EVALUATE THE AGENT
AND THE CARRIER
Qualifications and licenses. Make
sure the agent has all the right licenses. Agents tend to
sell what their licenses permit and not necessarily what the
client needs. To sell variable insurance contracts in
California, for example, agents with a regular insurance
license need either a NASD series 6 or 7 general securities
license plus a California variable contracts license. If
they sell in more than one state, agents also need the NASD
series 63 license.
Longevity. About 98% of insurance
agents don’t make it past the first three years. The longer
an agent is in business, the more stable he or she is and
the more likely that person will be around to service the
client in the future. Find out what will happen to your
client if the agent leaves the insurer.
Policy service. Determine the
frequency of policy performance reviews the agent has
promised. Ideally, reviews should be annual to ensure the
policy continues to perform as the client had anticipated.
Independence . Is the agent truly
independent? The more carriers an agent represents, the more
objective his or her judgment. Otherwise, an agent may not
recommend the policy that best suits the client’s needs.
Some agents represent several carriers but promise the right
of first refusal to one particular carrier on any
application they take.
Motivation. Does the commission
structure drive the agent’s recommendation? Many carriers
allow agents to make policy changes, enhance benefits and
reduce premiums. Explore the agent’s willingness to rebate
part of the commission to the client (where this is legal),
keeping in mind the potential tax consequences.
Carrier rating. Ratings provide an
indication of financial stability. The carrier must survive
at least as long as the client. The carriers an agent
recommends to the client should have minimum ratings of at
least AA by Standard & Poor’s and Moody’s and A+ by A.M.
Best.
Carrier risk profile. Check the
carrier’s investment portfolio for undue concentration in a
particular investment sector or exposure to high risk or
extremely volatile investments. Carriers that also write
property and casualty policies expose themselves to
potentially devastating claims following natural disasters.
REVIEW EXISTING POLICIES
Compare “re-projected” policies. When
the agent prepares a new projection for one of the client’s
existing policies, be sure the policy terms are identical to
the policy as originally written. Otherwise, you’re
comparing apples and oranges.
Analyze alternative scenarios.
Determine what the policy premium will be and the time
over which it must be paid using scenarios of falling
interest rates and rising mortality rates. Make sure clients
can afford the higher premiums and continue to pay them for
longer periods.
Make sure the client gets the best deal.
Some companies offer better policies for new buyers.
Find out if the client’s carrier or another carrier offers
lower premiums, higher cash values or larger death benefits
to new buyers than the current policy offers. If so, cancel
the old policy and buy a new one.
Compare illustrations. Check the
assumptions the insurance company uses in its policy
illustration such as interest rates, mortality rates and
expected longevity. Compare results such as premiums, length
of time they must be paid and benefits the policy provides.
Make sure to look at carrier ratings and financial
stability.
Continue to assess carrier ratings and
financial stability. Like any business, insurance
carriers’ fortunes change. Be certain the carrier’s
situation has not exceeded your client’s risk tolerance. If
it has, change carriers. |