In the example below a man, age 45, stands to loose 25% to 50% of his potential cash value because of policy selection and has no cash value in the first or second year. He purchased policy A on the recommendation of his agent because he never knew policy B existed. While it is true the he may have opted for policy A the option is often not given given because the agent commissions are far less on Policy B.
Th policy particulars are shown in the table below. Both policies are issued by the same carrier and use the same underwriting process. The consumer pays identical premiums and each policy offers a million dollar death benefit. It is even the same policy series. The only difference on the application for insurance is one check box. The agent did not check that box and the consumer paid dearly for the omission.
|Policy A||Policy B||Difference|
|Cash Value – Year 1||-0-||$16,494||$16,494|
|Cash Value – Year 5||$ 58,869||$89,323||$30,454|
|Cash Value – Year 20||$551,895||$688,387||$136,492|
|Cash Value – Year 45||$5,372,032||$6,783,484||$1,411,452|
|Guaranteed to:||Age 69||Age 83||+ 26 Yrs|
|Commission Base||$ 18,690||$ 7,840||$10,850|
Policy B has a rider, that waivers the surrender charges during the early years (i.e. you can’t cash out during the early years). The election of the rider allows the use of lower mortality charges by the insurance carrier. The result is the great disparity in cash accumulations, liquidity and guarantees. The superior policy is highlighted and shows substantially better cash performance. (The differences in policy cash was calculated using the carrier’s current projections, but no matter the accumulation rate, Policy B, will always outperform Policy A.)
The comparison above is just one small example of what transpires in thousands of life insurance presentations every day. Most clients and even their CPA’s never know there are better choices and are never aware of the dollars lost.
If this variation exists within one company and one policy series, image the discounts available if the entire life insurance market is searched properly on behalf of your client.