‘So Long, Farewell’


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For 12 years and 150 articles, Richard Weber wrote a monthly series on 'Due Care' for Life Insurance Selling magazine. Because of his love for the theatre, he identified his articles with show tunes or show titles. This is the third of four 'swan song' articles in which Weber summarizes and integrates what he learned during those 12 years.



  • There’s no free lunch.
  • For every 'gimme,' there’s a 'gotcha.'
  • If something looks too good to be true, it is.
  • We’re drawn to the attractive impossibility rather than the less attractive probability.
  • The satisfaction of low price is brief compared to the misery of poor quality.
  • The likelihood of implementation is inversely proportional to the length of the plan.
  • The stock market of the 1990s provided unparalleled returns — to all seven of the shareholders who were invested in the right stocks or funds at precisely the right time, and who 'got out' at precisely the right time.
  • Market timing doesn’t work.
  • You can’t legislate ethics; rules and regulations rarely affect those for whom they’re intended.
  • When all else fails, tell the truth.
  • Pay me now, or pay me later.
  • Human activities are subject to the Law of Unintended Consequences.
  • No good deed goes unpunished.
  • Reality is for those with little imagination.


  • A Life insurance policy illustration is a small packet of white paper adorned with a pattern of toner smudges.
  • Replacement of one Life insurance policy for another is rarely in the client’s best interest.
  • Promise ‘em anything — as long as it’s not guaranteed.
  • Disclosure is a slippery slope; more can be helpful, but more isn’t necessarily better. Appropriate disclosure is what’s needed, yet remains so elusive.
  • The modern Life insurance policy is one of the most complex — and beneficial — financial instruments ever devised.
  • The Life insurance industry is strong; not even the horrendous events of 9/11 could impair our financial or service resources.
  • Attempts to regulate policy illustrations are a good example of the Law of Diminishing Returns
  • No matter how much explanation or disclosure we might provide at the time of sale, the client will tend to believe that the toner smudges mean something.
  • In spite of an insurance company’s current best intentions, future management won’t necessarily carry out today’s assurances.
  • Although Due Diligence is an appropriate objective, it’s virtually impossible to achieve much knowledge or insight beyond what the vendor or product sponsor chooses to reveal. In any case, see above.
  • Due Care is about being customer-focused, prudent, and objective in the face of an unknown and uncontrollable future.


Before the advent of current assumption Life insurance policies, selling and buying Life insurance was relatively simple. A non-par policy was 'what you see is what you get.' A participating policy had dividends, which although not guaranteed, had a long history of steady increases. In both instances, if you paid the premium, you got the benefit. When Universal Life, Current Assumption Whole Life, and Variable Universal Life became readily available in the early 1980s, everything we thought we knew about Life insurance went out the proverbial window. With the emergence of these policies at the same time as the introduction of Sam’s Club, Costco, and Price Club, consumers were attracted to the apparent opportunity to buy Life insurance for less. And who could argue: if a Whole Life policy’s guaranteed premium was $1,500, a Universal Life illustration might suggest that the 13% current crediting rate and current scale of COI could reduce that premium to as little as $500. Oh, it’s not guaranteed; results shown aren’t necessarily representative of what will occur in the future; premiums might be higher or lower, or might need to be paid for a longer period of time. Huh? Can you repeat that?

Although 'transparency' was one of the touted benefits of such General Account policies — breaking out the projected Cost of Insurance charges and projected interest crediting rates — much has not been revealed. The Asset Share Analysis specifies the planned profit margins for any given block of policies, but that information is never shared with agents or clients. Yet as one carrier CEO stated so elegantly in the mid-1980s: '…we’ll march to our margins …' once the policies have been sold in sufficient volume at their favorably illustrated benefits. And although it seems reasonable to assume that actual carrier investment returns will determine the current crediting rate (and actual claims, taxes, and expenses will determine the current scale of COI), these factors are usually intermingled to render an illustration that will appeal to both agents and clients. Expectations are set, then unmet. Litigation and class action suits soon follow.

When it comes to Variable Universal Life, the story gets more complicated. There’s no essential guarantee for the cash value. Although there’s certainly upside potential, there’s much more room for unmet expectations.

Take, for example, that portion of the marketplace that yields to 'best price' competition. Whether driven by the client or their advisor ('why pay more for Life insurance than absolutely necessary?') or by the agent who’s aware that other agents are bidding for the business, it’s my estimate that 25% to 40% of the Variable Universal Life insurance sold during the past 10 years has been on the basis of 'best price.' And almost every home office representative with whom I’ve discussed this problem confirms this.

What happens when this 'best price' is applied to a VUL illustration? For a 48-year-old female in excellent health, a 'best price' quote might result in purchasing a $1 million policy with a planned annual premium of $5,520. The resulting illustration suggests that over the next 52 years of the policy, the $5,520 premium will cause the cash value to grow to $1 million at her age 100, assuming she lives that long (which actuarial tables indicate is quite possible). Chart 1 represents this illustration.

When viewed graphically, some new awareness creeps in: The growth of cash value looks too smooth, and the equity markets don’t produce smooth results. Yet the reality is that every VUL illustration system calculates projected policy values on the assumption that the chosen investment return (not to exceed 12% gross) is a fixed rate for the entire period of coverage!

If, on the other hand, we used the month-to-month total returns of Ibbotson Large Cap Equities over the last 52 years to recalculate policy values (the same period as the policy duration in the future), Chart 2 demonstrates a different result.

Remember the notion of unintended consequences? 25% to 40% of VUL policies could wind up looking like this. Are you concerned that using historic returns is inappropriate to the projection of current values? Let’s apply a Monte Carlo Simulation to 1,000 separate illustration calculations, each of which use randomized returns of the underlying 624 historic monthly returns in this particular case. If we use an asset allocation of 100% Large Cap stocks, the probability of success is 60% and the probability of failure is 40%. Is that a tolerable risk?

If the past 18 months of stock losses compels you to take a more conservative approach, an asset allocation of 60% Large Cap and 40% Fixed results in a probability of success of 15% and the probability of failure is 85%. Is that a tolerable risk?

If these probabilities of success are unacceptable, what would be an acceptable probability of success for you? In my experience, most suitable clients will respond with an acceptable probability in the range of 75% to 85%. To produce such a result, the funding level of the policy needs to be increased by 40% — to $7,700 from $5,520 — for the 60/40 allocation, as shown on Chart 3. That’s right: the lowest level annual premium to endow such a policy needs to be at least 40% higher to offset the 'drag' of volatility.

Ideally, this approach debunks the notion that you can buy Life insurance the way you buy refrigerators: best price doesn’t necessarily mean best value. If it looks too good to be true, it probably is.


If you’ve only sold Whole Life policies during the past 20 years, skip to the next section. If you only sold Variable Universal Life policies with target premiums or better — or used only an 8% gross investment assumption to project values, skip to the next section. If you don’t fall into these two categories, can we talk? The funding of every variable Universal Life policy you’ve ever sold needs to be reassessed. Here’s what you need to do:

  • Obtain from the carrier the current account value of each policy and determine from your files (or discuss now with the client) their funding plans for the future.
  • With this data in hand, prepare an in-force illustration using an investment return assumption of 8% gross, and if the illustration allows, specify the sub-accounts actually in use today (for fund fee assumptions).
  • Determine if the illustration will sustain to age 100.

If the illustration doesn’t sustain to age 100, have a conversation with your clients! Help them understand the 'drag' of volatility and the benefit of fixing the under-funding problem sooner rather than later. Resist the temptation to suggest that a newer policy will do a better job in the future. In almost all instances, the client’s needs will be well served by fixing the funding of the current policy. Document the work that you’ve done, and provide each client with a follow-up letter summarizing your discussion. Keep copies of all documentation in your files and don’t purge those files until three years after the death claim has been processed.


I remember exactly what I was doing when I first heard that John F. Kennedy was shot, and when I heard about the World Trade Center and Pentagon attacks. I also remember vividly when the publisher of Life Insurance Selling asked me, in early 1990, to write 'a few articles' on Due Diligence. Much has happened since I struggled with the first article.

For the past 12 years it’s been an honor and a privilege to share with you my observations, concerns, and suggested solutions on Due Care. I hope that readers share my deep caring for the Life insurance industry. I hope there were more times that you agreed with me than not. I hope that you’ll join me on the continuing journey to affirm the sale of Life insurance as an honorable profession.

For my final offering, I’d like to share my Agents’ and Brokers’ Principles of Ethical Market Conduct — a mirror image of the Insurance Marketplace Standards Association Standard:

Agents’ and Brokers’ Principles of Ethical Market Conduct

Each insurance agent and broker subscribing to these principles commits her and himself in all matters affecting the sale of individually sold Life and annuity products:

  1. I will conduct business according to high standards of honesty and fairness and render that service to my clients which, in the same circumstances, I would apply to or demand for myself.
  1. I will provide competent and customer-focused sales and service, and will maintain a level of professional competence through a lifetime commitment to professional growth and continuing education.
  1. I acknowledge the different constituents whom I serve: insurance companies and the wider insurance industry, my clients, my client’s advisers, my community, and my family — and I will resolve ethically any conflicts that might arise among those relationships.
  1. I will communicate fully and effectively so that clients receive appropriate recommendations that balance the natural inclination to maximize benefits, tempered by their unique tolerance — or lack of tolerance — for risk.
  1. I will deliver to my client a statement of business processes, methods of compensation, and other disclosures appropriate to an open and professional business relationship.


NOTE: These Principles are not sponsored by Life Insurance Selling or IMSA. They’re offered as an extension of my personal principles. Agents’ and Brokers’ Principles of Ethical Market Conduct is copyrighted, but permission is granted to any licensed Life insurance agent, securities representative, or financial advisor who wishes to use these Principles on the condition that they are used intact and as printed above.

Richard M. Weber, MBA, CLU is president of The Ethical Edge, Inc., a consulting firm that advises Life insurance professionals on due care and ethical practices to help them grow their volume and income. For more information, phone or fax (760) 652-0408, e-mail [email protected], or visit www.ethicaledge.biz.
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