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Why don't life insurance companies do a better job of marketing the many benefits of using their cash value life insurance policies? They talk a lot about death benefit, not so much about anything else.
The truth is that most advertising and/or marketing that's done by large life insurers is more focused on brand recognition than anything else. Running ads during the Superbowl with calving whales and people sailing on their yachts is about as obscure as it gets.
But it makes someone in the marketing department look good to all the C-level people who happen to be watching the big game. None of it does anything to actually convince a consumer to buy a product from the company in question.
Its All About Incentives
The truth is there is much more money to be made by the insurance company if agents sell life insurance policies that aren't designed to maximize cash value. There's more money in doing it wrong–for all parties…EXCEPT the client that is.
Most of the time we've found that those working for the insurance company know how to design their products to maximize cash value, however, they will not make a suggestion that anyone do that.
The truth is that the “side benefits” (i.e. everything other than the death benefit), are not a focus because there's no incentive to issue a policy that way. Agents make less money by doing it that way and the home office makes less in revenue as well.
If we position life insurance as a product that can simply accomplish the goal of generating a supplemental retirement income, and spend no time talking about how it should actually be executed to maximize this goal, we don’t have to worry about dropping death benefit and reducing agent commissions
Additionally, most agents never learn how to design the policies correctly, so they simply use what came from the sales brochure, i.e. if this than that. We've got one product that's death benefit focused and another that's more focused on building cash value–that's it. Pick one or the other.
Except we've found that it never works quite that neatly. There is a great deal of customization that can and should be done.
Complexity=Comfort
In our experience one of the greatest offenders of this sort of thinking exists in the COLI market. That is corporate owned life insurance and there is so much abuse of overcomplicated strategies in this market.
There seems to be a need for some people who have a substantial amount of money to overcomplicate matters when it comes to life insurance and taxation. We honestly think it's little more than a “fear of missing out” aka FOMO.
And unfortunately it beckons many people to get involved with complicated and convoluted schemes to use life insurance as a tool to reduce current tax liability. Sounds good right?
Well, it is in theory but when we do the math, it typically doesn' t work very well. Why? Because in many cases you are bound by certain legislative restrictions as to what type of product you can use (typically not the best performing from a cash value perspective), expensive setup and generally running a much higher risk of audit from the IRS.
Saying that a plan or scheme has been successfully defended X number of times in tax court doesn't really give me the warm and fuzzies. Most people, in my experience, would rather not do anything that would encourage the IRS to come digging around.
And what's more…from what we've seen you can accomplish much more by NOT getting involved in the convoluted schemes in the first place. More cash, more flexibility and at a lower cost.
Ultimately most of these plans are sold for the idea (just like life insurance as an asset class) but never specifically on the cash benefits that can be made available. Because ultimately the idea is just one thing that might entice someone to buy life insurance. It’s the old sales method of talking features and benefits and looking for that one thing that pushes buttons with a prospective client.
