Saturday, June 27, 2015

You Don't Deserve My Time, Dunning Kruger Observations

Brian and I have noticed and discussed the inverse variation between our easiest and most difficult clients.  That is to say, that often our most difficult interactions are also the least profitable, while the easiest interactions are the most profitable.  .. See the Dunning Kruger Effect.

People who make it difficult for us to help them do not easily trust our advice because they overestimate their understanding or knowledge in the subject of Insurance or other financial topics....or they are demanding of time.  Many times, these interactions which can be frustrating and time consuming for us also offer the least in potential return with regard to commissions/fees.  We make our recommendations based on need and budget like any good professional, and often times, we are recommending these folks pay incredibly low amounts of premium.  Sometimes we meet resistance from them on how low, in fact, as they have decided what they think is best for them based on some bias i.e. "my daddy had a policy like this."

Inversely, the clients who are the easiest with whom to work are typically financially independent and often wealthy, which means that the revenue from our work with them can be 10x - 50x higher.  These folks usually underestimate their relative knowledge in the subjects around insurance and finance.  In fact, they more easily understand the subject matter and can make decisions quickly when presented with one of our solutions.  These folks are also very gracious and even worry that they could be taking up too much of our time.  My most wealthy client rarely takes more than 15 minutes of my time before thanking me and shuffling me out the door with some encouraging words.  Sometimes he will ask if I have time for a quick anecdote (I always do) and I will listen for the 5 minute long story and remember the life lesson, because it may be profoundly valuable.

This is just a feeling and not based on what is most profitable, but I am happy to equally give my best work to everyone and enough of my time to get them pointed in the right direction... Agents/Brokers and Consumers alike.  I have learned though, that there are people who should be avoided.  Of course, you wouldn't know that until spending a little time with them.  No amount of good advice will help them and your time is probably not well spent.  It it is best to kindly bow out, still leaving them some suggestions on material they can seek out and use to educate themselves.  The people who can more easily recognize the value of good advice and act on it quickly are the type of people who become financially independent or wealthy, if they aren't already.

Tuesday, June 23, 2015

Facts of Life Insurance - Why Do We Have a Cognitive Bias?

There can be biases for lots of reasons.  We'll explore 3 examples they we have seen that are probably all too common.

Even independent agents can have a bias to a specific carrier or a handful of companies.  It happens to us.  We have a stretch of time where certain companies continually price well, are easy to work with, or really competitive with their underwriting.  We may lock into them without even knowing it until they stop being as competitive.  We have favorites for survivor policies.  We have favorites for term.  We have favorites for equity indexed universal life.  Those may change in 6 months.

One example that sticks out is an agent we met that used to be a captive agent.  He still touts that one company even though we can show him a proposal with better pricing and a better product of insurance.  He remains resistant to moving beyond his comfort level.

Consumers form their own cognitve biases by what they see on TV, or who they worth with, or what another family memeber has or even who they go to church with every week.  They get stuck what they think they need.

One example we came across recently was client that asked about burial insurance.  That really isn't the type of coverage that we handle but, there are agents that focus on that market.  This lady specifically told us that she didn't want anything crazy like $100,000.  We are thinking anything less than that is crazy.  $15,000 is the amount she had in her mind.  She also didn't want to do an exam or answer more than 3 questions.  The insurance company was being too invasive.  If we give the insurance company a little information to use their minds it could greatly reduce the price.  Her ristance was engrained in her bias from those around her and it was something she couldn't get past.

Medical Exams
Along the sames lines are agents that promote nonmedical insurance companies and consumers that are resistant to doing an exam.

We had a case recently we are insuring the owners of company.  Each owners stake is approximately 1 million.  It is a fairly typical buy-sell arrangement for a dozen owners.  One of the board members figured they didn't want quotes from carriers that required an exam.  The owners would be reluctant to do an exam.  However, all of the stakeholders realized it would be less expensive to do the exam.  Nobody was resistant to do an exam  That board had developed his own bias that stemmed from somewhere.

Clients that are reluctant to do an exam maybe happy paying 25% more for their coverage.  In the end they may not be a good client for you.

Enjoy our video...

Friday, June 12, 2015

Facts of Life Insurance - Are You Asking The Right Questions?

How's your health?  The typical client response is "Just fine."  If an insurance agent is asking a client about their health the same way they would ask about weekend plans or the weather then the problem really lies with the question asked not the response.  Of course, if you ask me that question I'm going to give that kind of response.  99% of clients do.  What the client thinks and what the insurance company thinks could be completely separate.

More Specific Questions:
1. What prescription medications are you taking?
This will lead you into discovering what health issues the client may have whether its diabetes, high cholesterol, or anxiety.
2. Have you had any visits to the hospital?
This might lead you to discover chest pains or surgeries.
3. Did either of your parents pass away before age 70?
If the answer is no you can stop there.  If it is yes then the follow up is what was the cause of death? Be mindful this could be a delicate subject matter.
4. Height and Weight.
This may be more evident when sitting across from someone but, not when you are speaking over the phone.

We need to know what your mortality risk is to the insurance company to get the best pricing.  The same risk class might be relatively inexpensive at one company but, expensive at another carrier.  We aim to dig in further to better assess the client's situation so they can make the best, most informed decision possible.

Insurance Application
On the other end of the spectrum we also coach clients to simply answer the question the way it is asked.  No more no less.  Some clients like to spill about issues that may not have an impact on their underwriting or present information that their doctor didn't diagnose them with at the time.

Have you been scuba diving in the last 5 years?  Well, I remember going 6 years ago.  Then simply answer no.

What prescription medications are you taking?  The last time I met with my doctor he said my blood pressure was..... Again the answer is no.  As far as the insurance company is concerned you aren't taking blood pressure medication.

We don't ask for this information to be nosy or invasive.  The more we know the better we can steer you to the right insurance company for your needs.

Enjoy our video....

Wednesday, June 3, 2015

Is This Really Customer Service?

Have you ever made the dreaded phone call to a service provider.  After weaving through the maze of entering your account number and stating your name, the first question the customer service representative asks is what is your name and account number?

Regurating the problem
Have you ever had a similar conservation to the one in the movie Dodgeball?

You: I know. I just said that.
Rep: I know you just said that. 

You: Okay, I'm not sure where you're going with this. 
Rep: Well, I'm not sure where you're going with this.
You: That's what I just said. 
Rep: That's what I'm saying to you.
You: All right.

Most customer service reps are good at restating the problem.  I knew what the problem was when I called.  What I need help with is the fix.  As a test I may just not say anything the next time and see how they respond.  Well, Mr. Smith I'm glad I was able to pinpoint the problem.  Is there anything else I can help you with today?

Relating to Another Scenario:  
If your situation was like this then we could do this.  But my situation is this so how does this help?  It doesn't.

Sounding More Important Than They Are:
Did you just drop some knowledge on me about mortality tables?  Are you talking faster so I won't know what you are saying?  I don't know what your acronyms mean.  Just explain it to me like I'm a 6yr old.  The one acronym I am familiar with is KISS.

We try to put ourselves on the same side of the table as our clients.  It's difficult many times because people are wired differently.  Focusing on the solution should be the mindset.  There is a reason clients to come to you for help.  It may be piece of mind.  It may be to save them money.  It may be to improve on what they have.  Educate them along the way.  It helps them make better, more informed decisions and they feel like they have more control.

Monday, June 1, 2015

My Spouse Just Died. What Now?

I wrote this article because I have worked with many of the individuals described below over the course of my career and quite a few recently.  

My spouse handled all of the family finances and just passed away, so what do I do now?  You have started sifting through different bank, investment, and IRA statements.  There is a life insurance policy or two, you think.  What about income sources like a company pension and social security?  Where do I start?  Believe it or not it is possible to sort out your finances and meet your financial goals, with the proper plan.  Most people don’t know where to go or who they can trust.

The short answer is that there is no rush on any of these lingering issues.  There is plenty of time to first sift through all of financial and estate documents and then start making decisions on your best course of action.  Any professional, especially a financial planner, will want to get a holistic view of all the different moving parts before giving any guidance.

I have literally had clients come into my office for the first time with a gym bag full of statements from 18 different places.  They had three or four banks relationships.  They had joint, individual, and IRA accounts spread around to several different investment firms.  There are old insurance policies dating back to the 1940’s where the insurance company has been bought out several times over.  In a perfect world many of these items would have been consolidated and there would be a plan and a go to person in place so that this process is easier to handle.  

When you are ready to start dealing with the financial aspects after your loss here are some important steps to take.

1. Estate Settlement – The will and/or trust will indicate how assets should be disseminated.  Assets with specific beneficiaries and joint with right of survivorship bypass the probate process and will be smoother to get to the recipients.  Other assets will need to be settled through the estate.  An estate attorney can be extremely helpful in making sure the proper documentation is filed.

2. Gather important documents – Locate your will and any trust documents.  Get a minimum of 15 certified copies of the death certificate.  Find all of the bank, investment, and IRA statements.  Keep them all in a centralized place.

3. Contact life insurance companies – They will send out paperwork outlining what is needed and your options.  Most insurers will send you a check relatively quickly but, don’t feel like the money needs to be invested right away.  If you are the primary beneficiary then the money bypasses probate and doesn’t need to be included in the probate estate.

4. Contact the deceased’s employer – There may be a company sponsored retirement plan and/or survivor pension that you would be entitled to receive.  Their paperwork will have some different options to consider.

5. Contact Social Security – You will want to determine what your social security benefits and options will be moving forward and for minor children if applicable.

6. Retirement plan options - There are two different sets of rules for spousal beneficiaries and for all other beneficiaries. Simply put, the spousal beneficiary has far more options available.  A surviving spouse can roll over money from the deceased spouse's retirement plan into his or her own traditional IRA and in many instances that makes the most sense.  You can also designate yourself as the account owner on the IRA that is being inherited.  Age of the deceased spouse and you are critical factors in determining the best alternative.

7. Other considerations – Going through a safe-deposit box, retitling ownership on your home, car, accounts, credit cards and other property will ultimately need to be done.  Real estate assets can potentially create some conflicts as it is not liquid and if there are multiple beneficiaries there can be some internal strife between the different parties and what they want to do with their portion.

The emotional strain a death can cause a family is tough to deal with and leaves most spouses struggling with the idea of what to do next.  One major key is to not make any rash decisions that could have a dramatic impact and tax implications.  Once you have gathered everything you and your financial planner can start to map out a strategy for the next phrase of your life.  A good planner can help alleviate some of the burdens that go along with estate settlements and bring in other resources such as a tax and estate professionals if applicable to make sure all of your bases are covered.