Life and health insurance promise peace of mind but often leave doubts and unanswered questions. The inner workings of this business are not well understood. Where can you get unbiased advice?
To find out, I asked an actuary. Promod Sharma knows insurance. He designed products for a decade and then helped advisors sell them across Canada for five years. He now shares his insider insights by blogging and speaking to accountants, lawyers and the curious.
Over the years, Sharma noticed three common problems that still have not been eliminated
– Poor blueprints
– Shoddy construction
– Lousy after-sales service
The right blueprint is essential at the outset. The design can easily be suboptimal because the expertise of advisors varies vastly. With insurance, you might get the wrong product, the wrong amount or both.
There are many, many choices these days. For practical purposes, insurance products are often interchangeable when configured precisely. Accountants are in a similar situation. They work from the same tax rules but their solutions vary with their skill, knowledge and courage.
Chefs using the same ingredients create different dishes. Expertise counts.
Even skilled advisors make mistakes. Since there is no mandatory review of their work, errors can sneak through. There are also advisors who look more skilled than they are or who are not up-to-date with the latest developments. An insurance policy is a complex, legal contract. What is written takes precedence over what was intended or assumed. Where can clients get an independent second opinion?
“You are at a disadvantage unless you know how products are designed and how advisors sell them. Sometimes there’s more veneer than substance. What looks great today might fail to last.”
LOUSY AFTER-SALES SERVICE
Since selling life and health insurance is considered difficult, insurers pay most of the compensation when the sale is made. As a result, there’s little money paid in future years. That means there’s little incentive to provide after-sales service. When advisors make future visits, they are more likely to sell something new than service what’s already in place. That’s unfortunate. Insurance appreciates in value since the likelihood of payout increases every year.
There’s a practical problem too. Products are complex and new versions keep getting introduced. Advisors have difficulty remembering how the old products worked. Selling products from different insurers aggravates the confusion. Advisors who keep good records can re-familiarize themselves with what they sold but that takes time away from selling more products.
“These days, every field is complex. The solution is specialization to find the ideal strategy and tailor it for the perfect fit. Yet many advisors are generalists who sell insurance, investments and even employee benefits. That’s like the proverbial jack of all trades.”
Advisors are not required to put the interests of their clients first. They can start selling with minimal training. That means buyer beware.
Prudent clients consult their trusted advisor — often their accountant — before making important financial decisions. Deciphering insurance strategies is a particular challenge because they are sales tools designed to show the positives. It’s difficult to figure out what’s left out, ask the right questions and figure out what the answers mean.
“How do you ask questions about what you do not know are missing? That is a very tough.”
Accountants face a tough dilemma. Rejecting insurance strategies is easy but their clients then lose out on valuable protection and tax benefits. Recommending insurance strategies is even more dangerous. If problems arise, will clients blame the well-meaning accountant they trusted or the salesperson?
The path to peace of mind starts with awareness of the pitfalls. A confidential, independent insurance review lights the safe route.
By: Mark Borkowski is president of Mercantile Mergers & Acquisitions Corp. Mercantile is mid market mergers & acquisitions brokerage firm. He can be contacted at wwww.mercantilemergersacquisitions.com
Promod Sharma (FCIA, FSA) is an actuary with a passion for insurance. He blogs (500+ posts since 2007) and speaks to growing number of insurance professionals. He can be contacted at taxevity.com.