Insurance Pro Blog Podcast

What Rate of Return Beats Whole Life Insurance?

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What Rate of Return Beats Whole Life Insurance?

Whole life insurance works well as a retirement income tool because it offers a very stable year-over-year return.  This feature minimizes the effects of sequence-of-returns risk that causes other assets to (at times) turn fewer saved dollars into income because it needs a bigger cushion to protect against potential asset declines. But how strong is …

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How to Create Your Own Pension: A Path to Certainty and Security

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Somewhere along the way, retirement planning and particularly retirement income planning came completely off the tracks. However, there is a way that you can fix it for yourself and that's by learning a simple methodology to create your own pension. A retirement income stream that deposits a certain amount of money into your bank account every month like clockwork.

But first, a disclaimer:  the information below opposes conventional wisdom with regards to planning for your retirement.  I’ve been directly involved in all sides of the retirement planning industry (stocks,  qualified plans, all types of annuities, insurance, discounted cash flows, bonds, mutual funds, separately managed accounts, limited partnerships, etc.).  Not looking to impress you but just to let you know that I’ve peeked behind the curtain, seen the Wizard and I’m not impressed.

Now that we got that out of the way, I can spend less time talking about what’s wrong with the retirement planning advice business and more time talking about what we can all do better.  What we can do better for our clients, for ourselves, and for everyone we know.

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How to Become an Independent Insurance Agent

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Becoming an independent insurance agent takes little more than passing the license exam to have an insurance license, but becoming a successful independent insurance agent requires much more.  Independent insurance agents typically require a strong business plan to succeed and often capital to weather fluctuating income. Captive versus Independent Insurance Agent Many people begin their careers in the insurance business as captive agents.  These are people who work for a specific insurance company and represent it during transactions.  The captive agent generally has sales quotas and usually must look to his/her company first for all insurance solutions.  If the company does not have a reasonable insurance product for a given potential client, the captive agent can sometimes look for products at other insurance companies and act as a broker to sell that outside product to his/her new client. Captive agents often receive fringe benefits beyond just the commissions paid on the insurance business they produce.  This might look something like having access to health insurance at a subsidized cost or receiving reimbursement for certain business operating expenses like rent or professional liability insurance. Independent insurance agents, alternatively, do not work for a specific insurance company and do not represent any insurance company.  They instead act as a broker between insurance companies and insurance buyers. Independent agents do not generally have sales quotas at any specific company.  However, some companies may require a certain level of sales submitted annually in order to maintain a selling relationship with the independent agent. Independent agents generally do not receive fringe benefits like captive agents.  However, independent agents do often receive expense allowance payments on the insurance business they sell for a company.  This comes as a bonus payment on top of the insurance commissions payable to the independent agent. Reasons to Go Independent Some captive agents transition from a career captive arrangement to an independent agent.  Common motivators for making this move are: Freedom to sell products from multiple companies with no quotas to fill Additional compensation through expense allowances Fewer compliance roadblocks when conducting business No Quotas While independent agents do not have quotas, they often find it extremely difficult to maintain strong business relationships with several life insurance companies.  Each insurance company has its own unique systems while conducting and servicing insurance business and it's very difficult to manage several of these idiosyncracies across a large number of companies. Independent agents often find it easiest to work primarily with one company while selling products from other companies on occasion.  The good news is the agent has no real worry about being fired for not meeting a sales goal.  But we should note the reality that most independent agents still act somewhat like their captive counterparts when it comes to recommending a favored company. Additional Compensation One of the biggest misnomers that likely exists about independent agents is that they earn more money when selling insurance than captive agents.  While there's a shred of truth to this, and for some very high producing independent agents an opportunity exists to exploit this truth, for most the compensation is roughly equal across the board. The fringe benefits enjoyed by captive agents often equal or outweigh the additional compensation paid to an independent agent. Compliance Roadblocks There's no doubt that insurance company-established compliance can be a serious impediment to operating an insurance practice.  Sometimes these impediments are for good; other times they are major annoyances with varying degrees of prudence. Independent agents can avoid many compliance roadblocks because they do not work for any specific insurance company.  There certainly are rules they must follow, but insurers are much less worried about how independent agents conduct their day-to-day business because it has little effect or consequence to the insurance company. Transitioning from Captive to Independent For captive agents, there isn't a formal process for becoming independent per se.  The captive agent terminates his/her employment contract with his/her employer and can at that point act as an independent agent if he/she wishes.  Sometimes, contract termination isn't at the discretion of the agent. But while the process of transitioning isn't necessarily a formal one, there is certainly a good deal of planning recommended to the captive agent looking to make this transition. A currently captive agent should heavily consider the benefits derived from the career insurance company.  He/she should also strongly investigate the effect of leaving a company and the process of transitioning clients (if applicable) to his/her new practice.  Some companies may make this transition extremely difficult, while others will put up few if any impediments. Some, but definitely not all, agents will have an option to continue to sell their former career company's products after transitioning to independent agent status.  This means they will broker that business just like any business they produce once independent.  But, the agent must understand that he/she no longer works for the company and can no longer market himself/herself as a representative of the company.  Also, resources the agents may have had ready access to as a career agent may no longer be available to him/her as an independent agent. For people who spent time as a captive agent, there's a good chance they are familiar with several aspects of business as usual when working as an insurance agent.  This might include finding and buying professional liability insurance, being responsible for income tax withholdings, and filing/paying for insurance licenses. But there are potential aspects of being an independent insurance agent that are new to a captive agent.  Many captive agents receive advanced commissions for insurance business paid under an arrangement other than annually (monthly for example).  This means the insurance company assumes it will receive the required premium payments and pays the insurance agent ahead of receiving those actual premium payments.  This is not a common payment option for independent agents--they instead receive commissions when the policy owner pays the premium. Starting out as an Independent Agent Some people chose to take an insurance licensing exam and become an independent agent without working for any insurance company.  This is a bold move that can prove extremely difficult.  While there are few impediments in place to prevent someone from doing this, it is possible for some insurance companies to refuse to appoint someone newly licensed with no professional background selling insurance to sell their products--this is especially true in the home and auto insurance industry. Additionally, someone who begins selling insurance with no prior experience will likely lack certain knowledge about industry norms that impact day-to-day business conduct.  The inexperienced agents may not realize he/she needs professional liability insurance and may very likely not know where to begin looking for it. Starting out independent can be very overwhelming, but for those who find themselves in over their heads, there's always the option of finding a captive arrangement at a company.

Becoming an independent insurance agent takes little more than passing the license exam to have an insurance license, but becoming a successful independent insurance agent requires much more.  Independent insurance agents typically require a strong business plan to succeed and often capital to weather fluctuating income. Captive versus Independent Insurance Agent Many people begin their …

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An Ugly Indexed Universal Life Insurance Lawsuit

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An Ugly Indexed Universal Life Insurance Lawsuit

In August of this year, two California residents filed a lawsuit against the Pacific Life Insurance Company alleging: Violation of Unfair Competition Law Business and Professions Code Fraud and Deceit Intentional Misrepresentation Negligent Misrepresentation Breach of Fiduciary Duty Professional Negligence The lawsuit seeks class-action status welcoming the possibility that the attorneys working for the plaintiffs …

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Impending Whole Life Insurance Doom

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Impending Whole Life Insurance Doom

Whole life insurance policies often rely heavily on the issuing company’s ability and willingness to pay dividends.  While whole life policies do have considerably strong guaranteed features, the payment of dividends dramatically alters the net value a policy owner can extract from the contract. These dividends play a crucial role in augmenting cash values as …

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The Myth of the Rising Cost of Universal Life Insurance

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The Universal Life Insurance Myth

For years, those who favor whole life insurance have told us that universal life insurance has an evil side. While the product affords the policyholder ample opportunity to adjust premiums as he/she desires, it also possesses the nasty cost of “shifting the risk back onto the policyholder,” thus (a favorite line of mine) “taking the …

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Does Whole Life Insurance Dividend Recognition Affect Projected Income?

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Whole Life Income Accuracy

Dividend recognition deals with how a life insurance company pays dividends to policyholders when they take loans out against their policies.  The two options are non-direct recognition (where policyholders receive the same dividend regardless) and direct recognition (where policyholders receive an adjusted dividend when a loan is outstanding). For years insurance agents argued the virtues …

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Is Indexed Universal Life Insurance Good for Retirement?

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Is Indexed Universal Life Insurance Good for Retirement?

Indexed universal life insurance can be a good choice for retirement, but you should understand that it works as an option to complement your investments and other retirement planning tools.  The top three things that make indexed universal life insurance a strong tool for retirement are: Its protection against losses Its ability to produce tax-free …

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Historical Whole Life Dividend Analysis 2020

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Historical Whole Life Dividend Analysis 2020

In 2013, we published our first historical whole life dividend analysis.  We were the first website to go beyond just a basic table of dividend data because we knew the typical table wasn’t enough to make any meaningful observation about dividend data. This year, we are updating the analysis process to introduce more advanced and …

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Should you Buy a Second to Die Policy?

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Should you Buy a Second to Die Policy?

A second to die policy or survivorship life insurance is a life insurance policy that insures two lives and pays a death benefit once both insureds die.  This type of life insurance costs far less than traditional life insurance insuring just one life.  It has a specific life insurance planning application, but some agents look …

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