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The Most Arrogant Man in the World

January 27th, 2022 No comments

When you’re right, you’re right.

Bill Boersma

A recent book, The Death of Expertise: The Campaign Against Established Knowledge and Why it Matters, is from one writer among a number discussing the American public’s growing hostility to expertise.  I see it in my industry.

It’s been about 20 years that I’ve been doing life insurance policy analyses to show policy owners and their advisors what’s happening to their contracts, and how a shifting economic market is affecting performance.  This isn’t rocket science, it’s just not understood and it’s in conflict with conventional wisdom.  The premise is that if your life insurance performance is based on interest rates and these rates are dropping, your policy won’t do what you think it will.  How complicated is that?

Some people listened, but many didn’t.  Why?  A number of reasons.  As mentioned, convention wisdom is a strong force.  An innate distrust of a guy talking about life insurance?  Likely in many cases.  Since the policy owner has not likely heard about what I’ve related and it didn’t really make sense, they may have felt I was trying to sell them something.  I get it.  My industry doesn’t have the best reputation.  Maybe the original agent poo-pooed what I was saying for ulterior motives or maybe they just didn’t know what was going on.

I recently heard through the grapevine about an organization that I worked with a number of years ago to analyze their entire life insurance portfolio.  At the time, I identified multiple policies that weren’t projecting to do well.  I highlighted this, explained why it was so, suggested a change in policy management… and was ignored.  Now I hear the policies are failing and they’re wondering why.  Despite the fact that I feel bad for the ultimate beneficiaries of the foundation that will not experience the largess those death benefits would have provided, I don’t feel bad for the foundation managers.  There were political factors at play and that’s what you get when you play games.

I was right.  Moreover, I’m almost always right when it comes to this life insurance stuff.  Because… I’m an expert.  No one is infallible, but when someone spends a lot of time and focus on a narrow niche, maybe the person should be listened to.

In many situations over the years, I’ve been brought in to vet proposals and my advice was ignored.  I’ve often seen these deals fall apart afterwards.  Why?  Because I was right.  I know what I’m doing.

I’m not guessing when I say what I say.  I base my work and advice on provable data.  I can do the key strokes on my HP12C in front of your eyes.  I haven’t programmed Excel to perform unique math.  Some of the analysis is based on what I have ordered and received directly from the insurance carrier.  I can literally hand it across the table to you.  The rest is based on contract language, financial truisms, experience, independent modeling, historical market behavior and so on.  I enjoy “debates” because most of what I say isn’t opinion, it’s fact.  When it can’t be known for sure, I say so.  Reasonable minds can disagree on a number of issues and what might be the best solution for a client, but sometimes there is a right and wrong.

I live in a community dominated by a mutual insurance carrier and I’ve been in a long term, slow burning fight against what they are too often telling the consumer and advisor market.  Over the years I would tell anyone who would listen that the dividend rate so many of the agents were stating was at the bottom, would continue to fall.  My comment was something akin to “They say it’s at the bottom and I’m telling you it will keep going down.  You know what?  I keep being right.  And I’ll keep being right until the day I’m not and that day hasn’t come yet.  So who you gonna believe?”  A lot of times they don’t believe me and you can imagine what happened.  Sometimes I’m told I’m arrogant.  What am I supposed to do?  Lie?  I’m professional and courteous, but would you couch the statement “two pus two equals four”?

Being right doesn’t make me particularly smart.  It shows either how little some others know or that they know better but won’t admit it because it’ll show them in a poor light or hamper a sale.  How sad is that?  Anyone who understands the fundamentals of the financial markets and how life insurance products and the investment portfolios of insurance carriers work should have known what was in store.  Some didn’t know while others did and didn’t say anything.

Recently I was brought into an existing premium financed deal.  Though the advisors were completely on board, the client wouldn’t pony up the modest fee to analyze his situation.  What made it more surprising is that the client was already disappointed with the transaction.  Since I was intrigued by this case and wanted to prove to the advisors what was going on, I decided to move forward with the analysis without a signed engagement agreement.  The end result of my work was that things were a disaster and would not and could not ever work out.

Even when I had an opportunity to prove this to the client, he still refused to formally engage.  It wasn’t that he thought I was wrong, he just didn’t want to pay.  It’s important to understand that he was many millions into loans, paid interest and committed collateral and it was all in jeopardy.  So what did he do?  He let a referral from another advisor do a “free review”.  (Insert  GIF of me shaking my head in disbelief.)  He didn’t pay for advice on the front end, things aren’t going well, and he won’t pay for advice now.

Why do I share this?  Because I’m right and he’s acting like an idiot.  When he ends up losing millions, I hope I get a chance to remind him that I was right and he should have listened.  Is that wrong?

Case after case, situation after situation, I’m right and there’s no indication that I won’t continue to be.  I don’t opine on things I don’t know about, and the niche that I do know is incredibly narrow but it goes real deep.  All I can suggest is to not bet against me when it comes to what I know about.

No one has a crystal ball and everyone, me included, will make mistakes or miss something.  The comments above are somewhat satirical (my compliance guy told me I should ad that) but they are fundamentally true.

Ask yourself, are you more interested in talking to an (apparently) arrogant expert or a nice guy who’ll make you feel good but might not be willing to tell you what you don’t want to hear?

Your call.

Categories: Life Insurance Tags:

How Advisors Can Catch Premium Financing Red Flags

November 17th, 2021 No comments

The biggest sign to look for is if someone has, or is looking at, a premium financed life insurance transaction in the first place.

An attorney recently asked me to offer some red flags to look for regarding premium financing.  Here’s my reply.

I’ll start with a somewhat facetious comment.  The biggest red flag I look for is if someone has, or is looking at, a premium financed life insurance transaction.  In a sense, that’s a joke but it’s also true.  The problem is, you can’t really do anything with it.

The older a transaction, the more in jeopardy it may be because the further back you go, the higher the crediting assumption that was likely used and the further it’s fallen.  A transaction can’t be supported at 5% what might have been projected at 7% or 8%. For full post, click here…

What’s Happening in the Premium Financed IUL Market

October 12th, 2021 No comments

Categories: Life Insurance Tags:

Beware … Term Convertibility

September 15th, 2021 No comments

Categories: Beware Series, Life Insurance Tags:

Explaining Whole Life vs. Guaranteed Universal Life Insurance

August 10th, 2021 No comments

Hi Tim:

It was good to chat this morning. I understand what you’re looking for when you asked about articles comparing and differentiating WL from guaranteed UL products in the market. However, as I mentioned, what sounds so simple isn’t so easy to find.

I thought I’d take a stab at talking this through, and maybe this will be enough for your clients at this point. For full post, click here…

How a Life Insurance Policy Loan Can Surprise You

July 22nd, 2021 No comments

A ridiculous analogy to bring reality into focus.

Let’s assume your client’s financial goal is to accumulate $5 million for retirement. The stock market has been on fire and it’s suggested to do your client’s planning based on a 10% rate of return. Your client is 25 years old and has a 40-year time horizon. The numbers show they need to put away $10,270 a year to hit their target.

However, 10% turned out to be too aggressive and your client actually earned 7% but never really paid attention after the original plan was put in action. At that lower rate of return the client won’t hit their $5 million target and will only accumulate roughly $2.2 million. This will be devastating to their standard of living in retirement. In reality they need to be socking $23,407 a year away to hit their goal at the lower return rate. A feature of their planning that they never really understood, or maybe were never even told about, is that their financial planner has arranged for a third-party to automatically loan them the spread, over $13,000 a year, to make up the difference so they hit their target. After the plan is in place they never sign anything, don’t have to approve it, there’s no renewal process or required disclaimer; it just happens. The loan accrues indefinitely at an 8% interest rate. For full post, click here…

Categories: Life Insurance Tags:

Q&A: Policy loans are often misunderstood

July 20th, 2021 No comments

A version of this question has been posed to me so many times, I’ve lost count.  Following is my answer.

Question:

How on earth do I have a policy loan when I’ve never taken any money out of my life insurance policy, let alone a loan?

Answer:

I understand your confusion as it seems almost impossible.  When they’re introduced to me, many policy owners seriously believe there is an error on the part of the insurance company.

That being said, this is not uncommon.  I more often see loans on traditional whole life policies than I do other type of life insurance contracts.  This is because there are multiple possible dividend options available and most policy owners aren’t aware of the decisions made on their behalf. For full post, click here…

Categories: Life Insurance, Questions & Answers Tags:

Premium Financing: Are the Numbers Real?

July 14th, 2021 No comments

Categories: BlogAnimate Tags:

Video: Do Dividends and Crediting Rates Mean Anything?

June 10th, 2021 No comments

Categories: BlogAnimate Tags:

Dear Mr. Client, We Need to Talk About Your Insurance

June 7th, 2021 No comments

An open letter to an indexed universal life policy owner.

Hello Mr. Client:

Thanks again for the recent phone call.  I’m glad your business associate suggested you speak with me.  I’ve received the information from your insurance company that I ordered, and I’m reviewing it now.  Based on our conversation, the bottom line is that I’m pretty confident this policy isn’t what you think it is.  It’s not that it can’t work but it’s likely not working and not doing for you what you understand it to be doing.

My recollection is that you have this policy for two basic purposes. First, you want a significant death benefit for your wife, and second, you’d like that premium to be accumulating cash value so you have access to it in the future. For full post, click here…

Categories: Life Insurance Tags: