1. Providing fee-only life insurance advice sounds like an unusual specialty. How and why did you get into this field?
When I started this business in 2001, I had been in several related fields: the practice of law for 14 years, primarily with an estate planning focus; work as a life insurance agent for 7 years, including obtaining the CLU, ChFC, and CFP designations and conducting many seminars for other groups of professional advisors; and employment for 3 years with a fee-only financial planning and investment advisory firm for high net worth individuals. So I bring a multi-faceted background to this niche field, combining a specialized knowledge of insurance companies, practices, and policies with a broader familiarity with the legal and financial planning context in which insurance is applied.
Life insurance may be the most confusing financial product, and it is made more so by technical terms that are unique to this field. Because of the lack of commission and other disclosure, there is a natural and healthy suspicion of insurance proposals from agents and a compelling need for objective and independent advice about life insurance. I am also a strong proponent of consumer-oriented reform in the financial service professions. (I served in the Illinois Legislature for 16 years). I hope that our firm can help to bring greater transparency to the unnecessarily opaque world of life insurance. We at least do so for the clients we serve. I also believe this web site, and especially all of the articles on it, support that objective. An interest in such reform is a major reason that I started this firm.
2. What are the reasons for hiring a fee-only life insurance advisor instead of just using a traditional agent or broker?
There are several reasons:
(a) The assurance and comfort of independent and objective advice. As fee-only life insurance advisors taking a fiduciary approach, our only duty extends to the client. The life insurance agent or broker only gets paid if you buy a product. In addition, the agent or broker owes primary allegiance to the insurance company with which the agent or broker is licensed and contracted. That is equally true of so-called “independent” agents or brokers. The agent or broker can, therefore, neither act as a fiduciary who puts the client’s interest first, nor, if only because of licensing limitations, offer the full range of best alternatives.
(b) The opportunity to save significant money by substantially reducing commissions in many cases and identifying better companies and policies and more advantageous policy designs. Very often commissions can be reduced by 80 % or more. In some situations, a no-commission alternative offers the best value. Don’t expect an agent to bring these opportunities to your attention. That savings falls straight to the bottom line with first-year cash values that almost equal the first-year premium and either lower premiums for the same cash value and death benefits or much greater comparative long-term increases in cash value and death benefits for the same premium.
(c) The ability to consider all possible sources for the most advantageous policy. The agent can only propose policies of companies with which the agent is licensed. The agent is especially limited with variable policies and can only offer policies of companies with which the agent’s broker dealer is licensed, and no one can be licensed with more than one broker dealer. In addition, the agent will not look at no-commission alternatives. Working solely with an agent inherently limits alternatives.
(d) The availability, from our firm, of a preliminary review of proposals and policies involving new or existing life, disability, and long-term care insurance, annuities, or life settlements (the sale of an existing policy for more than its cash value) for only $50-$100. For this very modest investment, we will provide an independent and objective opinion of whether or not you are on the right track with what you own or the course of action you are considering, and whether we believe there are alternatives that will provide meaningfully greater value and, if so, why. This particular service is not intended as an exhaustive analysis of all possible alternatives, but it is an affordable way to determine whether you can improve upon a policy you own or might purchase or even sell and, if so, how and why.
See also Conflicts and Limitations of Life Insurance Agents
3. Do you serve clients anywhere in the country or only those who live near you?
Our clients are and have been located throughout the country, with not much more than a proportionate number of them coming from our backyard in the Chicago area. Virtually all of our business is conducted on a long-distance basis via phone, e-mail, and fax. While it would be enjoyable to meet clients face-to-face more often, it is not at all essential and would create an unnecessary expense for them.
4. If I consult with you, as a fee-only advisor, don’t I still need to use an agent to buy life insurance?
Yes, if you are purchasing a new policy. We work with trusted agents who, if they are able and the case justifies it after commissions are minimized, can pay us a consulting fee if the client agrees. That enables us to limit are fees and to handle smaller cases that we would otherwise have to turn away.
In some cases, the best alternative is a no-commission company. They employ their own salaried personnel as licensed agents.
5. Can I use my own agent, or do I have to use one you recommend?
It may be possible to use your own agent, but it is easier and better for you to use one that we recommend. On this web site, we have explained the inevitable conflicts and limitations of life insurance agents. However, we have identified agents who are well-versed in the ways to reduce commissions as much as possible, who, under our direction, will do so whenever they can, and who have access to all of the strongest and best-performing companies in most situations. Most every other agent does not know how to reduce commissions or will resist doing it or will say it cannot be done. This is frustrating for all concerned and makes the advice we provide more time-consuming for us and expensive for the client.
6. Is a no-commission product purchased without an agent a better deal than an agent-sold policy? Do I really need an agent at all?
The answer to the first question is “sometimes,” and “maybe not” answers the second question. There are several factors that influence the performance of a policy, and the existence and size of the sales commission (“sales load”) is certainly an important one. The other factors, in the case of life insurance, are the pure insurance costs or mortality charges of the policy, the company’s investment performance, and the non-commission administrative expenses associated with the policy. A company’s superior performance in these areas not related to commissions can offset the impact of a commission over time, and it can do so very quickly if the policy has a flexible design that allows most of the commission expense to be eliminated.
7. So if I use an agent and have to pay the agent a commission and also pay you, how do I come out ahead?
You come out ahead in several ways. In the first place, you have the assurance of independent and objective advice coupled with the full disclosure of commissions and compensation arrangements. Second, the amount by which a commission can typically be reduced – and, in the case of permanent life insurance, the even greater addition to immediate cash value and much higher longer-term cash values and death benefits that result from this commission savings – generally dwarfs the fees that we charge the client. Third, you will see the full range of companies and products that might be appropriate for you, including any attractive no-load alternatives. You will not be limited to companies with which a particular agent is licensed. Fourth, as mentioned above, the ability of an agent to pay us fully disclosed consulting fees in certain cases enables us to charge lower fees and to provide fee-only services in all kinds of cases that we could not otherwise afford to take on.
8. Are clients who use your services typically buying new insurance, or do some of them also have questions about existing policies?
Only slightly more than half our cases involve the purchase of new insurance. Almost as often, clients have questions about the performance of their existing insurance. That may be because an agent has suggested they replace it with a new policy, or it may be because the insurer has suggested they may need to pay more premiums to keep a policy going.
A high percentage of policies purchased as permanent insurance are on course to fall apart (“lapse”) before the insured might die, thus wasting all of the premiums invested in them. Most policy owners do not yet recognize this danger. Nor do the trustees of the trusts owning these policies. Reviewing these situations and suggesting remedies is a major part of our business. (For further information on the problems with existing permanent insurance policies, see “How to Avoid the Premature Death of an Existing ‘Permanent’ Life Insurance Policy”)
9. Do you give other insurance advice other than about life insurance?
Our consulting services involve life insurance, broadly speaking? That includes term insurance as well as permanent life insurance, disability insurance, long-term care insurance, annuities, and life settlements (i.e., the sale of an existing policy for more than its cash value). Most of the demand for our services comes in the permanent life insurance area, but we can and do give advice in these other areas, too.
10. Why would I need advice about term insurance?
Even shopping for term insurance presents a number of choices where our advice is helpful and adds value. See our article “How to Shop for Term Insurance” for an indication of the issues that arise and why sole reliance on an agent or the many web sites that quote term insurance prices can be misleading.
11. Speaking of term insurance, where do you come out on the question of buying term vs. permanent insurance?
You will find more extensive commentary on this question in the web site article, “Life Insurance: How Much and What Kind?”. The most important consideration is having adequate coverage to protect financial dependents, and term insurance is the most affordable and sensible option for the vast majority of the population. For those with both an insurance need and with adequate income and resources, however, permanent insurance can be a very useful and flexible asset to own – provided it is purchased from a top company and designed in a way to minimize commissions and maximize potential returns. In these circumstances, life insurance should compare very favorably with investments of comparable risk. For more information, see “How to Make Life Insurance a Good Investment.”
12. Do you mind saying what kind of insurance you own and why?
I own over $2 million in death benefits with more than $500,000 in cash value of the sort of permanent insurance policies described above. My wife and I will have the flexibility of using some or all of the cash value as a supplemental source of retirement income or of ultimately passing on the tax-free death benefits to our children.
13. What do you charge for your services? When is it worth it to consider hiring you? Do you have a minimum fee or case size?
Where we work on an hourly rate, it is $250. We most often estimate the hours and quote a project fee. We have done some projects for as little as $250. $500 is a more typical minimum fee. We believe a minimum fee of $250 to $500 is worthwhile for a potential client in any case where the client will be spending at least $1,000 a year in premiums. As mentioned, if a consulting fee paid to us by an agent is justified based on the work we do in some cases, we can afford to charge the client less for our work.
In addition, we offer initial reviews of new and existing policies – life, disability, and long-term care insurance and annuities – and of possible life settlements (i.e., the possible sale of a policy for more than its cash value). For $50 - $100, we will review a policy or proposal and give the client a written opinion as to whether they are on the right track or not, whether they might do better, and, if so, how and why. Obviously, these initial reviews are not as complete as a more comprehensive analysis, but they do provide helpful guidance or a second opinion and, in some cases, are all that is necessary.
14. Who is your typical client?
Some of our clients are very affluent. More are moderately so. Many are younger or middle aged couples with promising financial futures. Some are businesses, but most all are individuals. We also do work for trust companies that need to monitor the performance of the insurance they own and require an independent analysis of policies they are asked to purchase.
15. Are there other good sources of independent advice about life insurance?
Very few, quite honestly. I previously mentioned that are just a few fee-only life insurance advisors throughout the country serving a variety of individuals, and a few more consultants with large firms who mainly serve large corporations and have very high minimum fees.
16. Do other professional advisors like accountants, financial planners, or estate planning lawyers give life insurance-related advice?
In my opinion, other professional advisors like these, even those who are very smart and honest, lack the detailed knowledge of and experience with insurance companies and products to provide insightful specialized advice because it is not the focus of their practice.
17. Are these professional advisors a major source of business for you?
They are certainly an important and valued source. Perhaps a quarter to a third of our business comes from other professional advisors. We are especially grateful for these referrals because our business is so specialized and spread out across the country that we are rarely in a position to make a referral to these advisors ourselves.
Unfortunately, there are several reasons that most professional advisors do not make referrals to a firm like ours. Increasingly, accountants, financial advisors, and even a number of estate planning lawyers are selling insurance themselves. This is true of a number of very high-end advisory firms that charge stiff annual fees to their clients and yet also sell products.
More often, other professional advisors feel beholden to life insurance agents who refer business to them. They sometimes refer to product sales people who refer cases to them as their “rainbrokers.” Because they depend on them for business, they refrain from making suggestions or asking questions about insurance proposals and policies that may prove embarrassing to the life insurance agent who is a referral source.
Many other advisors are affiliated with entities that sell insurance to which they make referrals. This is especially true of the “Private Client” or “Wealth Management” divisions of banks, trust companies, and brokerage firms which make referrals to their affiliated insurance agents. Employees in these places are pressured to “cross-sell” products and services within the bank or firm to maximize fee and commission income. A search for objective insurance advice in such places is futile. We know of only three large banks that do not sell insurance and no national securities firms that refrain from doing so.
18. How do people otherwise find out about your services?
Most of our business comes straight from consumers doing their own research and who find their own way to our services. Often, they come upon our web site through Internet search engines. Or they have read about our services as a result of several mentions in such publications as the Wall Street Journal and New York Times. A Journal column referring to the “slew of articles” on our web site, “including advice about how to slash commissions,” and with a reference to our web site, was especially helpful.
19. This sounds like an interesting and worthwhile business. What do you see as its future?
It is, of course, easier to say what we hope it will be than what it necessarily will be. With more helpful attention from the media covering personal financial planning issues, the trend towards fee-only advice and no-commission products in the investment realm will eventually benefit life insurance consumers as well. Life insurance policy commission disclosure, as is required for commissions on publicly traded securities and mutual funds, would, by itself, be a major step in the right direction.
An old Chicago ward boss was once heard to boast that “Chicago ain’t ready for reform,” and that may still be true of the life insurance industry. Even so, with the right advice – independent, objective, and knowledgeable – consumers can be well served.