Balance Your Tires; Sharpen Your Ax

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My father, Dewey Cave, (1925-2007) was age five when the Great Depression began and age 16 when Pearl Harbor was bombed. His developmental years were spent working hard in a no nonsense environment (war), and one of his core values was keeping things at peak efficiency and battle ready. His tools were sharp, well-oiled and tuned, and one fetish he had was keeping his tires balanced. He loved a smooth ride.

There was only one shop that could acceptably do the job for him: Eubanks Tire and Alignment. This was not a franchise shop hiring recent tech school grads, but a locally owned shop with third generation artisans who balanced tires while still on the car (in case of wheel irregularity), could shave tires if out of round, and took exceptional pride in their work. You drove away smooth as glass.

A life insurance checkup is like getting your tires balanced and aligned. Not only does it extend tire wear and help the front end last longer, it makes the ride enjoyable too!

95% of people’s life insurance arrangements are out of balance and misaligned. Most policyholders don’t recognize it because it’s asymptomatic- not pulling to the side or vibrating the front end. Still after it’s fixed, the improvement is dramatic.

Abraham Lincoln said, “If I had eight hours to chop down a tree, I’d spend six sharpening my ax.” Solomon elaborates: “If the axe is dull and he does not sharpen its edge, then he must exert more strength.” Eccl. 10:10 It’s the same principle.

Tires can get worse. Yesterday an adult daughter stopped in for a visit. As I walked her to her car I noticed that a tire looked low. The tire gauge confirmed only 10 pounds of pressure. “I just put air in that tire last week”, she remarked about the first car she’s ever owned. A quick look showed an embedded nail with a slow leak. Most insurance consumers are like my daughter: have a slow leak, don’t recognize it, just keep adding air (premiums).

Is it time for you to balance and align your tires, or at least remove the nails? Those that take the time to “balance their tires” with an insurance checkup save a lot of money and enjoy a smooth ride. But you must be like my father: find a shop with skills learned over multiple generations and make adjustments.

That’s our purpose: a specialty shop with 50+ years experience (two generations) that doesn’t sell policies, to guarantee objectivity and clear vision. When you drive out of our shop, you should have the smoothest ride possible- the right amount, the best value the marketplace offers.

It’s better to call and not need it, than need it and not call. I’ll talk to anyone about their situation for 10-15 minutes without charge…or you can just keeping adding air.

“I am an Insurance Salesman”: The Necessity of a Second Opinion Case Study # 9

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I just finished a case that started as a call to the radio show, Money Wise. This listener’s agent encouraged him to replace a whole life cash with a new term policy and put the $45k cash value in an annuity. “Term is cheaper and the cash value will earn more”, sounded plausible. Mark Biller of Sound Mind Investing was the guest and recommended he call me.

First I evaluated the whole life policy to see if it needed replacing and then assessed his overall need for life insurance. The cash value was earning 3.87%, much higher than money in the bank, but lower than long-term equity investments. This wasn’t bad, but it was an inordinate amount of his net worth tied up in a relatively low long-term return.

He was no longer married, and had a 22 year old independent working son and 19 year old student daughter. He already had two good life policies: the 150k whole life and a 200k term policy costing only 342/yr with level premiums for another nine years, more than long enough to see his daughter to independence. The agent recommended a new $400k 20 year term policy costing 1492/year. He didn’t need insurance for 20 more years and he didn’t need that payment.

…there comes a time when emphasis needs to shift from the what-if-I-die scenario to the what-if-I-live scenario…

He had a Roth IRA which he hadn’t been able to fund in recent years. He also had 200k of debt. He’s in his young fifties and dedicated to his children, however there comes a time when emphasis needs to shift from the what-if-I-die scenario to the what-if-I-live scenario. Also, one should never fund an annuity (tax-deferred) when eligible but not funding a Roth (tax-free).

We returned the annuity and rejected the new term policy. The dividends on the whole life policy had bought paid up additional insurance which we surrendered for 13k of the 45k cash value. He will use that to fund his Roth for 2013 and 2014. We’ll keep the whole life at least until Roth funding is due for 2015, then maybe whittle it down further or discontinue it altogether if his daughter becomes independent. He’ll apply that extra $1492 to his mortgage.

I explained the rationale behind these decisions to the agent. He acknowledged it made sense, but then added, “I am an insurance salesman”. That code language meant, “My responsibility is to sell policies; besides I’ll forgo a $1k commission if I don’t place the life policy, aside from the $1500 commission I lost not placing the annuity.” I respected his candor and expected him to try to place this term policy. Indeed he did, but my client had a balanced understanding of the risks of both rejecting the policy (premature death) and accepting the policy (opportunity costs) and stood firm.

It’s not a matter of understanding, but of motivation. What saved this client was reaching outside the traditional box of advice exclusively from a salesman, and getting input from someone who understood insurance nuances and the marketplace, investment alternatives, and had the proper motivation. His retirement should be larger, his debt and taxes smaller, while he saves his fee back three times per year for two decades. It started with a phone call.

The Most Common Lie in Life Insurance Sales Case Study #8

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One purpose of IIA is to shine light on deceptive sales practices in the industry in order to help insurance consumers spend their premium dollars more efficiently. After my last two cases I can say what is the most frequently spoken mistruth in the sales context. Its plausibility disarms consumers yearning for help and it’s glibly uttered or implied in most interviews: “I will recommend what’s best for you.”

This tendency was observed by Solomon millennia ago. In Proverbs 20:6 he writes, “Many a man proclaims his own loyalty, but who can find a trustworthy man?” Two adjectives contrast the frequency of loyalty to another’s best interest. Many claim it, while few provide it.

In the first case an agent was trying to sell an oral surgeon a large cash value policy for asset protection. (Cash values are exempt from malpractice suits.) I had reviewed the proposed policy and discouraged it (wrong priority; better policies), but my client wanted me to hear the sales pitch firsthand. “When I talk to the agent it sounds so good, I want you to hear it to be sure I’m not missing out.” So the client, agent, and myself had a conference call for well over an hour.

The agent was pleasant and persuasive. I can see how my client, who did not understand the alternatives and was fuzzy on appropriate priorities, could be drawn in. The agent said multiple times, “We need to do what’s best for (client) “. His recommendations were not.

The stakes for the agent were high (a 10K commission) so I expected resistance. When I finally showed an alternative (a last ditch effort for illustration only, not as a recommendation) with a second year cash value of 34K compared to his policy’s cash value of $700, the agent was undaunted, persisting his policy was better. This surprised me, but such denial of the obvious highlighted the disparity between the claim (to “do what is best”) and the recommendation.

The second client shipped me brochures and charts from a financial planner recommending a poor value annuity and cash-value life policy. The “planner” never even evaluated the client’s current policies, one of which was a good value (right type, strong company, lower rates) that met his need much better than the proposed policy. Scattered through the literature was a plethora of claims such as “client’s interests are to be placed first and foremost” and “employees agreed to act in an ethical manner, and with integrity.”

Andrew Carnegie said, “As I grow older, I pay less attention to what men say. I just watch what they do.” These advisors proclaimed their own loyalty with words, but their real loyalty, as per behavior, was marketing policies. Neither client needed more life insurance.

What’s the lesson for insurance consumers? A successful agent routinely claims to put your interest first. Expect it. However this in no way means he keeps your best interest first. It only means he is a good salesman. He survives by persuasion and no line is more effective than claiming to keep your interests first.

The wise consumer will heed Solomon and Carnegie:

  1. expect many noble sounding (but empty) claims. Solomon- Pr.20:6
  2. pay little attention to them. Carnegie
  3. test them with a second (impartial and experienced) opinion. Solomon- Pr. 18:17

Like Solomon and Carnegie, these two clients paid little attention to what men said and reached outside the box to test them with a second and impartial opinion. Like Solomon and Carnegie they both kept more of their wealth. Pr. 14:15 & 24

The Value of a Second and Impartial Opinion

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The way most people buy life insurance is a recipe for poor results. It violates two clear principles of successful decision-making commended in Proverbs 24:6. “By wise guidance you will wage war and in an abundance of counselors there is victory.” Notice two dominant adjectives: wise and abundance. In other words get a second opinion… but be sure it’s wise.

Most insurance is purchased with singular advice from a sales agent, i.e. without a second opinion. Strike one.

What about the “wise” part? We tend to think wise guidance primarily consists of training and experience. While those are important, there is a third element that trumps both…and it has to do with motivation. Proverbs 24:23 gives a clue, ” To show partiality in judgment is not good.” Why is it not good? Because it’s self serving. A similar verse, Proverbs 28:21, inspired the name of our website, “Impartial insurance advisor”: “To show partiality is not good- yet a person will do wrong for a piece of bread.”

This verse described what I observed in sales meetings while an insurance agent. We regularly reported how many policies we sold, the amount of insurance, and the amount of annualized premium collected. With that sort of pressure and the constant enticement of commissions dangling before us, could we be impartial advisors?

Deuteronomy 16:19 says, ” You shall not distort justice; you shall not be partial, and you shall not take a bribe, for a bribe blinds the eyes of the wise.” What does a bribe do to the wise? It blinds (takes away the ability to see clearly), leading to a distortion of justice. When Proverbs 24 commends “wise guidance”, it means guidance not under the influence of a bribe, a “piece of bread”, or any inducement to distort advice. Yet this is exactly what a commission does. It makes the commissioned “advisor” at least to some degree a blind guide. Strike two.

Warren Buffett says it this way. ” In looking for people to hire, you look for three qualities: integrity, intelligence and energy. And if they don’t have the first, the other two will kill you.” Training, experience, and intelligence cannot make up for a lack of integrity (as per Buffett) or being partial (as per Solomon).

Why do consumers buy insurance with singular advice from blind guides? It’s easier (agent takes initiative while consumers are passive), or maybe not knowing where else to turn. That’s why Impartial Insurance Advisor was created, a source for that second opinion that is wise– well-trained and experienced– but most importantly impartial which means not self seeking.

Many are discovering that paying a little for impartial advice is the best insurance money they can spend. So what does Proverbs 24:6 commend for the best decision making?

  • The Value of a Second Opinion
  • The Value of an Impartial Opinion

That’s who we are. Combine that with 35 years of experience in the insurance markets and all the training the industry has to offer and what do you have? Homerun!

Comparing Northwestern Mutual’s Term Insurance Case Study # 7

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I just finished an insurance review for a Michigan business owner. The results were straightforward and with a company I deal with regularly- Northwestern Mutual. NML is an excellent company, as their agents will tell you, but like all companies they have their strengths and weaknesses. An eclectic strategy can use them for some needs but not all. Even in their strong areas (cash value life insurance) there’s a vast disparity among cash value policies within their portfolio. We addressed that with the Dr. Ryan Wetzel who is featured on our Testimonials page with an accompanying blog.

Here I’d like to compare NML’s term life insurance rates to alternatives. The first step is to ascertain the appropriate amount of insurance. This client had $1.2 million of term life insurance with NML. He is well-managed with a strong income, emergency fund, debt-free, and retirement assets. Because of his large young family, should he die, Social Security Survivorship benefits would be over $4,000/month until the children were age 18. This is something he did not fully comprehend. In light of his assets, and after careful review with his wife, they felt comfortable reducing his life insurance to $1 million.

From there it was simply a matter of shopping for a term policy with more favorable rates.
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NML’s term insurance was convertible to a more favorable whole life policy, but the client and I discussed this and he was not inclined is to use whole life anyway. The new company’s financial strength was slightly less than NML’s, however this is not as important for term insurance as for cash-value insurance.

He paid me a fee of $675, higher than most reviews. However it took over seven hours of time, carefully and objectively considering his assets, goals, and sentiments. (I also reviewed his Northwestern disability policy which was left intact, and his wife’s life insurance which they changed for additional savings not reflected above.) He adjusted down to a more appropriate amount after having it brought to his attention the survivorship benefits that commissioned agents rarely explain. There were over 50 emails over several months. I walked him through the underwriting process, though I did not sell the replacing term policy.

We got the best of the best; found a strong company with very favorable rates and he got the superlative risk category. It was worth the effort, he will recover his fee the first 14 months and earn (by saving) a substantial tax-free return on his investment, far better than any other way he could “invest” $675.

Most who think they are with a “great” company have little idea of how much they can save. That’s what objective experienced guidance provides and why Scripture so frequently commends it- Proverbs 1:5, 11:14, 15:22, 20:18, 24:6.