How to convince a savvy customer to buy life insurance policies from you

How to convince a savvy customer to buy life insurance policies from you health insurance2

I got a call at work today from my first insurance agent. He thinks it’s a good time to do an annual review of Drizzt’s insurance and investment portfolio.

For those who are new to my blog, you might want to read my insurance philosophy, why I don’t like endowment plans.

Now let me just say that it is absolutely necessary to do this kind of review. Your life, goals, risks and dependents changes so you might need these policies.

My agent knew from past experience that I do my own investments and believe very much in using term life insurance to hedge my risk.

My agent, unlike many new agents (he is experienced with 13 years in the industry) doesn’t believe in ILPs. This is especially so after the great financial crisis in 2007. Many folks who have bought ILPs have seen deep drawdowns in the value put in not to mention high distribution costs.

What he thinks I am missing for my needs

He have been advising me for 2 years and this will be the third year. He finds that it is such a waste for me paying all those premiums and not getting any money back.

He would advise that I purchase either a G10 or G15. Now folks who are not familiar with G10 or G15, I would explain that they are limited whole life plans where you pay 10 to 15 years and then you can stop servicing the policy and would be able to own the coverage.

This is not the first time recommended to me and you can read all about it here where I complain my difficulty in calculating these limited whole life policies.

Now If you are going to convince Drizzt to buy a limited whole life its not going to be that easy since Drizzt is not your normal  gullible client who will likely agree with most points you have presented.

So here are some of the points he highlighted to me why I need these policy.

1. Unlike your investments, when you get bankrupt, you still have your insurance policy to fall back on

What he explained is that, many rich and affluent clients of his still buys endowment policies from him. The main reason is that should they get sued or undergo some form of litigation and get bankrupt, they will still have their insurance policy to fall back on.

I think rather than fall back on, it either means

  1. their dependents don’t have to suffer just because their parents faced setbacks
  2. that endowments cannot be liquidated to pay for the litigation and the insure will have this to fall back on.

Number 2 is entirely new to me, and I hope other insurance advisor to say this is otherwise.

I think this is very powerful. When you have a client that is savvy, reference to people that you have successfully sold to, are successful and where your client aspires to be at.

Explaining that their “role models” are doing this makes it all the more reason to buy this despite your initial misgivings

2. Leverage on your insurance to do more

Savvy people are always thinking what more they can do to put their money into good use. And the rich loves to leverage.

Say for example the rich wants to divide a sum of 6 million dollars among 5 sons for 1 million each. Dividing it up by giving each son 1 million will result in only 1 million left for the rich man.

With insurance, the rich man can use a portion of his wealth to purchase an insurance that will provide a sum assured divided equally upon death to his sons.

3. Use insurance to prevent your cash from getting depleted

People like Drizzt tend to count their pennies quite a fair bit and usually this argument works best as well with term life insurance versus whole life insurance.

It might be true that you will have a networth of 100k-400k cash. Cancer is one of the big killers in Singapore and if you suffer from it, your 300k coverage might look a lot but you will have to think that should you deploy half of it for treatment and you survived, you cannot work at 100% capacity.

Because of that your income falls or you might need to stop working for some time. Should there be a relapse, you will not have another CI policy to fall back upon.

Possibly this will work on Drizzt since you are playing on his fear of seeing his hard earned assets plunge to nothing.

But Drizzt pose this questions

  1. At how much would it be enough to insure against this scenario? how much is really enough?
  2. Given that this amount in (1) to be substantial, do we think Limited Whole Life would be able to cover that big of an amount for a average earning family?

4. Diversify because you do not know what life will throw to you

Life is great for a lot of reasons but at some point it will throw a nasty spanner at you. Even if you have a good job now and have a good buffer you really do not know what will happen down the road.

While you will lost a lot of your wealth with an insurance policy it becomes the last line of defense.

So his advice to at least save 10% of your disposable income for this.

I find this argument abit weak:

  1. If life were to throw a different spanner at you, you may lose this life insurance policy. At the end of the day, we can argue all day long and still a series of unfortunate will just killed your policy.
  2. If 10% of your disposable income comes up to $400, you will only be able to purchase a limited amount for insurance.
  3. Saving a very little amount in Limited Whole Life insurance for me do not make much sense when u already have that amount in cash already.

Conclusion

I think the crux of this article is not to teach an insurance agent how to sell it to increase sales, but to think through whether persuasive arguments make sense to you.

At the end of the day, Drizzt is not really savvy in insurance. He just know a little bit more than the average folks in the street. I do take what my insurance agent presented and evaluate at night.

I still find that

  1. Limited whole life should not be part of the majority of your insurance due to cost constraint.
  2. Cost is a big consideration when choosing which Limited whole life to purchase.

What do you guys think? 4 valid arguments?

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  • savemoney

    Actually, for me, I would go for both term and limited whole life (death, CI and TPD). Term covers until 50+, the limited whole life covers forever. And because of the term, there is more coverage in my working years (also the time when I am likely to have the most dependents).

  • http://wealthbuch.blogspot.com WealthBuch

    I would go for purely term and invest the rest. I don’t think it necessary for me to have substantial insurance after the age of 50.

    Whole life sucks away so much working capital, for such a low insurance payout, that if one knows what they are going to do with the money, it is better not to go with life insurance.

    Some of the points

    1) Bankruptcy. If you get bankrupt, it would be tough to service the policy anymore. By bankrupt, I’m assuming we achieved this sacred status when young as we are more prone to taking risks. Whole life policy probably wouldn’t have been paid up by then.

    If you surrender the policy for cash, your cash probably wouldn’t get protected at all. Yet if you don’t surrender, but you really need the cash… how?

    I think it isn’t a powerful argument at all.

    2) I can always leverage on properties, shares, or even merely just ideas for cash. Granted, I could start a business, and leverage on my ideas to get capital.

    Why do I need to leverage on an insurance policy, of which the value probably isn’t high enough for me to do anything unless I plough a substantial portion of my monthly income into it.

    3) If you can’t work, fall back to my point 1. If I’m young, I would get a term insurance covering the critical illness, and perhaps a rider for early payout.

    While the future is always an unknown, I would still rather earn enough actively, while at the same time make my money work hard, to provide my own insurance for my family.

    But to me, I see it hard if I were to forcibly take a huge portion of my income into life plans without any choice of where to put my money to early on in life.

    It is the learning process of making our own investments that is much more valuable in returns than dumping it to life plans and leaving the fund managers doing the job.

    4) This is a super weak argument. Diversification comes not merely in the form of equities, but more so in asset allocation. I rather create my own lines of defence than rely on insurance as the last line of defence.

    Basically, any assets you have or make can be a last line of defence. It’s due to our own personal choice.

    I would say all 4 arguments are not valid to me at all.

  • http://akhiat.com Adrian Khiat

    Everyone have different level of experience, interest and knowledge about investing. They have different aspirations, cash-flow pattern and family backgrounds. A one size fits all solution may not works for all people. You will know what works best for you but it may not be the same for your neighbour…

    A BTITD is good if the person is really doing it and have disciplined strategies and known timeline ahead of him. My view is that for the “Not so interested and Savvy” folks, it is okay to spend 5-10% of their take-home pay on insurance expenses. Hence, if most of the insurances are Whole Life plans, this 10% will be easily bleached before the needs are met.

    Most of them will probably have around 20-30% of their cash for wealth accumulation which can be in UTs, Stocks, etc. When the accumulation reap rewards, they can start looking for passive income generating assets. It takes time and discipline. It is unfortunate that it is very difficult to convince the man on the street to pay a proper fee for an adviser to walk through this journey with them.

    Imagine what the adviser need to eat on if the person only gets a Shield Plan, SAF group insurance and a RSP of $100-$200/mth? The best part is that for every big or small issues like forgot to pay premium or claims, etc, this adviser need to serve that person for life and keep his records for life. Its easy if its only 10-20 such clients. What if there are 300-400 of such clients and being paid peanuts. Thats the reason agents will want to sell all the high commission stuffs.

    The current system is a lose-lose situation for advisers and consumers alike. Honest advisers need to work like a dog for small monies. I believe only advisers who strive to give clients good values can understand the frustrations that we are going through.

  • http://www.wilfredling.com Wilfred Ling

    When you are bankrupt, all your insurance policies vest with the Official Assignee (OA). Insurance policies that have cash value runs the risk of being SURRENDERED by the Official Assignee. The exception are polices that are nominated under the Insurance Act 49L, the previous Section 73 of CLPA and absolute assigned policies (subject to 5 years waiting period).

    The OA will not surrender the term insurance because there is no cash to get back. But you may or may not have the premiums to pay for term anyway. Also, upon death, all life insurance (term, ILP or WL) death payout vest with the OA as well.

  • spidercrown

    The way your agent presented the policy sound so familiar.
    I assume this is a American product :) . Seems like all of them are trained the same way, and talk the same thing to their client.

  • http://singaporemanofleisure.blogspot.com/ Jared Seah

    I gather your agent does not know you are a financial blogger?

    But he is good – the most attractive proposition to me is when he says this is how the rich are “doing”. Now, this is more powerful than “peer pressure”. It appeals to our “aspirant” desires – that’s how advertisers rope us in. If you want to “look” successful, drive a XXX, or wear YYY ties or 123 watches.

    Sometimes we don’t buy insurance for financial reasons. We buy them for “prestige”, “vanity”, or compensating for not being there for our love ones – just like buying expensive toys to children we hardly see…..

    If I am on my deathbed, and my children can’t take care of their mother and/or themselves without my inheritance, I don’t think there’s a insurance policy out there for failed parenthood.

    Some legacies are not valued in dollars and cents.

  • http://singaporemanofleisure.blogspot.com/ Jared Seah

    Opps! I meant on my deathbed at 80, and grown-up children – to put things clearer to my 2nd last paragraph above.

    Fingers typed faster too fast for my brain to catch up…..

  • Drizzt

    hmm, i think more savvy people do think term, savemoney. but i am not sure if we are getting to a 40% of the people wanting to buy term. many still want cash values.

  • Drizzt

    its the way they are put across. I would say (1) is very powerful simply because it is a play to where you aspire to be. It shows how people in that category plans.

    The key for (2) is that unlike your property and shares, you will not lose it in a bankruptcy.

  • Drizzt

    Hi Adrian thanks for visiting. Your reasoning is what i put it across to him. At the end of the day, (4) is the hardest to make sense of really.

  • Drizzt

    Hi Wilfred, long time no see. hope you are well. So based on these rules there is no protection at all! Meaning there is no difference whether it is an insurance policy or a normal investment!

  • Drizzt

    Hi spidercrown, yes it is from an American insurer. They do come from the same school of selling so probably the same way it was presented.

  • Drizzt

    Hi Jared! just as what i was thinking. i think i did refer him here once but alas he didnt come and visit.

  • http://www.wilfredling.com Wilfred Ling

    Drizzt,

    On the leverage part – was he proposing premium financing? If so, are you a high networth as this is normally only available for private banking clients.

    Nevetheless I am not surprised the banks are getting desperate and moving down the wealth ladder to lend to retail clients to buy insurance. They earn selling two products – insurance and a loan.

  • Willy

    “He finds that it is such a waste for me paying all those premiums and not getting any money back.”

    No offense but I interpret it as you are paying so much premium and non of it goes into your agent’s pocket. Much? How much is much? I believe your premiums for term insurance is nowhere as much the premiums for whole life plan.

    “Unlike your investments, when you get bankrupt, you still have your insurance policy to fall back on”

    What are the chances of you, in particular, getting bankrupt?
    Lost a job? You have ur savings to last you six months to look a new job right? I believe you have at least 2 years of buffer by now.
    Major illness? Have your critical illness plan ready. NTUC has a plan that comes with cheap n good term CI. No hospital will make you a bankrupt because you cant pay the bills.
    Major catastrophe? Tsunami? Earthquake? Negligible chance really.

    When you need money, try borrowing from Insurance! They charge you 8% to loan you YOUR money! How nice it is when you are in desperate need of money. No money to pay premium? They use YOUR money to pay YOUR premium and charge you 8% interest. When your pot of money is finished, your account is lapsed. If you want to reinstate your account, you have to pay back money + interest plus all outstanding premiums + interest. If you cant afford to do do, all YOUR money goes to them. I still dont understand how AIA could have gotten into shit with this kind of superb business model.

    “Diversify because you do not know what life will throw to you”

    Diversify may be overrated my friend. Insurance is insurance. It is meant to hedge your risk against ‘what life will throw at you’. Do you need a insurance plan if life throws u a rotten egg? Well, just suck it up, clean up n move on. You only need insurance if life throws you a critical illness, disability or death note. You only need insurance if your loss of income caused severe hardship to your wife, your children, your dad and mum.

    Anyway, so much for getting premiums back. I dont want to crunch numbers here.

    I invest $200 for a whole life plan for a measly $100,000 coverage and got back all premiums at the end of thirty years.

    I invest $100 for a term life plan for a good (SAF-Aviva) $600,000 + CI (NTUC Member) + Disability coverage. In good times, Aviva return 30% of premiums pay.. I invest $100 dollar cost averaging in blue chips stock.

    At the end of thirty years, who do you think will be better off? In thirty years, what is $100k?

    I have many things on my mind to share but lazy to type out all. BTW, I have nothing against insurance agent. Seriously, the conflict of interest in this line is too overpowering.

  • Willy

    BTW, one last comment, a truly rich man has absolutely no need for insurance.

    Not those rich man wannabe with BMWs, private properties, club memberships, yachts but with a crazy load of debts in his underwear.

  • Drizzt

    Hi willy i take it that you are really not seeing any positive outcome for whole life and endowments but these are prevalent products.

    All the points that you made are valid, and generally my sentiments.

    But in life you have to factor in fat tails and hedge them. I really find that right now his argument is that i am not hedging all my fat tails.

  • momo

    Wilfred Ling says go for Limited Paying Whole Life (LPWL) isn’t it?
    http://www.wilfredling.com/content/view/724/74/

    If cost is a constraint, then I’d say, halve your CI coverage (at old age) into 50% LPWL and 50% BTITR, instead of 100% LPWL.

  • http://safemoneyproducts.com/share-trading/ Bob at Share trading

    Term life gives you much more insurance per
    dollar spent. So buy term life to protect your
    family in the event of your death. The proceeds
    can be divided among beneficiaries of the
    policy, as per the policy.

    “Umbrella liability” policies are also much
    cheaper, if you worry about lawsuits.

    If you become sick or disabled, you need as much
    money as possible. Is whole life the best way
    to accumulate that money? I think not. Many other
    investment programs would give you a much greater
    return.

    Whole life looks like term life plus a low-yield
    investment plan. It’s appeal is to people who
    “don’t have time to think about it.”

  • Drizzt

    hi bob thanks for sharing. i think you have presented a good argument on why we should still go for term. cheers

  • anoymous

    with no offence, but i think its risky with all the various trust and reits. during good times, no doubt they are profitable and lead to high profit.

    They then gear up and leverage more so that they can get more profit in. for reits, when property value drop, bank might ask for additional payment. and its not helping when their rental drop too.

  • Drizzt

    hi anoymous, i am curious why did you mention it in this post as it is more about insurance. REITs have its good points and bad points and the same can be say about telcos and service companies being very leveraged.

  • Wani

    Buy Term and Invest the Rest sounds like Warren Buffet’s school of Thought. This is only good for those who really have lots of money for investments and really buy lots of investments.

  • Drizzt

    Not necessary Wani. The key is to know how it works and save instead of spending that extra that will go into distribution cost. The distribution cost is a killer in itself.

  • Jomel Ng

    My 2 cents worth as an insurance agent
    1. If you are competent in financial planning, this argument won’t work for you. This argument is only valid for 1% of the population who borrows intensively. Are you? And for such people, they do not even think of buying WL to secure their money. At most they just transfer the money to another person.

    2. Argument isn’t valid. There are many more things on earth to leverage your money on. Insurance ranked lower.

    3. Argument incorrect. Insurance premiums depletes your cash! Meanwhile, Drizzt I will answer your 2 questions
    I. 300k is not enough. I have seen cases with400k. 500k may be a more suitable amount. It depends on the stage of cancer and the type of treatment administered. Even so, YOU SHOULD HAVE BOUGHT A MEDICAL EXPENSE INSURANCE so that it does not affect your other coverage. If you have spare cash, get a CI insurance, especially one that can pay out in early stages.
    II. LWL should not be your comfort at this Time. It depletes the purpose of a life policy, unless you are on your death bed. Get a CI policy instead, please refer to point 1.

    4. This I agree. All insurance policies have their pros and cons. And I mean ALL, including term. WL is expensive, term will expire one day. Even AVIVA SAF have its own limitations. Go google for their T&C. I advise my young clients to buy term, but note that the term will expire one day and there are insurability risks; and to buy a WL when they are older at about 40 years old and are more financially stable. FYI a whole life policy is very beneficial when you are old, because your life will always be valuable even if you are on your death bed. Put yourself in the shoes of an average old man in Singapore with adult children. Will there be a difference in how they treat him if he has a $100k life policy? It is an ugly side of human beings that I am bringing across, but it is true.
    As we are all still young, we cannot picture that scenario. And cost will be a crucial factor in our choice of insurance. Hence term will lose to WL.

    In conclusion, his arguments are not appealing enough.

  • snowcap

    Insurance becomes less and less important when we accumulate wealth. This is because we can self insure. Try selling a critical illness plan to Bill Gates. Tell him if he falls sick, the plan will pay for all his medical treatment, and he will laugh at you. He can pay for the treatment himself with the money he makes in the blink of an eye.

    So we should only insure what to us are catastrophic risks. If I have 10 million is cash and assets, do I need to insure my car against own damage? (third party claims is another issue). No because if I wreck my car I can easily replace it. Lower down the scale, if I have only $10000 of assets and earn $3000 per month, I need to insure my $50000 car, but do I need to insure my $300 bicycle?

    Personally I only believe in term policies.

  • snowcap

    By the way, I believe insurance is useless (or becomes less useful) past a certain age (when our dependants are not dependent on us anymore, and when we are not economically active). Everybody must die, when we are old, and it’s time to die, let us make peace and go.

    Whole life is useful only if our family is so poor that they don’t have “coffin money” for funeral expenses. Otherwise when I’m 80 and die, I don’t think my family needs any money. I’d rather they have fond memories.

  • Sophia

    I was in a dilemma..till i read all this:
    I have a question: So this means term insurance cannot protect against bankruptcy but life insurance if nominated under 49L can protect against bankruptcy because I still don’t lose my insurance (premiums paid) to OA(Official Assignee)?