By Bill Boersma
One single time I didn’t pay to have a sewer line inspection for a property I bought. It was a small rental house, and a week after closing I was standing in the front yard watching large machinery excavating from the house to the street. This was years ago, when the cost would’ve been maybe a third or half of what it is today, and I still spent $4,000. The inspection I skipped would have cost a couple hundred dollars. Lesson learned.
When’s the last time you bought real estate without paying for an inspection? What would your recommendation be to one of your children buying a house? What about advice to a client? Paying $500 or $1,000 to uncover a potential issue that could cost tens or hundreds of thousands of dollars is generally a pretty good trade.
How does this relate to life insurance?
Whether a 30-year-old is buying a $500,000 policy or a 70-year-old is implementing a $10 million structure, the reality is the same: they have no idea what’s actually in that policy or the sales ledger they signed off on. They don’t know how the policy was built. They don’t understand the assumptions behind it. There are innumerable ways to design a single policy, on the same person, with the same company, that can lead to dramatically different outcomes in performance and probability of success over time.
The policy owner knows almost nothing about any of this.
What if $500 or $1,000 could get you a report on that life insurance policy, just like the inspection on the house you’re about to buy?
Everyone says they want an objective third-party opinion. Someone to validate the design. Someone to explain the contract. Someone to pressure test the assumptions. That resource exists.
The problem? People say they’d pay for it, but most of the time, they won’t.
One of the easiest ways to make money in this business is to charge consumers through the back door, where they don’t see it, in commissions, fees and various charges. When the consumer has to actually write a check, it’s a completely different conversation. I’ve seen this play out over and over again.
I’ve worked with a policy owner who placed a $100 million policy with a seven-figure annual premium yet was reluctant to pay even a one-time consulting fee equivalent to a tiny portion of the monthly internal policy charges needed to keep the contract functioning properly and to optimize its structure. Through my involvement, I significantly increased the likelihood of the policy performing as intended and enhanced its expected return by more than 100 basis points annually over its lifetime. Meanwhile, the policy will consume tens of millions of dollars in expenses over time.
They’ll never feel the seven-figure commission. They’ll never feel the many of millions in internal expenses, because they never see them. But they had to write me a modest check, and that’s where they pushed back.
Perspective
$500 to model a $500,000 policy for a 30-year-old, to determine whether it has a reasonable probability of success, is roughly one-tenth of one percent of the total policy charges.
When I divide $500 into the lifetime policy charges for a $10 million policy on a 70-year-old, the result is 0.000025. It’s less than half of one percent of the policy charges in just the first month the policy is in force. It’s a one-time fee that’s a small fraction of the state premium tax alone that will be paid every single year.
When you divide the fee into the premiums the policy owner is committing to and you have to go out five decimal places for something other than a zero to show up, that’s not even the proverbial rounding error. Effectively, the cost to understand what is owned and if it’ll work doesn’t even exist.
Shouldn’t people be lining up for this?
Bill Boersma is a CLU, AEP and LIC and the founder and owner of OC Consulting Group. More information can be found at www.OC-LIC.com, www.BillBoersmaOnLifeInsurance.info or email at bill@oc-lic.com or call at 616-456-1000.
