In this episode of the Financial Procast we're discussing the tendency that some people have to obsess over details of a financial product purchase that don't really matter. At the end of the day, the only thing that matters is how much benefit you derive from the product that you purchase.
All the stuff that happens in between is semantics and a whole lotta fluff meant to confuse and distract you from focusing on the end result.
This is a problem that plagues consumers and agents in our business. In other words, it's not just a consumer problem.
Sometimes agents get overly obsessed with details that just don't matter and lose sight of the big picture which should always be to deliver the best end result to their client.
Almost every person who comes to us is looking to have us design cash value life insurance in a way that optimizes cash value person. This is probably 99% of what we do.
Typically we are evaluating both whole life insurance and indexed universal life insurance so that they can compare the two products to decide which one they want. With both products there is something called a premium load.
On the whole life insurance side it effects the paid-up additions and on the universal life insurance side it effects the entire incoming premium. The loads vary–they can be between 5-10% from company to company with very little consistency.
We have circumstances where we compare the policies, the significant tangential benefits (accelerated death benefit rider, chronic illness rider, critical illness rider etc.) and then we spend a majority of our time focused on the internal rate of return (IRR) on the cash value because that's where most of our clients want to focus.
Yeah, But Still
There are times that we can see a much greater cash value in one policy versus the others. The IRR is better, the projected income is better, and many times even loan provisions are better. However, people will say something like, “Yeah but that policy has a higher premium load on the paid-up additions and I don't know if I should by that one“.
This is like the person who says I want to buy a widget for $55 with free shipping from Company B. I'm not going to buy from Company A who sells the same widget for $45 because they charge $5 in shipping and I don't like paying shipping.
Sound logic. Do these people just hate math?
We Should Stop Commissions
There are so many people that choose to vilify all people who earns commissions and the products that they sell. But why is that?
All business earn a gross profit, and that's all a commission is for us and people like us. What a life insurance company pays us in commission is not reflective of who much money we walk away with. We run a business that has overhead, we have expenses, we pay people to do things for us, and we pay taxes (like everyone else).
And even further…
An agent's commission is not negotiable. The commission is part of the product and part of the approval with the state department of insurance. There's no way for an agent not to make a commission on a sale. And even if they somehow worked it out so they didn't, the insurance company is not going to charge you less.
Our final word, don't focus on the small stuff. Don't worry about how much something costs. Focus on the value that you receive from it and let that be your determining factor.