Advanced Underwriting Consultants

Question of the Day – July 2

Ask the Experts!

Here’s the question of the day.

Question: Is there a book available that can give my analytical client an overview of how life insurance works?

Answer: Yes!  Linas Sudzius on our team has just authored his first book—What Most Life Insurance Agents Won’t Tell You.

What Most Life Insurance Agents Won’t Tell You gives the inside scoop on

1) The best life insurance policies to buy,

2) The best insurance companies to deal with,

3) The right agent to use during the buyout process and

4) The kinds of problems life insurance can solve.

Most clients don’t fully understand how life insurance works, or how it can help protect their families.  Here’s a way for them to get their questions answered.

For information on how to order, contact Lisa at lisa.westbrook@underwriting.dev.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.

Where to Buy Life Insurance – Using An Agent

Today’s blog is from Life Insurance expert, Linas Sudzius.  Linas is a lawyer, speaker, former insurance company executive and author of the soon-to-be published book
What Most Life Insurance Agents Won’t Tell You. His law firm works with successful people on their estate planning, and with entrepreneurs on their business legal issues.
When he’s not working he enjoys being with his family and listening to audiobooks.

Reach him at linas.sudzius@underwriting.dev.

Where to Buy Life Insurance – Using an Agent

Most of the individual life insurance policies purchased are sold through the agency distribution system.  The life insurance company makes its products available to agents, and when an agent sells a policy, the agent earns a commission.

An agent can be captive, in that the agent is an employee of the life insurance company and is expected to sell that company’s products exclusively.  Or the agent can be independent, meaning that the agent is not exclusively affiliated with a single company, and is theoretically free to make deals to sell many carriers’ life products.

Independent agents who sell insurance policies to actual customers are sometimes referred to as retail agents.  Some life insurance companies contract directly with those retail agents.  However, because few agents are capable of selling lots of life insurance without hand-holding, life companies recognize that working with lots of retail agents is a very expensive way to sell their products.

Plenty of life insurance companies work only with wholesale agents, sometimes called managing agents.  The wholesale agent acts as a middle-man between the life insurance carrier and the retail agent.  The wholesale agent’s job is to recruit retail agents and get them to send business to the companies with which the wholesale agent is contracted.  The wholesale agent also becomes the retail agent’s point of contact with regard to information about policies and the underwriting process.  The wholesale agent also acts as the intermediary between the life carrier and the retail agent.

Most people don’t realize that much of the life insurance offered over the web is also sold using the agency distribution system.  That seems counter-intuitive to many.  It would seem that a product purchased with fewer distributors involved in the process should be cheaper for the consumer, and more profitable for the company.  However, it doesn’t work out that way.

Life insurance, as we’ve discussed in our description of products, is complicated.  The underwriting process is also complicated.  The process of naming beneficiaries can also be complicated.  Deciding on the right product in a specific situation can also require a certain level of professional expertise.

If the consumers are approaching the life insurance company directly with their questions, the company would have to hire lots of internal folks to deal with the inquiries.  That’s an expensive proposition.

So isn’t selling products through agents also expensive?  Yes, but life insurance agents only get paid when they sell something. If a company has to hire lots of folks to answer questions, that cost must be paid whether anything is sold or not.  Hence, most carriers choose to distribute their products through agents.

So what’s in it for the agent?  When a policy is sold, the agent earns a commission.

As of the date of this writing, the bulk of the commission for an agent selling a life insurance policy is paid in the first year.  How much is the commission?  It depends mostly on the type of policy and the relationship between the agent and the company.  For certain kinds of individual life policies, it is not unusual for the total first year commission to be more than the first year’s premium.

How is it possible for a life company to pay more commission than it takes in for the policy’s premium?  Good question!  The answer is that the insurance company’s actuaries can predict how long a particular life insurance policy will stay in force, and the aggregate number of annual premiums that will be paid.  Armed with that knowledge, they understand that they can pay more than 100% of the first premium as commission because they’ll recover the expense later—as more premiums are paid.

The fact that most life insurance agents are paid the biggest commission when they sell you something explains much about how they do business. So is the system bad?  I don’t think so!  If it was, life insurance companies and consumers wouldn’t put up with the system.

Life insurance companies like it because they prefer to deal with a relatively few number of agents rather than consumers.  Agents like the system because they get paid fairly for the hard work of selling life insurance.  And consumers seem to prefer it because the products are priced competitively, and they usually get relatively good service—at least during the buying process–from their agent.

Is the agency distribution system perfect?  No.  Is it always the right fit?  Again, no.  For many, though, it’s the most efficient way to buy life insurance.

This post is designed to help educate readers about general matters.  If you need specific advice you can rely on, please consult your professional advisor.

Solace Wealth Management and Linas Sudzius

Today’s entry is a radio show segment, Solace Wealth Management with John Gaesslar, that Linas Sudzius was asked to speak on.
Linas Sudzius is a lawyer, speaker, former insurance company executive and author of the soon-to-be published book What Most Life Insurance Agents Won’t Tell You.

The radio show will focus on Irrevocable Life Insurance Trust or ILIT’s.

Please take a moment to listen in on the interesting conversation at the link below:

Solace Wealth Management

This post is designed to help educate readers about general matters.  If you need specific advice you can rely on, please consult your professional advisor.

First Experiences with Life Insurance

Today’s entry is by Linas Sudzius, one of our Advanced Underwriting Consultants.
Linas Sudzius is a lawyer, speaker, former insurance company executive and author of the soon-to-be published book
What Most Life Insurance Agents Won’t Tell You.
His law firm works with successful people on their estate planning, and with entrepreneurs on their business legal issues.
When he’s not working he enjoys being with his family and listening to audiobooks.

First Experiences with Life Insurance

When I was a young lawyer back in the mid-1980’s, I worked for a law practice that provided prepaid legal services to employees of a big company.  I did a wide variety of legal work in that role.

One day an employee about my age came by the office with a universal life insurance prospectus in his hand.  He wanted me to take a look at it to give him advice about whether he should buy the policy or not.  Well, I had no particular expertise with regard to life insurance at that point in my life.  I was a relatively new lawyer, single and poor.  I’d never bought a financial product in my life—certainly not any life insurance.

So how did I handle the situation?  I did what most lawyers would do when asked to evaluate a financial deal—I read the document.

Notice that I said that the universal life policy came with a prospectus back then.  These days most universal life contracts are not required to have a prospectus.  But in the early days, when the rules weren’t really settled, some life insurance companies provided them.

Reading the words in the document—I think it was about 50 pages—made me realize that it was almost impossible for a non-expert to understand how that policy worked.  I remember trying for about half a day, and realized that I wasn’t going to be much help to my client.  I don’t remember exactly what I told him, but I think I asked him whether he trusted his agent.  If the answer was yes, he should buy.  If the answer was no, he should refuse the policy.

It’s pretty much the same advice I’d give to a client today.

Sometime later, another client brought by a universal life computer illustration to the practice.  Since I was the office expert on universal life—due to my experience with the prospectus–the task fell to me.

The client had purchased a policy about four years before, and had the illustration that she been given when the policy was purchased.  She wanted to know if she could stop paying the premium for the policy, but still continue to grow the policy’s cash value.  I thought I could help her figure it out by looking at the papers she’d brought along.

I didn’t know it at the time, but my understanding of universal life was inadequate for the job.  I remember talking to the client, and then discussing the situation with the agent.  I also remember the agent being frustrated because he couldn’t make me understand the difference between the policy’s actual performance and the growth predicted on the illustration.

At the end of the day, the client took back her papers and resolved to contact the insurance company directly.  That was a relief for me, because I didn’t have a better idea of what to do.

Both those experiences were embarrassing for me, because clients came to me expecting that I would have expertise with regard to how life insurance, and especially universal life, worked.  I thought I could understand the products.  After almost twenty-five years in the business, I now feel like I’d be able to help someone understand.  It’s a main reason why I decided to write “What Most Life Insurance Agents Won’t Tell You.”

This post is designed to help educate readers about general matters.  If you need specific advice you can rely on, please consult your professional advisor.

What Most Life Insurance Agents Won’t Tell You

Today’s blog is from Life Insurance expert, Linas Sudzius.  Linas is a lawyer, speaker, former insurance company executive and author of the soon-to-be published book
What Most Life Insurance Agents Won’t Tell You. His law firm works with successful people on their estate planning, and with entrepreneurs on their business legal issues.
When he’s not working he enjoys being with his family and listening to audiobooks.

Reach him at linas.sudzius@underwriting.dev.

Motivations to Write the Book

So why did I decide to write the book What Most Agents Won’t Tell You About Life Insurance?  Well, it certainly wasn’t to make a bundle of money.  Most people don’t want to think about life insurance, much less buy and read a book about it!

There are at least three motivations aside from that.

1. Life insurance is incomprehensible to consumers, and that’s a shame. There’s plenty about life insurance policies and the process of applying for the insurance that consumers don’t understand.  For example, when should somebody want term insurance as opposed to permanent insurance?  If a person is a candidate for permanent insurance, should they buy whole life or universal life?  What about variable life?  Are there significant differences in pricing from one life insurance company to another?

    And then there are questions about the qualification process.  Why does the agent need to ask questions about health and get medical records?  Isn’t it better to buy life insurance at work when an employer offers it?  What does it mean when the insurance company and my doctor disagree about my health?  How much does my agent make when I buy a policy?

    Then there’s the big question:  How much life insurance do I really need?

    2. Life insurance agents themselves don’t understand much about life insurance, and that’s a shame. Some life insurance agents are casual sellers of life policies, and are not much better than consumers in being able to answer the questions above.  Others are more professional, and have a good handle on the basics.  However, even those may not be able to cope with deeper questions about life insurance.

      How should the life policy be owned?  How should the beneficiary designation be structured when the insured has minor children?  How much premium should be allocated to a particular policy?  What are the tax consequences if a policy is transferred to someone else?

      3. Most life insurance companies would like to educate their customers about life insurance, but can’t afford the time and effort needed to do a complete job, and that’s a shame. Life insurance companies create marketing materials touting their great products and financial ability to pay claims at the critical time.  They may also have materials describing how life insurance can be used to solve a particular problem.

        They usually don’t create materials giving detailed information about the consumer and agent questions above.  It’s not that the companies are evil, and want to keep consumers and agents in the dark.  However, developing detailed information costs time and money.  It’s usually not efficient for the life company to use resources for that.

        First Experiences with Life Insurance

        Today’s blog is from Life Insurance expert, Linas Sudzius.  Linas is a lawyer, speaker, former insurance company executive and author of the soon-to-be published book
        What Most Life Insurance Agents Won’t Tell You. His law firm works with successful people on their estate planning, and with entrepreneurs on their business legal issues.
        When he’s not working he enjoys being with his family and listening to audiobooks.

        Reach him at linas.sudzius@underwriting.dev.

        First Experiences with Life Insurance

        I was about ten years old—this would have been about 1970–when I first became aware of life insurance.  My mother was a single parent to three children, and also owned a business—a beauty shop.  She had responsibilities and a mortgage, and was aware of the difficulties her kids would face if something happened to her.

        Mom bought life insurance from a career agent.  I don’t remember what life insurance company he was affiliated with.  A career agent is an employee of the life insurance company, and his job is to sell that company’s life insurance policies to as many people as possible.

        Being the youngest in the family, I went with Mom on one of her visits to the agent.  I remember him explaining a little about how the policy worked, and how it would help protect the family.  I also distinctly remember feeling the kind of unease I always felt in the presence of a high-pressure sales person.

        The agent sold Mom some kind of whole life policy.  He stressed the importance of the policy’s cash value element, as well as its death benefit.

        Years later, when I had graduated college, Mom asked me to contact the company to find out its value in the event of surrender.  I went to the agent’s office, and they gave me a quote.  After I compared what Mom paid to what the policy was worth, I realized that she wasn’t getting her money back—that, in fact, she was getting far less than she paid.  I remember my impression was that it didn’t seem fair.

        I believe the kind of policy that Mom bought would have been guaranteed whole life.  The premium was a set, level amount that was due every year.  The death benefit was guaranteed to be available so long as the premium was paid.  And the policy developed cash value according to a guaranteed schedule printed inside the insurance policy.

        Did Mom make the right decision in buying that life insurance policy from the pushy agent?  Even after all I’ve been through since then, it’s hard for me to say.  Certainly her family was protected by the life insurance death benefit while the policy was in force.  Could she have made a more efficient purchase?  Would she have been better served by a more professional agent?  I still wonder.

        Do you have similar uneasy memories about buying life insurance?

        This post is designed to help educate readers about general matters.  If you need specific advice you can rely on, please consult your professional advisor.