Term Insurance: Module V-D

TERM INSURANCE: MODULE V-D

Term Life insurance is the purest form of Life insurance-it provides only for death protection with no cash values or interest-sensitive features. Term policies pay only if the insured dies with in the policy period.

Most Term policies have convertibility features-after a certain number of years, they can be converted to permanent Life policies (such as Whole or Universal Life), which will have higher premiums but will also have cash values and provide a savings opportunity for the insured. Depending on the carrier, this is often a guaranteed convertibility feature, which means that the insured can be covered when the policy is converted even if his or her health status has changed.

The features of a Term policy will vary among insurance carriers, but there are four basic types of Term insurance. These are:

• Level Term
• Annual Renewable Term (also known as Yearly Renewable Term)
• Graded-Premium Life (despite its name, a Term policy)

Mortgage Redemption Term Let's take a closer look at each of these:

Level Term-this policy provides protection for a stated period of time (5 years, 10 years, and so on). During that time, the premium for the policy remains level. If an insured buys a 5-year Level Term policy, he or she will pay the same premium in the second through fifth years as was paid in the first year. If the insured chooses to purchase another 5-year policy after the first term runs out, he or she will pay a new (and most likely higher, because of increased age) rate.

Annual Renewable Term-this is a form of Term insurance that renews every year as opposed to every five, 10, or 15 years, as Level Term policies do. This means that the premium will go up every year to account for the insured's increasing age.

Graded-Premium Life-this policy works like a Level-Term plan in that premiums stay level for the policy term, which can range from five to even 15 years. After the policy term is complete, the policy may begin to accumulate cash value if substantially higher premiums are paid. Essentially, this is a Level Term policy that can convert to Whole Life. Healthy policy holders would generally take advantage of the re-entry provision allowing a new Level Term renewal at rates for their attained age. If, on the other hand, there are severe health problems, the conversion to Whole Life, as stated above, becomes the only option.

Mortgage Redemption Term-this is a product sold for a specific purpose-to cover the long-term obligation of a mortgage. Its unique feature is that, instead of premiums increasing while the coverage stays the same over a period of time, the premiums stay the same while the coverage decreases over a period of time. Coverage decreases in relation to the insured's build-up of equity in the property mortgaged. In other words, as the insured's covered obligation to the lender decreases, so does the coverage.

PROS

Term insurance, no matter what the form, is the lowest-cost protection you can find in terms of cash outlay while the insured is young. It is often the only way young people can afford large amounts of Life insurance protection. Another advantage of most Term policies is that they are convertible to other forms of permanent insurance. This lets you show the insured that he or she will have an option to convert later when the funds may be more readily available, and also provides an opportunity for a 'second sale' and second commission for your agency.

Annual Renewable Term has the advantage of being even cheaper than other types of Term in the first few years. For some people, this is an ideal situation. Level Term policy premiums, on the other hand, stay the same for certain periods of time, and this may be considered an advantage for other people. Graded-Premium Life guarantees the cash value after a certain period of time, and Mortgage Redemption has the advantage of being a relatively inexpensive way to cover a very specific obligation. The 'Prospects' and 'Sales Strategies' sections of this campaign have more information about which prospects are ideal for which coverages, and what tactics you can use to present the coverages' advantages.

In general, the negative factor about Term insurance is that it does not provide any cash values. When you buy Term insurance, you have the use of the death protection if you need it, but your premiums aren't going to build any 'equity' in the policy for you.

The different types of Term insurance have their different disadvantages. When an Annual Renewable Term Life policy renews every year, the premium will rise, unlike a Level Term. However, with Level Term, the premium will be higher in the first several years than the initial annual premiums of an Annual Renewable Term policy. Graded-Premium Life and Mortgage Redemption policies will also have higher premiums than Annual Renewable initially.

The Life insurance carrier you choose for a Term insurance policy should be financially strong and have a good reputation in the industry. We suggest that you select a company with an A + or A rating by Best's Some other areas to look at when choosing a carrier for Term products include:

1. Convertibility. What are the carrier's Term policies' convertibility features? Can the policies convert to more permanent protection at certain points in time?
2. Quality of permanent Life products. You want your clients' Term policies to be converted to a quality product that will work for them. To find out more about what to look for in carriers when it comes to permanent types of Life insurance, see the Universal Life, Excess-Interest Whole Life, and other sales campaigns in this Agent's Guide.
3. Rates. Term is a competitive product. If your carrier's rates aren't close to those of the competition, you could lose sales.

The ideal prospect for any Term product is usually a young person who doesn't have a lot of money to spend, but has some sort of obligation that he or she wants or needs to cover. As the agent, you may need to bring the prospect to the realization that this obligation exists. The person may have a young family, a brand new business, a loan obligation. Term insurance will appeal to these people because it's inexpensive and can later be converted to a permanent form of Life insurance.

Prospecting is Action Step 1 in your sales process, as outlined in the 'Sales and Marketing' section of this Agent's Guide. Here are some ideas for finding prospects for this coverage:

1. Your Personal Lines customer files: Pinpoint your young Personal Lines customers and target them for this coverage. For example, comb your files-which insureds have purchased a home in the last three years? Have they been offered Mortgage Redemption Term? Have any insureds gotten married or started a family? These are both reasons to have Life insurance.
2. Your Commercial Lines customer files: Do you target any 'Main Street' businesses that are likely to be run by families or sole proprietors? The head of such a business, especially if it is a relatively new business, is an ideal candidate for Term insurance. Why? Because this person has a specific high-risk period of time in which the business is getting started or being paid for. The insured is likely to have more debts than income. It will take time for the business to profit. During this time, obligations can be covered by Term insurance.
3. List brokers: If you have a source that you trust to provide you with Homeowners and Auto prospects in your area, use it to obtain lists of names for your Term campaign.
4. City or county files: These files should tell you who has recently bought new property in your area. These people may find your Term products attractive because they can cover, inexpensively, the obligation they have just made.
5. Referrals from real estate brokers: Brokers can give your name to people who have just bought their first homes.
6. Leads from newspaper and other ads: People are interested in the low premiums Term offers-advertise them and you're likely to come away with many prospects.

SALES STRATEGIES

Term insurance can be sold in a number of different ways. Here are some ideas for approaching the sale:

1. Letters and follow-up, Personal Lines clients: Target your up-and-coming Personal Lines customers with a letter and follow-up phone call campaign. You can use Letter T 1 provided in this campaign, or write one of your own. This letter should:

• stress your relationship with the customer
• let the customer know you can provide for Life insurance needs
• tell them you have a product you believe would fit their needs perfectly

1. Policy changes, Personal Lines: Establish a system in your agency whereby every time a Personal Lines customer has a change of policy or a major life change, it triggers a letter and/or phone call asking about a Life insurance review. Use Letter T 2 provided in this campaign. Follow it up with a phone call. This letter is Action Step 2 in your sales process-the preapproach.

   Here's how this strategy might work when an insured calls you: An insured calls your CSR and requests the addition of a new car on his Auto policy. The CSR should ask about Life insurance. Why? Because the insured has made a big buying decision, which means other things in his life have changed-his financial status is likely to be more secure, he may have a new job-this purchase decision could just be the 'tip of the iceberg.' A Life insurance review can uncover needs that may be ideally filled by Term insurance. In this situation, your CSR might say something like:

   'Okay, fine, I'll have this added to your policy right away. Congratulations on your purchase! By the way, the purchase of a car often signals a change in your life-have you thought that this financial change might make a review of your total Life insurance needs necessary? [AGENCY NAME] has complete Personal Life insurance capabilities, and we have a distinct policy review service we would like to offer you. We would like you to come into the office for this review. Are mornings or afternoons better for you?'

   Once the appointment is set, follow Action Steps 4 through 7 in your sales process.

   The same goes for an insured who has purchased a new home. Any insured who calls to purchase or upgrade Homeowners insurance should be asked about Mortgage Redemption and other types of Life insurance. Use Letter T 3 in this campaign. A home is a long-term obligation and while the young person struggles in the first few years to make the house payments, Term insurance can provide a perfect way to protect that obligation until the client can afford permanent protection. And you can show the client how that Term policy can be converted into a permanent policy at a later date.

   Another change that should trigger a review is the birth of a child. New parents have a big obligation to cover!

   Or, instead of asking about Life insurance when insureds call (many CSRs don't have the licenses or the desire to solicit over the phone), the CSR who takes the call or learns of the change via some other channel (letters and so on) should flag or mark the file on the computer or in the folder so that a letter will be sent to this client. As mentioned, you can use Letter T 2 for this purpose. Follow it up with a phone call. The caller should mention the letter and say:

   'Your [NEW CAR/NEW HOME/NEW BABY/AND SO ON] means that you may need to consider additional Life insurance.'

   Explain the agency's capabilities and ask for the appointment, then follow through with Action Steps 4 through 7.

   NOTE: You'll find more information about having CSRs trigger Life sales from P/C transactions under 'Training' in the 'Life Personnel' section of this Agent's Guide.

2. Commercial files, letter and follow-up: Comb your Commercial files for small, 'Main-Street' type businesses that may have a young, sole owner. Why? Because someone who has just bought or invested in a business will need coverage to protect his or her family from financial disaster in case of death. Term insurance meets the needs of these business people perfectly, because premiums are low while coverage amounts are high. By the time the premiums for Term insurance get higher, the obligation will be closer to satisfied and the business owner may now have the liquidity to convert the policy to permanent insurance.

• refer to the letter,
• reiterate the need for coverage,
• emphasize low rates, and
• ask for the appointment.

Also, make it a policy to ask about Life insurance on the owner whenever you insure a new business or make changes to existing business policies for small business owners. Your question could lead to the sale of Term insurance to your Commercial clients for many business Life insurance purposes. A fledgling or small business won't be able to afford to tie up its liquidity and cash in a cash value Life insurance account where it might get penalized.