Three Insurance Tips That Add Value

by Dan Solin, 11/23/22

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The question I get most often from advisors is: How do I demonstrate value?

The question is more accurately phrased as: How can I show I’m worth the fee I’m charging? In that context, the issue becomes clearer.

I’ve never heard any other professional express this concern. My doctor, dentist and accountant never discuss their value. Apparently, they’re confident it’s not an issue.

Some advisors confront this issue by adding more services. It’s common for firms to do comprehensive insurance reviews, extensive financial planning, engage in tax planning (including preparing tax returns) and, if they have qualified lawyers in-house, prepare estate planning documents.

Here are three more ways you can add value in the context of insurance issues.

Disclosure of life insurance commissions

Make your clients aware of an insurance regulation in New York State that requires disclosure of commissions earned by insurance producers, but only if the purchaser asks for that information.

I used to practice law in New York City and purchased life insurance policies from an agent domiciled there. I was unaware of this regulation.

It’s not surprising that life insurance agents aren’t eager to volunteer the amount of their compensation.

Whole-life policies typically pay 100% of the first-year premium to the selling agent, although certain riders added to the policy can reduce those commissions.

Universal-life policies usually pay a commission of 100% or more of premiums you pay in the first year, up to the amount of the target premium.

Term insurance policies typically pay a percentage of the premium paid each year, which are significantly lower that commissions earned on whole-life or universal policies.

If your clients knew the amount of the commissions being paid for policies recommended by their agent, they could evaluate whether the agent is incentivized to promote more expensive policies.

Ability to negotiate commissions

According to Chuck Hinners, a client of my digital marketing firm, in his eye-opening book, Insider Trading in the Life Insurance Market: A Smart Buyer’s Guide, since 1985, all agents have had the ability to reduce their commissions on whole life and universal life insurance policies.

The problem, Hinners says, “is that most life insurance buyers are unaware of this pleasant fact.”

It’s possible to reduce the compensation paid to the agent on these policies by as much as 97%.

This savings goes directly into the policy, permitting quicker accumulation of cash value, higher cash value over time and a bigger death benefit.

Consider fee-only insurance consultants

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More Information

Insurance is an extraordinarily complicated subject. Few advisors have the sophistication, when presented with a complex insurance situation, to do a comprehensive evaluation and make a recommendation that considers all available options.

In these situations, consider using the services of a fee-only insurance consultant. These consultants have no financial incentive to convince you to take any particular action. They don’t sell insurance products. They are paid to be objective.

According to a leading insurance consultant, Glenn S. Daily, “almost every decision that you make affects the agent’s commission, so how can you be sure that you are getting unbiased advice that is not tainted by the agent’s conflict of interest?”

You can find a list of fee-only insurance consultants here.

Hopefully, these tips will help you add value to a critically important aspect of the financial life of your clients.

Dan trains executives and employees in the lessons based on the research in his latest book, Ask: How to Relate to Anyone. His online course, Ask: Increase Your Sales. Deepen Your Relationships, is currently available.