFA).

Nevejans can be reached at LifePro Financial Services, Inc., 11512 El Camino Real, Suite 100, San Diego, CA 92130. Telephone: 888-LifePro (543-3776). Email: Ben@lifepro.com.