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How do you make money at life insurance?

 

 

 

 

 

 

 

 

 

How would you know?

 

 

 

 

 

 

 


How do you make money at life insurance?

 

       Be where the money is

 

       Donít distribute Ö SELL

 

       But only to people who donít want it

 

       But make sure they do need it

 

       Find out what else theyíll buy, and charge them for it

 

       Make them happy enough to keep paying their premiums

 

       Invest carefully but well

 

       Tightly control non-selling expenses

 

       Leave customers better off than you found them


 

 

 

 

Be where the money is

 

 

 

Willy Sutton:ďWhy do I rob banks?Thatís where the money isĒ

 

Bertold Brecht:ďRob a bank or found one.Whatís the difference?Ē


 

 

 

 

 

 

 

 

 

Be where the money is

 

 

 

 

       Cover a lot of deaths: group term life; individual whole life

 

       Provide Lapse Benefits (Cash Values) Too

 

       Collect As Much Premium As Early As Possible (Single Premium, 20 Pay, etc)

 

       Provide Endowment Benefits

 

†††††††††††††††††††††††††††††††††††††††††††††† †††††††††††††††††††(see fiinancial dynamics charts)

 

 

 

 

 

 

 


Donít distribute Ö

SELL

Ö. But only to people who donít want it

 

 

 

 

 

       Safe, healthy people really donít want to spend much on life insurance

 

       Life insurance will attract unsafe, unhealthy people

 

        Even one in a thousand can kill you (see financial charts)

 

       You canít set prices high enough to beat them (anti-selection spiral)

 

 

 

 

 

 

SELL

Ö. But only to people who donít want it

Ö but make sure they do need it

 

 

What can you do?

 

       Turn away the unsafe, unhealthy people -- UNDERWRITING

 

       Swamp them with safe, healthy people -- GROUP INSURANCE

 

       Dilute them with cash value benefits Ė WHOLE LIFE, ENDOWMENT, ETC.

 

       All 3 at once -- SELL, SELL, SELL cash value benefits to reluctant customers

 

       Overcome reluctance with NEEDS (tax, education, retirement, greed, fear ...)

 

     Very, very difficult -- Very, very expensive -- KEY TO THE BUSINESS

 

 

 

 

 


††††††††††††††† SELL

Ö. But only to people who donít want it

Ö but make sure they do need it

 

Some Consequences

 

       Very high selling and underwriting costs -- INEVITABLE but ECONOMICAL

 

       Challenging, costly to develop sales force/method -- MAKE IT PRODUCTIVE

 

       A special challenge -- KEEPING IT ETHICAL

 

       Except for taxes -- UNLIKELY TO ATTRACT EXISTING SAVINGS FLOW

 

       Our business is -- CONVERTING CONSUMPTION $ INTO SAVINGS $ (see Value Creation essay)

 

       More than one way to do it -- ???

 

 

 

 

 


Find out what else theyíll buy, and charge them for it

-- the RIDERS strategy --

 

†††††††††††††††

†††††††††††††††††††††††††††††††

 

       Typical premium is $1,000/yr or $83/mo; 10% of that is $8, or only $2 a week

 

       For $2 a week I can pay you $100 a day if you go in the hospital Ė sounds good

 

       And Iíll keep $46/yr of it (say 1 out 12 people go into the hospital for 7 days)

 

       What else turns you on (or off)?

 

       Make it something unique (just a little different):

 

††††††† Give the agent some fun selling for a change

 

††††††† Canít be comparison-shopped

 

††††††† Brings emotional value to the customer

†††††††††††††††

 

 

†††††††

 

How do you make money at life insurance?

 

 

 

     Make them happy enough to keep paying their premiums

 

     Invest carefully but well

 

     Tightly control non-selling expenses

 

     Leave customers better off than you found them

 

 

 

 

 

 


How do you make money at life insurance?

 

       Be where the money is

 

       Donít distribute Ö SELL

 

       But only to people who donít want it

 

       But make sure they do need it

 

       Find out what else theyíll buy, and charge them for it

 

       Make them happy enough to keep paying their premiums

 

       Invest carefully but well

 

       Tightly control non-selling expenses

 

     Leave customers better off than you found them

 

 


How would you know?

(whether or not you are making money)

 

       Wait till the last one dies

 

       Concept of a reserve

 

       Statutory reserves and accounting

 

       GAAP reserves and accounting

 

       Gross premium reserves

 

       Concept of a solvency margin or risk based capital

 

       Embedded value accounting

 

       (We wonít talk about tax accounting)

 

       Key indicators

 

 

 

 

Key indicators (The trend, not the number)

 

       Sales -- Measured In Premiums Sold

 

       Commissions -- First year -- More is better

 

       Product Mix Sold versus Plan

 

       Sales Force or Channel Productivity and Growth

 

       Persistency versus Pricing -- By duration since sale

 

       Investment Yield versus Pricing

 

       Mortality versus Pricing

 

       Administrative Expenses versus Pricing

 

       Rider Premiums and Profitability

 

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