Six Phrases You Should Never Use About Insurance

5. We’ve paid the dividend for X years

And rightfully so, because you insurance companies have all of our money!

Anyone with kids, jointly held debt or a business partner conceivably has life insurance. Seeing that you are getting $50 or more auto-debited from the checking accounts of most of planet Earth, why wouldn’t you be able to pay the dividend on the policies you issued?

I mean, come on. If you insurance companies can’t throw some spare cash around, then who in the world can?

What this statement is really doing is patting the insurance company on the back for not being a Ponzi scheme. Don’t get me wrong – as a policyholder myself, I’m not about to take that for granted. It’s just not something you should tout like you’re doing me some huge favor.

By the way, it’s not like dividends are some rare commodity. If I want a steady stream of dividends I can get them by holding the stock of a number of high yielding companies that have never missed a beat and I won’t have to pay you an unreasonably high commission.

Find something else better to say, insurance agents!

4. Wealth-accumulation vehicle

Anytime I see an insurance agent claiming they can help me with a wealth-accumulation strategy, I’m shocked to see (when I drill down into what they propose) that it’s really more a fee accumulation strategy than anything else.

But the scary thing is that if I weren’t a past financial professional myself, I would believe the wealth-accumulation myth. Why? Because the insurance authorities don’t care about holding their agents to fiduciary standards.

Have you looked at some of the illustrations the industry is able to get away with?

Holy smoke.

I recently saw one graph depicting the projected performance of one of these wealth-accumulation vehicles utilizing a tax-deferral strategy. There was no disclosure of the specific fees that would apply – commissions, surrender charges, nothing. All that was required was a simple footnote stating that returns are reduced by fees.

What?

It’s been years since I’ve been an advisor but I remember compliance insisting upon using net returns whenever I was involved with a FINRA or SEC registered firm.

Which leads me to ask:

FINRA and SEC, how are you allowing these state insurance regulators to get away with putting your reps at such a competitive disadvantage to people who freely wage these illusory depictions? Apparently this little piggy had roast beef, while this little piggy had none.

Somebody tweet them this article.

3. Term life is throwing money away

Agents use this phrase to make people feel like they are somehow wasting their money on a disposable or frivolous item. As an alternative, buy whole-life (for three times higher fees) and you’ll be happily covered until you die.

Did you know that, according to a study by the Society of Actuaries and LIMRA, 13.8% of whole-life policies lapsed in their first policy year between 2007 and 2009? And that’s overall; the lapse rate is more than double for policies with face amounts under $5,000. Apparently it wasn’t that permanent for some people.

If someone is going to be left holding the bag as a result of you dying at any point, young or old,, then a permanent insurance policy makes sense. However this does not apply to most people.

Don’t destroy your own credibility trying to convince them otherwise.

2. This is life insurance awareness month

I must commend whoever thought up the idea of life insurance awareness month.

It was a brilliant move for the life insurance industry to create the opportunity to call attention to itself not just for a day or week, but a whole entire month.

Nice job, marketing team!

Let’s be real: You don’t need 30 days to get the message across about life insurance. In fact you could probably accomplish the goal in a ttwo-minute YouTube video. Most people who need life insurance have it or know about it already. Anyone who needs life insurance and doesn’t have it is most likely resisting actively, not out of lack of awareness. Most people’s insurance needs are served by a simple, inexpensive (relative to the other options) term policy.

Now, is that what life insurance awareness month ends up being about? Nope. People use it as an opportunity to piggyback into a conversation about why you should buy whole-life or universal-life or whatever the most expensive options on the menu are.

Altruistic? Seemingly. By the way, speaking of altruism, how come you fee-only RIA firms don’t designate some month like this for yourselves?

Get the FPA or someone to designate October as “fee-only advisor awareness month.” Then you can prattle on righteously about all the clichés you love: total transparency, independent advice, always putting the client first. You can create a hashtag like #FeeOnlyAdvisorsArePerfectAngels and ask everyone to post it to their Twitter accounts.

If you need other clichés, please read Six Phrases Advisors Should Never Use and its sequel Six More Phrases Advisors Should Never Use.

Sorry for the sneak diss, RIA firms. It was just too good to resist.

1. You can use whole-life insurance for a loan

This one earned the top spot on my list. Of all the things insurance agents say, this one irks me the most.

Yes, it is true that if your policy has enough cash value you can take a loan against it for yourself instead of going to the bank. However, the tiny little detail that they fail to acknowledge is how long it actually takes to accrue significant cash value within the policy.

Given how expensive whole life insurance is and the way these policies are designed, your premiums for the first few years are going to pay for the cost of the insurance instead of accumulating. Unless you want to an exorbitant premium, it would take quite some time to store up enough cash to make a loan to yourself. It could literally be decades before you break even.

I don’t appreciate how agents portray this as some kind of magic checking account with loan rates that are nominally lower than what you might get from the bank. Might I please add the word, “ludicrously expensive” into that phrase and see if it has the same effect?

It’s so unappetizing it makes the prime rate look like prime rib.

Sara’s upshot

Insurance is a good thing when it’s used correctly. But due to slippery marketing phrases like those above, the industry has earned a spot among the used car dealers of the financial world. To overcome this, agents should more carefully choose their words and – most of all – the intent behind them. Hit me up on APViewpoint if you agree (or disagree!).

Sara Grillo, CFA, is a top financial writer with a focus on marketing and branding for investment management, financial planning, and RIA firms. Prior to launching her own firm, she was a financial advisor and worked at Lehman Brothers. Sara graduated from Harvard with a degree in English literature and has an MBA from NYU Stern in quantitative finance.

Read more articles by Sara Grillo