The ongoing discussion of the commoditization of insurance continues. Over the past several weeks, the industry trade press has released several articles about industry consultants pronouncing that personal insurance has come to be viewed as a commodity, and that carriers should focus on lowering their distribution and other costs in order to win the low price war. Of course, agents can provide plenty of examples of the difference in contracts, and personal auto has been the topic de jour in terms of the discussion.
But many independent agents sometimes fall into the trap of commoditizing life insurance.
Dozens of nuances exist in riders relating to life insurance. Focusing on just one (often overlooked) nuance, the typical waiver of premium option for a permanent life insurance policy goes as follows:
If the insured becomes completely disabled before a certain age (typically 65) and if the disability lasts longer than six months, the premiums will be waived, and the policy coverage is not terminated but rather continues as if the premiums are being paid. Usually, this waiver will be retroactive to the beginning of the disability, meaning any premiums paid during the disability period are usually refunded.
It is very beneficial to have this rider attached to the policy because although no premiums are required for the term that the insured is disabled, the rest of the policy aspects continue on as if they were being paid, including the death benefit, dividends and cash values. When the disability ends, the policy owner continues to make the premium payments as if nothing ever happened.
The problem is that since the definition of disability is very broad, it can leave the insured in a situation where they are unable to perform the duties of their profession, but can still perform the duties of another (usually much lower-paying) job. So, if an independent agent has a conversation with the insured and the person is not comfortable with a broader definition of disability for the waiver of premium, there are carriers that offer a more specific definition. Guardian Life, for example, defines “total disability” as follows:
“During first 5 full years from the date of disability, total disability means that the insured isn’t able to perform all of the duties of his/her regular occupation. After the first 5 years from the date of disability, total disability means that the insured isn’t able to perform all of the duties of his/her occupation, or any other occupation suitable by either education or training. Until the insured’s 25th birthday, ‘occupation’ includes attending school full-time outside the home. The insured will automatically be considered totally disabled upon the entire and irrevocable loss of sight in both eyes, or total and permanent loss of use of both hands or feet or one hand and one foot.”
The result is that the agent can now offer a policy with a rider tailored to their client’s specific needs. The key ingredient to this recipe is making sure that the agent takes the time to have a conversation with the insured, in order to understand their objectives. These will affect the carriers the agent seeks quotes from that offer the requisite waiver of premium rider.
Agents can defeat the commoditization misnomer by adding content to their website, speaking publicly and offering quotes to the media (or blogging or Tweeting it themselves). These efforts will inform the public about the value of carrier choice and assistance during the underwriting and claims process.
When it comes to extolling their value, agents need to be on offense, not defense.
Dave Evans is a certified financial planner and an IA l-h contributing editor.