It sounds pretty unattractive to say those who are buying life insurance are a the mercy of sellers. Seemingly, it iimplies intentional harm. But what about damage done with the best of intentions.
What if the person selling the life product is the victim of flawed training, a lack of training, overly simplistic training or just received sales skill training. This situation is pervasive in the life insurance industry,
Unfortunately, damage stemming from misinformation is just as damaging as that caused by intentional deception. Within the life insurance industry more harm is done by under informed albeit well intentioned financial sales people than by those few who intend to deceive.
The buyer of life insurance is actually at the mercy of what the person selling the product being presented does or does not know. Since the typical buyer of life insurance knows nothing at all about how life products work, they lack even a basic framework to help them evaluate what they are being told.
Sadly, the buyer is in no position to really understand what is being shared with them.
After spending the better part of three decades studying life insurance products I can honestly say I can count on one hand the number of people I’ve met in the industry who have a comprehensive understanding of all the types of life insurance available. Many seasoned financial sales professionals have favor a particular product and long ago lost interest in learning about other or newer products that may be, or have become available over time.
Even when it comes to a given sales professionals product of choice all to often their level of knowledge is elementary. Usually its a function of what the person who trained them about the product knew or didn’t know. So all they know is what that person taught them. Unfortunately, if that persons level of knowledge of the product was limited then so is the knowledge level of anyone they subsequently educated about it.
Then there is the issue of which company the selling agent works for.
The life insurance industry consists of two main types of distribution systems. The first and oldest is referred to as “captive” which describes companies that hire and train there own sales force. These companies focus on selling their own products and compensate their sales force for doing just that. By no means does that mean their products are best of breed, or that they manufacture all of the different types of life insurance. Generally, the reverse is true.
Examples of captive companies include North Western Mutual, New York Life and Mass Mutual (to name a few). My view based on decades of interactions is those hired and trained by these companies are often subjected to training that is akin to brainwashing. Often they are told their products excel beyond those of other companies in the industry. The training they receive often is geared towards pointing out weaknesses of other companies; some seemingly more imagined than real. This is not always the case. But I would lobby its fair to say it is often the case.
Most captive companies will also have brokerage arrangements that allow their financial professionals access to outside company products. That said, generally the compensation and benefits when outside products are sold will be limited. Worse, the sale of outside products may not count towards required minimum sales goals that must be met to either retain a contract with that company, or receive medical and retirement benefits from that company. This is something the nations regulators are doing their best to address in that they view it as putting undo pressure on sales associates to sell products that may or may not be in the best interest of the buyer. If this trend continues it will spell the end for captive sales forces.
The second type of distribution system is referred to as brokerage.
A brokerage firm, and they come in many forms and formats, represents multiple companies products. Traditionally, they cater to independent financial professionals who prefer not to be captive with one particular company. These companies enter into selling agreements with various manufactures of life products. The brokerage firm then in turn makes those products available to the producers who have contracted with them. The brokerage firm typically keeps a lesser portion of the commissions on sales made by contracted associates and the selling agent receives the rest. The reason being no health or retirement benefits are provided by brokerage firms to those they contract with to sell the products they make available.
It is fair to say all brokerage firms are not equal in their offerings. The more sales associates they have contracted with and the higher the volume of life product sales the firm handles, the more attractive they are to life companies that offer life products. The larger the brokerage firm the more likely it is they will be able to contract with the larger life product manufacturers. This is beneficial to those they contract with to sell life products since larger companies often have far greater sales volumes which means they benefit from the economics of scale. Fixed product cost factors are spread over more sales meaning (all else being equal) the expense embedded in any given life product is lower than is the case for a company with lower sales volume.
This means the biggest of these brokerage firms can offer the most competitive “best of breed” variations of different life products. This in turn allows them to contract with the top sales associates in the industry who want to have the widest access possible to the most competitive life products available on the market. These brokerage firms often have required minimums (to contract with them) that less successful sales associates are unable to deliver. Which does in effect create a very “un” level playing field among independent producers. As such, product buyers are well advised to deal with the most successful sales associates in the industry (if they can identify them).
Finally, the largest of these brokerage firms can induce product producing life companies to pay higher levels of compensation for their sales associates. Those life companies producing products want the most volume of sales they can get and contracting with the top brokerage firms is one way to achieve that goal. This allows the larger brokerage firms to induce top producers to contract with them, versus other brokerage firms, to obtain higher commission payout levels.
Selling agreements for term insurance products are generally easy to arrange. There is very little profit built into term premiums for the most competitive manufacturers of those products. But, when it comes to more complex cash value products that have higher profit margins the opposite tends to be true.
It is not uncommon for access to certain manufactures products to be restricted to only the top tier of industry producers. The products of other companies may not be available at all. Products of captive companies are generally not made available to brokerage firms since it would upset the captive sales force if they were. But for the very top tier of the nations life sales producers even this barrier is often removed. It’s just not advertised so their captive sales forces are often unaware this goes on.
While independent financial professionals often imply they have access to all life insurance products available on the market, the fact is most don’t. As noted above, there are many limitations. Access is determined by selling agreements the brokerage company has entered into. Absent a selling agreement with a given company that companies products are not available to the independent producers contracted with any given brokerage firm.
The larger the brokerage company and the more financial professionals selling through the brokerage company, the more likely it is they will have a large and diverse product offering. But smaller brokerage firms, those with fewer contracted sales professionals will have far more limited offerings.
Finally, putting term insurance aside, the reality is any given independent financial professional typically does 85% or more of their life insurance business selling one companies products.
There are two reasons for this. One is tied to how compensation schemes are designed. The more they sell of a given companies products, the higher the commission scale they qualify for. The other relates to the time constraints that exist for a truly successful financial sales professional. It’s simply impossible for the typical sales professional to constantly obtain access to and take the time to evaluate the never ending stream of new life products being brought to market by the nations life insurance product manufacturers. Even if they wanted to, they can’t do so and run their businesses effectively.
A very valid question then is just how independent is the the typical independent financial professional if they actually do most of their business selling one companies life products. And the answer is usually not very. The “myth” that independent producers sell without product bias is just that. It’s a marketing representation they know buyers like to hear, but it is not supported by the facts. While they are not captive “by contract”, they are in essence captive by “compensation scheme’s and time constraints”.
The final point that puts life insurance buyers at risk relates to the personality types of those likely to be selling life products.
The typical financial sales professional has an outgoing personality. They are often relationship oriented and they tend to be at their absolute best when interacting with others in social situations. There time is spent networking in a effort to meet new people who they might be able to make clients. They do not spend their time burning the midnight oil studying life product designs and individual product details. It’s just not in their nature to do so. They prefer to leave that to those who offer the life products for sale and just trust they are providing life products that represent a good and fair value. Which may or may not be the case.
The world is a very complicated place and those who run brokerage firms or who maintain captive sales forces are at the mercy of many conflicting goals and economic realities. The results of these realities is their actions may often be those that are in their best interest, or the best interest of the firm that employs them; and not necessarily that of the buying public.
Hence the time honored phrase; “let the buyer beware”.
Most relationship oriented people would die of boredom if subjected to a deep dive lecture into how any given life product works, not to mention a comprehensive comparison of any given life product to all of the others on the market. That simply isn’t the reality driving how life insurance is sold. And that approach is rarely the focus of those who sell life insurance.
This is not because it isn’t important for people to understand what they buy, but instead its because most buyers of life insurance won’t tolerate a detailed technical approach in a life insurance sales presentation. The typical buyer wants to see the bottom line, not be instructed on the detailed mechanics of how any given life product works or compares to other life products. Those that sell life products no this all to well.
Generally speaking, people with great technical skills rarely sell life insurance products. Even more rare is the technical person who can take the complex things they know and reduce them to explanations that are easy to understand by the less informed members of the public they wish to sell to.
Only the “technician” with a gift for making the complex simple will succeed in selling life insurance. And those individuals are few and far between. If you do find one, it is unlikely they will also be gifted with an outgoing personality sufficient to allow them to interact well socially so they can find a steady stream of people to meet with.
And that is exactly what a financial sales professional must be able to do if they hope to be successful. They must be able to sit in front of a steady stream of new prospects they can sell to. Absent that, a life insurance sales person isn’t likely to have a very long career.
So, it’s easy to see how unlikely it is you will ever meet such a person when you are buying life insurance. However, that is exactly the type of person a life insurance buyer needs to have selling them a life product if they are to understand what they are buying. That’s the only way they will be given a comprehensive explanation of what it is they are buying. Which my experience suggests rarely if even occurs.
So buyers of life insurance face considerable obstacles when it comes to ending up with the right type of life insurance product, not to mention also gaining access to the best available version of that life product on the market at the time they make a purchase. The odds are stacked against the buyer. Not by ill intent, but by the nature of the sales situation itself and the complexities of the life insurance sales marketplace.
The inevitable result is a great many disappointments await those buying life policies. Which no doubt accounts for the reason so many people end up with a a less than flattering view of those who sell life insurance. Which is a shame. Most are very nice, well intentioned albeit under informed people trying to make a living in a very difficult and competitive field.
There are many other “buyer be aware” challenges involved in buying life insurance. Far to numerous to mention in this small an article. Most are far more technical. If you click on various tabs and write ups on this website you will find many you can study. There are many posts on this website geared to imparting an in depth education on a given product or problem.
So, “buyer be aware” is the operative phrase when it comes to buying life insurance.
