By Dr. James M. Dahle, WCI Founder
Dear Insurance Agent,
Both in the real and the online world, I have had the opportunity to interact with dozens of you. The vast majority of those encounters have been disappointing for one reason or another. Let me give you a few tips that may help you find more happiness and success in your career.
Insurance is important. There are risks that everybody can and should insure against. Insurance can be complicated, and having a trustworthy person to explain it to us and sell us the right policies is worthwhile and valuable. Some types of insurance, such as automobile liability and now health insurance, are mandated by law. Other types, such as life and disability insurance, should be considered mandatory for most people for certain periods of their lives. You don’t need to morph yourself into a financial planner, asset manager, retirement specialist, or college financial planning specialist to provide value. Just do your job and do it well.
Frankly, I think the world would be better off if there were FEWER insurance agents. There are too many new and inexperienced agents. If you’re not going to be in it for the long haul, get out. Get-rich-quick schemers belong somewhere else. When too many people are in the field, good people are forced to sell bad products to put food on the table. There are plenty of good insurance products that sell themselves. People generally just need a few questions answered and to have their insurance products designed well.
Doctors, lawyers, accountants, and other professionals spend years before they ever make a decent income. It will also take you years to build up your book of business to where you will have a high income. You may have to start your career “captive” to one insurance company. Get away from there as soon as you can and become independent. Only by being able to sell any client any product from any company can you ensure you’re always able to do the right thing for the client, which is the only true path to real success. Do it the wrong way and you’ll never get there. Even though the law may not require it, act like a true fiduciary to your clients and you will be rewarded for it.
More information here:
6 Greatest Sins of Insurance Agents
If your only financial education comes from the company that hired you, you need to spend some serious time studying. Ninety-five percent of the training that insurance companies provide for their agents is in sales, not finances. This is your career. You’re a professional. The bare minimum should be the highest designations the insurance industry offers, including the Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC). Better yet, step outside the insurance industry. Get a CFP. Get a CFA. These designations, while the hardest to get in the financial world, aren’t that much when compared to the education and training that most professionals go through. Read financial books regularly. If all your training is in sales—or even if it’s all in insurance—it will be hard for you to recognize when ANY insurance policy is simply the wrong thing to do for a client.
More information here:
Northwestern Mutual “Financial Advisor” Review and Confessions
There are very real risks people need to insure against. They need to insure against sudden and severe medical expenses. They need to insure against the death or disability of the family breadwinner and potentially a non-earning parent. They may even need to insure against running out of money in retirement. In our litigious society, they need to insure against the possibility of seriously hurting somebody else, physically and financially. These risks are all easily insured against using simple, easy-to-understand products that sell themselves to anyone who recognizes the risk. None of these products takes very long to explain, design, or sell, and they all pay you a fair commission. These include term life insurance, disability insurance, comprehensive health insurance, auto insurance, homeowner’s/renter’s insurance, malpractice insurance, and single premium immediate annuities (SPIA). Treat people right and sell them the right policies, and their friends will flock to you to do the same for them.
There are more complex insurance products that are needed and desired far more rarely than the above listed products. This might include guaranteed no-lapse universal life insurance for someone who needs a specific amount of money at their death. It might include a whole life policy for diehard bank-on-yourself types. It might include a variable universal life policy for a highly taxed professional who desires to save much more than their retirement accounts can hold and is concerned about tax and asset protection issues associated with a typical taxable investing account. Business owners may need more complex policies to ensure a smooth transition to the next generation. Some unique estate planning needs can be met with life insurance. Some clients may benefit from a deferred annuity used as “longevity insurance.” However, all of these situations are relatively rare, and many people who think they want these policies should be talked out of them because of their serious downsides.
There are a select few for whom these policies are right. When you sell them these policies, give them the best one available. Premiums should be paid annually to save costs. Investments inside VULs should be low cost passive funds. Often the death benefit should be as low as possible, and paid up additions should be as high as possible. It is your job to research the best policy from the best company and design it the right way. In many (most?) instances, this will result in your commission being lower than if you sold them the wrong policy. An insurance company must pay higher commissions to sell crappier products. Insurance isn’t a short-term profession, though. Sell people the right product the first time. Then, they’ll come back to you when they need another and send their friends to you.
More than 80% of whole life policies are surrendered prior to death. This statistic is a terrible indictment of your industry. If more than 10% of the permanent life insurance policies you sell during your career are surrendered prior to the client’s death, consider yourself a failure. You might be very wealthy, but you became so by stealing from those you should have been protecting.
Insurance policies can be complex. Unethical and incompetent agents frequently sell misinformed people policies they don’t need or even want. Even when they want a policy, an agent may sell them the wrong one or design it poorly. In a few years, they will realize they’ve been duped. They won’t go back to that original agent (if they’re even still in the industry) or send their friends there. They will also need help deciding what to do with the old policy. Sometimes, holding on to it is the best move, since the losses are now water under the bridge. Sometimes, they need to replace the policy. Other times, they just need to drop it. If you become an expert in objectively evaluating policies sold by others, you can charge a fair fee to do so and you will be providing an extremely valuable service for which you will be rewarded with new business and new clients.
More information here:
People Aren’t Buying Disability Insurance, But They Should
Why I Dumped My Disability Insurance Policy at 43 Years Old
As you become financially educated, you will realize that insurance products are not the right solution to every financial problem. Some insurance, such as whole life insurance, can be used to solve many different financial issues. Unfortunately, it is almost never the best way to solve any financial issue. Just because it CAN be used to solve the problem doesn’t mean it should be.
Ninety-five percent of the errors I’ve seen insurance agents make are due to their inability to see that insurance products, such as cash value life insurance and annuities, are not the best way to accumulate the significant sums of money needed to pay for retirement and college expenses. Entire designations have been built around these mistaken ideas. Whole life insurance cash value simply grows at too slow of a rate to meet the retirement needs of most Americans. Hiding money from the FAFSA by putting it in an annuity simply isn’t going to generate financial payback sufficient to justify the long-term costs of the annuity. There are dozens of ways to justify selling these products inappropriately, but at the end of the day, it’s just the wrong answer to the problem.
More information here:
Is Whole Life Insurance a Scam?
This is one of my biggest pet peeves with insurance agents. I meet someone in their 20s or 30s with a five- or 10-year level term policy with a face value of just a few hundred thousand dollars or less. I’m not sure what their agent thought they were doing. Perhaps they were hoping to get some more business when the first term ran out. Maybe they’re not educated enough to realize that converting a term policy to a whole life policy should be a rare event. Perhaps they just weren’t good at demonstrating just how much risk these young people were running and, thus, let them settle for a policy that is way too small. I don’t know.
Few people reach financial independence in their 30s or 40s. Sell them a term policy that lasts at least into their 50s. Someone in their 20s or 30s should almost never buy a term policy shorter than 20 years, and 30 years should be the default option. People need to realize just how little income they can draw from a lump sum if they need that sum to provide for them for decades. Instead of selling a little term policy to get them in the door so you can sell something more profitable later, just sell them what they really need in the first place. Since the premiums are higher (due to the larger face amount and the longer term), you’ll get paid more and won’t have to do nearly as much selling to make a living. If done properly, people really only need to buy life insurance once or twice in their life. Do it right the first time.
Most importantly, realize that your job is primarily education. You will need to spend some time and effort on policy design and even some time on sales and marketing, but your primary job is to educate your clients about the merits and limitations of available insurance products. Although the commission model of compensation you are stuck with encourages you to be a salesperson, realize that the key to your success is going about your business with the “heart of a teacher.” People don’t want to learn about insurance. They find it to be complex AND boring. Teach them what they need to know about it and put them into the right products the first time. Insurance IS expensive, but the right insurance is a worthwhile purchase.
Sincerely,
The White Coat Investor
What do you think? What would you say if you could talk to every insurance agent in the world? Do you have anything else to add to this open letter? Comment below!
As someone who was duped by a “friend” (from church, no less) into a Variable Universal Life policy that paid him many thousands and left us in the hole, I appreciate this article greatly.
Jim, my only concern is that your encouragement in point #3 for insurance salesmen to get a CFP and/or CFA could antagonize your advice to them in point #1, “You don’t need to morph yourself into a financial planner. Just do your job and do it well.”
I guess if that’s your biggest concern with an insurance agent we’re doing pretty well. In my opinion, more education makes them more likely to understand how markets and investments really work.
Jim preach on brotha! This would be great required reading for those selling insurance.
I agree with Casey above though that insurance salespeople should not get a CFP. My high school buddy who screwed me with whole life was a CFP, giving me a false sense of security in trusting him. Until they make selling products illegal for CFP’s or at least punitively taking away your CFP degree if you sell whole life inappropriately, i would discourage insurance salespeople from getting a CFP.
The problem isn’t getting the CFP. It’s the inappropriate sales.If they got CFPs, hopefully fewer would do inappropriate sales.
The only thing lower than the percentage of people who keep WL in force is the % of agents who remain in the business. The few that remain are “ok with what they do”. Some believe in the product like a religion and this facts don’t matter and the others convince themselves that you would have paid more in aum fees or whatever even though that isn’t true. Finally the returns you currently see are based on almost everyone lapsing. If that were to change then returns would drop further. Thus this is never going to be taken to heart large scale. I like the attempt though.
Good article.
Suggestion for next one:
Open Letter To Attorneys (entirely too many of them).
Well articulated, Dr. Dahle.
Just like any smart businessperson in a service-based industry (attorney, plumber, consultant, general contractor, etc), doing right by your clients is not only ethical, it also happens to be the key to long term success. In some businesses its a differentiator, and that’s unfortunate. No one should go without proper care or coverage due to bad actors.
Having been in the life insurance field and in a supervisory and training role for over 20 years, I know I’m not the only one that preaches, “Do the very best to guide your clients to make smart decisions regardless of compensation, and you’ll have a fulfilling and long career.” There are lots of wonderful and ethical career-oriented Independent Insurance Professionals out there, and I imagine your article and shared experience helps folks find them.
I am thankful for my Physicians who I know care for me, my CPA who helps with short and long term tax planning, my Estate Planning Attorney who helped craft and later update my family trust, and the other learned professionals that I rely on to help me make good choices. There are great people in all walks of professional services….and perhaps way too many part-time or sales-oriented folks with a life insurance license. 🙂
There’s a peace-of-mind that comes with having made good decisions that protect the ones we care for most, and thanks for sharing your experience & in doing so helping others in that process.
-Micah
Insurance can be pretty confusing, but it’s important to know about, especially when it comes to mandatory types like car and health insurance. However, there are also other types of insurance that might be really helpful, like life or disability insurance. That’s where insurance agents come in – they can explain everything to us and help us pick the right policies.
I know some people say that all insurance agents are bad, but that’s not true. There are definitely some good ones out there who can help us out a lot. Plus, some agents might do better working for a certain company instead of being independent.
You might hear that insurance agents need to have all sorts of fancy financial certifications, but that’s not always the case. Some agents are just really good at keeping up with the latest trends and products without any extra schooling. And not every insurance company only teaches their agents how to sell stuff – some actually teach them about finance too.
Different people need different insurance policies. Someone who’s super rich might need a fancier insurance plan to protect all their assets. It’s important for agents to know about all kinds of insurance, not just the simple stuff.
When it comes to picking out the right insurance for you, your agent should definitely be thinking about your best interests. But it’s not always easy to know what’s best for every single person. That’s why they should be honest with you about the pros and cons of each policy and help you figure out what works best for you. What’s good for one person might not be the best for someone else.
Insurance can be pretty confusing, but it’s important to know about, especially when it comes to mandatory types like car and health insurance. However, there are also other types of insurance that might be really helpful for us, like life or disability insurance. That’s where insurance agents come in – they can explain everything to us and help us pick the right policies.
I know some people say that all insurance agents are bad, but that’s not true. There are definitely some good ones out there who can help us out a lot. Plus, some agents might do better working for a certain company instead of being independent.
You might hear that insurance agents need to have all sorts of fancy financial certifications, but that’s not always the case. Some agents are just really good at keeping up with the latest trends and products without any extra schooling. And not every insurance company only teaches their agents how to sell stuff – some actually teach them about finance too.
Different people need different insurance policies. Someone who’s super rich might need a fancier insurance plan to protect all their assets. It’s important for agents to know about all kinds of insurance, not just the simple stuff.
When it comes to picking out the right insurance for you, your agent should definitely be thinking about your best interests. But it’s not always easy to know what’s best for every single person. That’s why they should be honest with you about the pros and cons of each policy and help you figure out what works best for you. What’s good for one person might not be the best for someone else.
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