Life Insurance Vs Investment Account

[LGilmore]

In the end, the average client(whoever that is) should more than likely own a combination of term/perm, and have a retirement account that they can contribute to.

When posed with this kind of situation the correct answer really is "both and..and ..and.."

It is a combination of products and choices the client should have to get them there, not one at the expense of the others.

 

[Norwayguy]

I have a buddy at merril and a buddy at morgan stanley that preach the whole "buy term invest the rest". They would love her first post. The problem is that they're groomed to capture assets and are taught this from day one. I don't hold it against them. When they have a client that "wants" perm or SPL.......I get a phone call

There is really 2 sides to the compensation coin. Series 7 producers at financial firms like merril are paid based off of AUM. So they don't want to see those premium dollars going to a permanent plan even if it's in the clients best interest. On, the other side it could be argued that an insurance agent doesn't have the licenses to provide full market exposure; so they pimp IUL or the like.

There are good advisors out there who want to do right by the client. If you are one of them you educate yourself and surround yourself with a team that can provide everything. In the end, the average client(whoever that is) should more than likely own a combination of term/perm, and have a retirement account that they can contribute to.

Except the series 7 is commission based it's only with the series 66 or 65 that you collect fees.

 

[SuperNewbie]

I want to throw my 2 cents in here and start with the phrase, "When all you have is a hammer everything starts to look like a nail."

I think that WL has a place and is a good fit in HNW estate planning and other situations.

I also believe that in a perfect world, "buy term and invest the rest" (not in those funds that Ramsey is pushing though) is the way to go in most cases. We don't live in a perfect world though and you can be pretty certain that most people won't invest the rest. If everyone has their client's interest in mind are you referring them to financial planners when appropriate? If not, where are they getting that investment advice from? The one or two investment life products you have in your bag?

I think the whole "you can't get permanent insurance later" thing is a cop out because if they were advised well before, they shouldn't need it later. They should be financially stable at that point. And before somebody chimes in that is assuming things like LTC have been addressed. Some agents think term is that thing they sell to older people that can't qualify for WL. I personally believe that an agent with his client's best interest in mind is probably selling more term than WL. An agent with WL > term is probably a guy with a hammer.

I know, heaven forbid we send business to a potential competitor to us in some areas, but if you have an established relationship with a CFP and you both have the customer's best interest in mind, this shouldn't be a problem. That referral system should be a two-way street after all. That CFP is going to help them invest the rest for the future that you should be making sure is protected.

 

[DHK]

I think you don't understand permanent life insurance well enough to sell it ethically.

Comments like "when all you have is a hammer, everything looks like a nail"... implies a commission-based, "greed" perspective only out to maximize one's own profits.

Maybe, just maybe... there is something about permanent life insurance that you don't quite understand yet.

That most wirehouse professionals don't get paid well enough on in order to drive them to understand it (that B/D payout grid is horrible on life insurance commissions).

That most CFP's still don't understand until they get into a CLU class... and even those textbooks don't go enough into it. (Those textbooks are really cheap off Amazon.com - you can get them for about $5 including shipping.)

Actually, the best guide I've found is http://www.nationalunderwriter.com/...of-life-insurance-planning-5th-edition-1.html... but you have to "piece" the strategies together to fully understand what professional life insurance agents know.

Your homework (should you choose to accept it) is simple:

Why would anyone in their right mind want to buy permanent life insurance and put the maximum amount in by law... when they could just "buy term and invest the difference"?

Here's an MDRT recording to get you started: The MDRT Store. Increasing the Efficiency of Retirement Income

 

[SuperNewbie]

I think you don't understand permanent life insurance well enough to sell it ethically.

Comments like "when all you have is a hammer, everything looks like a nail"... implies a commission-based, "greed" perspective only out to maximize one's own profits.

Maybe, just maybe... there is something about permanent life insurance that you don't quite understand yet.

That most wirehouse professionals don't get paid well enough on in order to drive them to understand it (that B/D payout grid is horrible on life insurance commissions).

That most CFP's still don't understand until they get into a CLU class... and even those textbooks don't go enough into it.


Your homework (should you choose to accept it) is simple:

Why would anyone in their right mind want to buy permanent life insurance and put the maximum amount in by law... when they could just "buy term and invest the difference"?

Here's an MDRT recording to get you started: The MDRT Store. Increasing the Efficiency of Retirement Income

I was expecting you to be the first to reply and also the same beat-down attempt that I saw earlier. That italicized quote doesn't belong to me nor do I defend it. As I stated before WL is a good, (let me change that to awesome) tool for HNW estate planning. In those cases it is entirely in my clients best interest for me to advise them to put the maximum in by law. Those tax advantages are too good not to. There are certainly other reasons to pick a whole life product over term as well. A parent might be interested in WL to take care of a disabled child that may never be able to support himself or herself as well. But my statement was that an agent that has his clients best interest in mind is probably selling more term than WL. Your response was that I don't understand the product? Maybe you just deal with disabled children and HNW individuals?

 

[DHK]

Nope. I deal with Middle American households and Affluent.

No HNW for me. Although I plan to work more in the Children with Special Needs community, I haven't really focused on that as a "specialization" yet.

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An uneducated agent who has his client's best interest at heart is selling more term than permanent.

An educated agent who has his client's best interest at heart is selling the proper amount of coverage first, and then optimizing the client's budget in order to obtain the benefits of both term and permanent coverage and will review that coverage every year as part of a total financial review.

 

[Justin Bilyj]

I was expecting you to be the first to reply and also the same beat-down attempt that I saw earlier. That italicized quote doesn't belong to me nor do I defend it. As I stated before WL is a good, (let me change that to awesome) tool for HNW estate planning. In those cases it is entirely in my clients best interest for me to advise them to put the maximum in by law. Those tax advantages are too good not to. There are certainly other reasons to pick a whole life product over term as well. A parent might be interested in WL to take care of a disabled child that may never be able to support himself or herself as well. But my statement was that an agent that has his clients best interest in mind is probably selling more term than WL. Your response was that I don't understand the product? Maybe you just deal with disabled children and HNW individuals?

My cousin bought term, he didn't think anything of it. Two years later his kidneys blew out and surprise surprise his wife was actually a match. Now my cousin was lucky, his term policy happened to have a conversion option. He was uninsurable by underwriting standards, but his conversion option gave him the ability to keep his 250k in coverage, so he converted, all of it. He makes 40k a year, same as his wife, about 42 years old. Now most term policies dont have any conversion options if any good ones.

Picture this also, you are getting ready to retire, you have investments that you plan on harvesting for income as the years go on. Now let's say you have a few bad years, and you still had to take withdrawals, that could affect a portfolio enough to decimate future growth if you withdraw during the bear years, but if you have a whole life policy, and take withdrawals of dividends or loans and access that in the bear years instead of the investment account, you could be talking a difference in hundreds of thousands of dollars potentially.

How bout one last instance. You have a term convertible to a solid whole life. You get disabled, think that investment growth account will stand a chance? It will be raided. Or a guy can have a solid convertible term product with a waiver of premium rider, he gets permanently disabled, convert the term policy to whole life, and the company pays the premium, while watching it grow tax deferred.

 

[VolAgent]

Every time I hear "always have a client's best interests at heart" I cringe. It sounds good, but it is complete and utter BS. Only a parent always a child's best interests at heart, and not always at that.

It doesn't sound as good, but I'd much rather work with the person who says, "I want to do right by my client, but I also want to get paid." At least that person is being honest.

 

[DHK]

A person's "best interest at heart" is still limited by one's training, experience, education, and perspective.

A person's "best interest at heart" is best conveyed through a code of ethics or a professional pledge, such as the one from The American College:

In all my professional relationships, I pledge myself to the following rule of ethical conduct: I shall, in light of all conditions surrounding those I serve, which I shall make every conscientious effort to ascertain and understand, render that service which, in the same circumstances, I would apply to myself.”

In short, it's understanding the client's position well enough to understand it, then applying my experience, expertise, and perspective to the recommendation.

That's the definition of the best way to work and take care of a client. It's the highest definition - the ethical one, rather than a legal definition, such as suitability or even fiduciary care.

 

[SuperNewbie]

Still gonna go with the un-educated thing huh.

I would think that during that initial client review more term than perm would come up to be the right fit. That is if you are dealing with mostly middle class individuals without extenuating circumstances or special needs children.

The OP was ludicrous in stating that we shouldn't sell WL. That is a given. But you calling people that sell more term, uneducated and unethical is just as bad.

My ethics allow me to refer a client to an investment adviser when my few investment options aren't a good fit.

You might want to post the link to those CD's for sale again.