Oh, to go back to the day when selling life insurance was easier.
Before the introduction of level term policies, things were much simpler.
We had annual renewal term, decreasing term, and, depending on the carrier, 5-year convertible and renewable term.
Some of you who are reading this have never even heard of these!
The days of yore
Nonetheless, they were simple policies that you held simply for the death benefit.
They included features like:
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Increasing premiums either on an annual basis or on a 5-year basis.
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Conversion, usually to the carrier’s best product (allowed any time prior to age 65).
With the carriers’ need to become more competitive and to diversify product portfolios, the age of “level term” was born.
That’s when the simple world of term insurance became the Wild West.
Today’s reality
Over time – and to position themselves in the best possible competitive position – carriers built term products with very subtle and sometimes not-so-subtle differences.
Many of these differences were – and to some degree, remain – unknown to both the selling agent and the consumer.
Unfortunately, some of these “differences” are not fully recognized until the policyholder is faced with the need to renew, change or convert their policies.
When realized, it’s generally too late to do anything about it, and you’ll likely be the one accused of not fully disclosing these policy limitations.
On the other hand, some features, such as conversation credits, are generally recognized upfront and can work to the policyholder’s advantage.
Tips for selling insurance
Either way, the following are some questions that you might want to ask your GA when selecting a policy for your client:
1. Is the term policy convertible, and if so, are there any limitations?
This is an important aspect of your sale when explaining what the exit strategies might be for a term sale.
Some policies only allow for conversion within a set number of years, such as the first 5 or 10 years of the policy.
Others have no such limitation except to say that conversion must take place at the earlier of a certain age or the end of the term duration. That certain age may be 65, 70 or, in some cases, 75.
Either way, you need to disclose to your policyholder that, depending on the policy purchased and their age, exactly what the conversion options are.
2. When the policyholder converts, will he be able to convert to the carrier’s very best permanent life insurance policy?
Back in the day, the answer was yes.
However, as carriers become more and more opposed to wanting conversions (They tend to create anti-selection), some have developed more expensive products for conversions that might be the only choice available.
When you present your client with a term policy and a specific permanent policy and tell them that they can buy the term now and convert to that permanent coverage later, you'd better be sure.
3. Can the client reduce the face amount of their term policy in the future?
It depends on the carrier and when the reduction takes place.
Also, face amount reductions are generally subject to the product's minimum face amount.
Some carriers will not allow a face reduction and others will only allow a certain number of reductions over the level period of the policy.
If this is part of your client’s planning, you should double check with your GA first.
4. Is there a conversion credit if the term policy is converted?
A conversion credit is a credit for part or all of one year’s premium toward the first year’s premium on the policy converted to.
If there is a term conversion credit, this is good news for the policyholder but typically not so good news for the agent. The portion of the premium on the new plan that is equal to the credit will not be commissionable.
You can see why carriers don’t mind doing this because the agent ends up paying for it.
5. Is the compensation the same on level term products if the carrier has more than one option?
The answer very well could be no.
In order for carriers to be at the top of the list of competitors, they may have two products with the same level period (10 years for example), but one is priced much lower than the other.
When you see this, the more attractive premium to the client may very well pay you less commission.
6. Will I be compensated on the converted policy?
The answer is maybe you will……or maybe you won’t.
Yep, the days of automatic commission on the conversion of a term policy are now in jeopardy.
Again, carriers do not like conversions.
In fact, there is currently a major carrier who, after January 1, 2017, stopped paying commissions on a conversion in which the term policy had been in force more than seven years.
Unfortunately, this is not unprecedented.
The key is to find out upfront what the limitations might be to you!
The bottom line
It should be clear that all term products are not created equal.
To protect yourself, and your clients, you will need to take a hard look “under the hood” before you decide which life insurance product you want to sell.
How have the most recent changes affected the products you sell?
