The Real Costs of Fractional (Modal) Premiums

i'm sure there's a cost associated with offering monthly payments for free.. .for example .. i'm sure a competitor of Zurich life has a similar product that ends up coming the customer about the same ... although zurich doesn't charge for monthly payments..

Yep. Its largely a marketing shell game.
 
First, what is your definition of "free"?
Nothing is "free" in life. It is just priced differently. From one perspective you could say they offer Monthly pay for "free".... but from another perspective you could say they charge extra for Yearly Premiums....

It is all relative to the alternatives. I agree. Relative to the cost of paying annually to Pacific Life, USAA, and Zurich life, the option to pay monthly is free. Again, I am speaking from the consumer's point of view. And this is entirely, 100% beyond dispute. It is free. As in, free-free. As in, the CONSUMER pays nothing extra for that option.

Pac Life prices their Term so that it is one of the most competitive out there from a Monthly Premiums standpoint. But they usually come in around #10-#15 when it comes to Yearly Premiums.

BUT, the times their Monthly Premiums are the lowest, it is only by $1 or $2.... so is charging a dollar less per month than the competition "free"???
Especially when they cost more on a yearly basis than the competition????

You obviously have not viewed the tables on my blog. Otherwise you would know that there is an extremely wide variance between what competitors charge. Also, I'll point out that your line of reasoning overlooks the fact that many agents don't even look at competition. Some aren't even allowed to help clients shop at all. Presenting modal charges in the language of the APR is extremely valuable to customers in this situation. And, please, let's not dive off into the tangent of whether captive agents are screwing their clients by not shopping. You'll get no argument from me on that matter, although I don't think it's nearly as cut and dried as we commonly make it out to be. But that is not the subject of this debate. So let's not go there.


A more accurate statement would be that Pac Life, unlike most carriers, does not discount Annual Premiums. Vs the competition, their annual premiums are higher than their monthly premiums are lower.

With all due respect, this seems like a very convoluted line of thought. It does not obscure my chief point that consumers deserve to know the costs of their options at the point of sale or shortly thereafter. And they deserve to have the information presented to them in ways that will help them make the best decisions.



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I think your assumption bolded above is off base. Carries make more off of monthly premiums, not yearly premiums. Not because the Premium is more, but because monthly carries a higher lapse rate vs. yearly. (limra has lots of lapse rate info)

I can't underscore enough the need to try to think about this situation from the consumer's standpoint. The consumer does not, nor should he/she have to, give a flying f**k about a carrier's lapse rate for this product or that, or this mode or that. You are talking like a salesman trying to justify charges and fees.

Fine, let's assume they have an explanation. Let's even pretend that Hancock's 42.8% APR for small policies is somehow justified and just a reflection of lapse rates and the fact that "Suzi in small-policy accounting keeps jacking up the audit, making us do it twice, so dammit, she's costing our small policy holders a fortune." My point is that the client does not (and should not) give a rat's ass about Suzi, or all the "other" poor souls who keep missing their payments and lapsing their policies.

The client simply deserves to know the costs of his/her options in a manner that will help him/her make a wise choice.




And it most certainly does cost the carrier more to set someone up on monthly vs. yearly. Banks often charge business accounts based on the number of transactions they make per month. The more transactions you have, the more the bank charges. It is also more time spent by employees to verify those monthly transactions.

For every 1000 customers paying monthly vs. yearly, that means an extra 11,000 bank transactions they are charged for. That is 11,000 more transactions that the accounting dept has to keep track of and verify. So throw in the higher lapse ratio for Monthly pay, and I do not blame carriers for charging more for monthly.

See immediately above, particularly the part about Suzi.
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Also, charging more for monthly is not exclusive to the insurance industry. Many things that give the option of monthly vs. annual charge more for monthly pay. Web hosting and software providers are two industries that immediately come to mind for that.

This is not about charging more. It's about disclosing the charges fairly. And if your point is that these other industries (software providers, web hosting, etc.) don't disclose their charges as an APR either, I have to ask: is your point here, "why should we have to treat the client fairly if no one else does?"

This really doesn't merit a reply; however, I do think that one very obvious reason is that, being financial services providers, we should be held as an industry to a higher standard of behavior and disclosure. That is just my belief.

The other thing I'll add is that the other industries where major purchases are under consideration (e.g. cars, homes, etc) are in fact required to disclose the costs of fractional payments as an APR.



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You also cant discount the "marketing/demographic" aspect of how premiums are priced. Pac has chosen to be really competitive in the demographic that pays monthly, but needs $500k+ in coverage. That is largely the white collar under age 50 crowd in my experience.

LFG has priced their products (& UW) to be super competitive for the over 50, $500k+ DB demographic.

So the target demographic plays a role too. Then there is the actual product itself. What are the conversion options? That can play a big role in pricing too. Sometimes when something is cheaper in price it is also cheaper in quality.

I make mention of this very fact as an effort to defend Hancock's huge rate for small policy holders. You'll find that at the bottom of this post on my blog.


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But at the end of the day "who cares"? Clients want a strong carrier, with good features, and at a good price. They dont care which company does or doesnt charge a premium for monthly. They care which company is the best VALUE for their specific situation.

I agree that clients care about company strength, features, and ultimately value. I also am convinced, and don't see how anyone else could not share my conviction, that they deserve to know the costs of their payment options in fair language that makes sense from their point of view.

Just because something is less important does not mean that is not important at all. Who are we to judge? I think customers in general would resent their agents if they knew a simple matter like this was being obscured because in some agent's mind, or some executive's mind, "who cares about that?" It's a very patronizing and disrespectful approach to the client. Whether or not they care is their decision to make. It is our responsibility - or at least it should be - to provide them with the information necessary to make an informed decision.

My comments above and below in bold, blue.

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So are you suggesting we ask how they plan to pay and then run quotes and pick the lowest premium they would qualify for with underwriting? Not to radical an idea.

I never said it was radical. I didn't realize the criteria for posting here was that I had to come up with something new and brilliant.

But, hmmm, I wonder (hypothetically) what the response would be if I posted a similar table that showed ways to optimize our commissions, even if by a few dollars/month, with 50+ life insurance companies by receiving our commissions annually or monthly.

I wonder if that would be "radical."

I wonder if that would be shooed away or receive the backlash I've gotten for posting this simple table.

I think not.
 
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Since Burton responded in a way that makes it very convoluted way to quote his responses....


You are looking at the situation in a bunch of separate bubbles. In its own little bubble.... yes, Pac offers the monthly option for "free". But in the real world, from a consumers point of view, Pac monthly costs around the same as many others.


Yes there is a very wide variance of what the carriers charge. But I am talking about the carriers that are competitive with Pac's pricing. Obviously you have not done this.... I do it all the time.


And like it or not. A carriers underlying operating expenses and lapse/profit experience plays a huge role in the pricing of products. That is just real life.
Consumers do not have to care about the underlying reasons for life insurance pricing... but if you want to write articles about it then you damn sure better understand the reasons behind it....




I deal with the consumers view every single day of the week. The consumer does not see Pac offering monthly for "free". They simply see it as more expensive on an annual basis. That is a consumers mindset, iI deal with them every day and I hear their viewpoint about pricing every day.


If a consumer is dealing with a Captive agent who only sells a single carrier, then sure things could be presented in a biased fashion or without "full disclosure" concerning other options. But you are talking like that is the majority of the industry. Captive sales forces are shrinking very quickly. Also, consumers are more educated than every before and look for independent agents vs. captive agents. You are also posting on a forum that is about 95% indy agents.
 
My comments above in bold, blue.

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I never said it was radical. I didn't realize the criteria for posting here was that I had to come up with something new and brilliant.

But, hmmm, I wonder (hypothetically) what the response would be if I posted a similar table that showed ways to optimize our commissions, even if by a few dollars/month, with 50+ life insurance companies by receiving them annually or monthly.

I wonder if that would be "radical."

I wonder if that would be shooed away or receive the backlash I've gotten for posting this simple table.

I think not.

Great but I am probably going to choose monthly commissions over whatever bonus annual commissions pay because I can't afford to wait a year to be paid and still be in business.
 
But, hmmm, I wonder (hypothetically) what the response would be if I posted a similar table that showed ways to optimize our commissions, even if by a few dollars/month, with 50+ life insurance companies by receiving them annually or monthly.

I wonder if that would be "radical."

I wonder if that would be shooed away or receive the backlash I've gotten for posting this simple table.

I think not.


First, Norways's "radical" comment was made in jest. Any agent who sells insurance for a living would recognize that.


No one is shooing you away. But if you post info on here.... especially linking to your website in an effort to gain backlinks... then prepared to be critiqued and have your thoughts challenged by others.


You are insinuating that insurers are ripping people off by charging more for Monthly payments. But then you say that the reasons behind charging more for monthly do not matter??


Pac charges very similar monthly premiums as similar competitors.... but higher yearly premiums than many of those same competitors.

Take a 45yo male at $500k: Pac is #1 for monthly premiums. But they are #13 for annual premiums.

Pac's pricing is likely more about competition among their chosen demographic rather than claims or lapse experience.

Many illustrations or delivery papers do show the difference between the various premium modes. And expressing numbers in %s can be extremely misleading if the dollar figure is not included with it. To compare the % difference between the average term policy and the average mortgage is an extremely disingenuous comparison.

For you to imply that carriers are not treating clients fairly because they charge more for monthly premiums is total BS. You refuse to even consider the reasons behind it other than "they are screwing the client". :no:
 
Since Burton responded in a way that makes it very convoluted way to quote his responses....

What exactly is convoluted about placing my thoughts in bold/colored type directly beneath the text upon which I want to comment? I don't see what the big deal is. I have not found a better way to parse out comments. So this is how I do it. If there's a better way, let me know.


You are looking at the situation in a bunch of separate bubbles. In its own little bubble.... yes, Pac offers the monthly option for "free". But in the real world, from a consumers point of view, Pac monthly costs around the same as many others.


Yes there is a very wide variance of what the carriers charge. But I am talking about the carriers that are competitive with Pac's pricing. Obviously you have not done this.... I do it all the time.

I don't think you could make a more false assumption about me or my practice. I have no clue how you got there. Please review the process I use to help clients shop. You can also look at a list of the carriers I shop on my commissions disclosure page. It includes carriers that do not pay commissions. If you are able to identify a legit carrier (e.g. A- or better AM best rating, national presence) I have overlooked for traditional life insurance products (I don't do FEX), I will gladly send you (or anyone reading this, whoever provides the intel first) a gift certificate for $25 to the online store of your choice.

And like it or not. A carriers underlying operating expenses and lapse/profit experience plays a huge role in the pricing of products. That is just real life.
Consumers do not have to care about the underlying reasons for life insurance pricing... but if you want to write articles about it then you damn sure better understand the reasons behind it....


If you read the articles, including the link to Dr. Belth's article which I reference in my article, you would see that I understand the reasoning. Of course there are reason for most companies for the charges. And the chief reason, especially for the carriers whose charges are the highest, is that they are a (well-disguised) profit center. This is both intuitive and beyond dispute. To argue otherwise is silly. I don't understand why you would even try. Is it your guilt? Or shame at not having realized this beforehand? Well, don't get mad at me about that. I would suggest you just face the music just like I'm doing, own it, and change whatever you're doing to make full disclosure going forward.

The chief culprits who merit our displeasure are the companies themselves who, in many cases, trained and compensated most of us to sign people up on monthly PAC without even thinking twice.

Like I said, I was very far into my career before I learned this. I get it. It pisses me off greatly that no one made this more clear. But man, don't shoot the messenger. Instead, get on board. Please.




I deal with the consumers view every single day of the week. The consumer does not see Pac offering monthly for "free". They simply see it as more expensive on an annual basis. That is a consumers mindset, iI deal with them every day and I hear their viewpoint about pricing every day.

Well, I imagine this is going to sting; but, actually, your attitude and mindset is almost a text-book example of why the industry does not want its sales force held to a fiduciary standard. A fiduciary is required to disclose materially important facts, even those about which the client is clueless and naive. There is absolutely no legal or even common sense argument that would dismiss the APR rate as immaterial to the consumer's selection of payment modes. It's important. Consumers deserve to see it, whether they know to ask for it or not.

You are right that consumers only think about things as pure dollar costs on an annual basis. That is because consumers are naive. A good financial professional does not let his clients persist in their naivete. Not if it can be helped. Most consumers don't want to stay naive if they can be helped. Some do, and that is their choice.

Now, I would still guess that a large percentage of consumers would still elect to pay monthly even if they saw the APR. But I am 100% certain that all or nearly all of them would be grateful to have the data so they can make an informed decision . . . rather than being left in the dark.

I honestly am a bit disappointed I'm even arguing about this, especially with an indy. It is such a simple matter. I don't mean to come across as arrogant. But really, what gives here?

I wasn't posting this to win the pulitzer prize for important thoughts. But, dude, it's valuable data. And if it were available anywhere else on the web, I'd have posted a link to it . . . and I certainly wouldn't have wasted time reinventing the wheel by doing the research myself.

And hell yes, I'm pleased to put backlinks to my content, and not shy about it when it's appropriate. That's because I believe it's unique, and worth reading. Or it's because I don't want to waste time typing out a whole webpage that can be readily view with the click of a mouse. For example, I'm not going to type out all the companies I quote. Hence, I provided the link. This is entirely legit. And to insinuate otherwise distracts from the debate at hand.



If a consumer is dealing with a Captive agent who only sells a single carrier, then sure things could be presented in a biased fashion or without "full disclosure" concerning other options. But you are talking like that is the majority of the industry. Captive sales forces are shrinking very quickly. Also, consumers are more educated than every before and look for independent agents vs. captive agents. You are also posting on a forum that is about 95% indy agents.

See comments above, again in bold, blue.

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Great but I am probably going to choose monthly commissions over whatever bonus annual commissions pay because I can't afford to wait a year to be paid and still be in business.

I think what you mean to say is that you prefer to be paid up front, right? That's fine. In most cases, I do, too. Even though it doesn't make mathematical/financial sense.

Here's my point. What if someone showed you that the APR associated with getting paid up front (advance commissions on a monthly PAC, for example) amounted to a 42.8% APR loan from the insurance company? Would you still do it? (Bear in mind, this is purely hypothetical, because I know advance/annualized commissions don't work that way in our world.)

Or wouldn't you possibly consider financing your cash flow problem through a cheaper source than 42.8%APR?

Hey, maybe you'd still take the deal. That's your call.

But wouldn't it be nice and professional and fair for the company to actually let you see the numbers. Doing otherwise is, in my opinion, capitalizing on the naivete and myopic, simplistic cash-flow focus of most consumers. And agents for that matter

And honestly, this is making me think that it would be a good idea to calculate the APR associated with advance commissions. I honestly think you and others would value the importance of the information, and experience the sinister nature of withholding it, if it were put in terms of your own cash flow.

Please don't get me wrong: I'm not saying its WRONG for companies to profit in this way. What I am saying is that it is WRONG to withhold the data from the client.

Here's an example that I just had today, speaking from my own finances. I have two business credit cards with debt. One has a balance half the size of the other. Its rate is also about half the rate of the other. Today I decided to pay off the smaller balance, even though the APR was lower . . . and technically, doing so was not the most efficient thing to do.

Why did I do it that way? Because it felt better to me, that's why. I knew it was going to cost me an extra $20/month in interest to not just pay down the higher interest credit card. But I just hated having two payments. And I wanted one to be gone. It felt better. That's all. And that was my choice. And I'm sure Bank of America (who supplies the credit for both cards), is happy I chose to do it that way.

I have no beef with Bank of America. They aren't taking advantage of me in the slightest. Why? Because the rates are right there in plain site. I am making an informed decision.

That is all I'm saying here, folks. I really think it's fascinating that there should be such a stir over such an obvious matter.

I think it is because, being agents who earn a living through the sale of these company's products, we find it very difficult to look squarely and honestly at their ethical failures and call it for what it is: deception.

This is natural, of course. All salesman want to believe in the products we sell, especially when the nature of the promises are so important, so covenantal. Promising to be there for a widow is a big deal. It's nerve-racking to say the very least to acknowledge that the institution providing that protection would have moral flaws. It's a bit like pissing in one's sales "kool-aid."

It is what it is. The trouble is that there are, in fact, far deeper problems than this one in our industry. Problems that threaten the integrity of our business and our livelihood. If we don't grow some balls and start holding our industry accountable in simple matters of integrity and disclosure like this, we are going to be the ones left holding the bag.
 
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Michael,
When you respond in that fashion it makes it impossible for me or anyone else to quote what you write when responding.


Nothing about what you said stings because it is so far off in la la land that you just keep showing more of your ignorance.


It is obvious that you do not "get" what I am saying based on your extremely long and rambling responses. I never said apr was irrelevant. I said it was misleading without giving a dollar figure along with it.


You assume that agents do not inform clients that they pay more on monthly modals. Every client I have written a policy for was given full disclosure that monthly costs more than annual premiums with most carriers.


My process with clients is very similar to what a Fiduciary does except I collect commissions instead of Fees. (just like you do)


You make many assumptions about other agents without knowing a thing about what their sales practices are.



By the way, I am actually held to a REAL Fiduciary standard in other areas of my financial services practice.... so dont even try to act like you are legally held to a Fiduciary Standard for your life sales.


After looking at your website I realize you are even more of a joke than I thought.

You are the perfect example of someone who tries to bash commission based sales people in a pathetic attempt to have the public view you as more ethical.

But you are nothing but an agent just like the rest of us..... except you want to bash the rest of us to make sales.

On top of all that you try to come on here and make extremely ignorant comments about the industry and sales process... then you dismiss the actual facts and start making personal attacks.


(by the way, carriers have more incentives these days for policy count than they do case size)

And I tried to be nice in this thread. But you refuse to actually read and think about what is being wrote. And you dismiss the underlying reasons behind the issue you want to discuss. Then based on a faulty understanding of what I said, you want to make attacks and ASSumptions about sales practices. You have proven yourself to be a joke on this forum. You are here to cause controversy and to get clicks and backlinks to your site. I gave you a chance for a professional and logical discussion but you want to dismiss the facts and make accusations.

Perhaps one day you will be open to a logical and professional discussion about insurance based on actual facts and experience.
 
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Michael,
When you respond in that fashion it makes it impossible for me or anyone else to quote what you write when responding.


Nothing about what you said stings because it is so far off in la la land that you just keep showing more of your ignorance.


It is obvious that you do not "get" what I am saying based on your extremely long and rambling responses. I never said apr was irrelevant. I said it was misleading without giving a dollar figure along with it.


You assume that agents do not inform clients that they pay more on monthly modals. Every client I have written a policy for was given full disclosure that monthly costs more than annual premiums with most carriers.


My process with clients is very similar to what a Fiduciary does except I collect commissions instead of Fees. (just like you do)


You make many assumptions about other agents without knowing a thing about what their sales practices are.



By the way, I am actually held to a REAL Fiduciary standard in other areas of my financial services practice.... so dont even try to act like you are legally held to a Fiduciary Standard or that you even know what the hell you are talking about when it comes to a Fiduciary Duty.


After looking at your website I realize you are even more of a joke than I thought.

You are the perfect example of someone who tries to bash commission based sales people in a pathetic attempt to have the public view you as more knowledgeable.

But you are nothing but an agent just like the rest of us..... except you want to bash the rest of us to make sales.

On top of all that you try to come on here and make extremely ignorant comments about the industry and sales process... then you dismiss the actual facts and start making personal attacks.

If there is anyone making baseless generalizations and attacks, it is certainly you.

And we will be at an impasse until you choose to engage in substantive, debate. It's not impossible. That is at least one clear, undeniable falsehood you've written. It's not impossible. It's a simple matter of cut and paste.

I make no secret on my website that I am compensated frequently through commissions. But it is not exclusive. And it is not required. That makes a legitimate, legal difference. So does my written commitment to provide brokerage under a fiduciary standard of care, which I assure you that I understand very well. And it makes a huge difference, forcing me to make some painful and expensive changes to what I do and how I do it.

If you think it's just a marketing gimmick, and if you already behave as a fiduciary, then what's keeping you from putting it in writing?

I don't doubt you already know the answer to that question: only a pure *** would just declare himself to be a fiduciary and make no changes to his practice.

I may be on the bleeding edge in what I'm doing. Maybe I am an *** for taking that risk alone. But don't think for a second that I take it lightly. And don't think for a second that I've not made material, costly changes to what I do and how I do it to make sure that there is substance behind the commitment.

Also, I had my own RIA for four years. So, I know about fiduciary rules and compliance very thoroughly. And like I said, I know by experience that it is no trivial matter.

I think we are done until you can figure out how to cut and paste rather than sling generalizations. You point out a fact of yours that I've ignored, and I'll address it. I'm not dodging anything.
 
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So does my written commitment to provide brokerage under a fiduciary standard of care, which I assure you that I understand very well

Many in our industry would consider the terms "brokerage" and "fiduciary" mutually exclusive. Of course the CFP board does not since all they care about is you paying your fee to them each year.
 
Many in our industry would consider the terms "brokerage" and "fiduciary" mutually exclusive. Of course the CFP board does not since all they care about is you paying your fee to them each year.

Most people in our industry, including most people who are CFPs, consider the terms fiduciary and brokerage to be mutually exclusive. There, I not only agreed with you, I one-upped you.

Believe me, I know what CFPs think about my business model at first glance! I market to them regularly. And it's not much prettier than your opinion, at least not at first.

There are substantive reasons for this belief that I won't deny. Most of them have to do with the erroneous view that receiving commissions from a third party precludes a fiduciary commitment.

But tens of thousands of huge transactions take place almost every day that show this is not the case, and that the reasoning is fallacious. They are real estate transactions where buyers' agents get paid by the seller but still are bound by a fiduciary obligation. I address that here. Sorry for the backlink, but, really, I'm just trying to be practical. No one wants me to cut and past the whole article. I've already written enough! (Can we at least agree on that?) ;-)
 
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