How Whole Life Insurance Agents Screw Over The Middle Class
This is something I've been meaning to write about for some time now, but I am just now getting around to it. One of the main reasons for me to write about it now is that it is fresh on my mind, having just witnessed it again for the umpteenth time. You see, becoming a licensed life insurance agent is one of the easiest and quickest career paths someone can pivot to at any point in their life. This is what we all know so many people who have done it at some point or another. In addition, there are no barriers to entry and no prerequisites, such as a college degree, that could prevent someone from joining the industry. As a licensed life insurance agent myself, I can say from experience that it took less than a week for me to get licensed. I spent an entire weekend cramming for the exam and passed it easily on my first attempt. It was one of the easiest licensing exams I have ever taken in my life. It is not hard to get into the insurance business, and just about every company is always open to hiring new agents who are capable of holding a decent conversation.
Once you are licensed, you are ready to get appointed with carriers and agencies and then hit the ground running. Most agents start their careers working for a particular company that may hold their hand and cheer them on as they take the exam. They may even pay the nominal fees incurred just to make the agent feel special. However, most companies do not pay a new agent any salary or benefits. It's typically a commission-only job that can be lucrative once business is closed. In a lot of ways, it's like becoming a real estate agent, but it's not quite as feast or famine all the time. Especially if you really buy into the notion of bugging your family and friends for either business or referrals. On a side note, my personal advice for starting up any new business venture is this: Figure out how to be successful working with only total strangers. Don’t rely on people you know. If you can do that, you will be successful at whatever you do in business, but I digress.
I've laid out the common scenario so the layperson can see what is going on. An agent has to go out and sell policies to make a living, as no one is paying the agent a salary. For someone new to the financial industry, there are no other products out there to offer when you're starting out as just a licensed life insurance agent, such as investment advice or financial planning (a completely separate and more elaborate process, not to mention the necessity of having more skills and experience, at least one would think). You can frame your role and what you do to your clients however you want, but the reality is that it’s still life insurance or bust.
Many insurance agents will be given a crash course from their agency about basic financial planning with the hopes of giving them just enough information to be dangerous (aka make a sale). Unfortunately, what this often turns into is an agent totally screwing someone up financially in the name of doing the right thing. Picture the typical middle-class person with very little money set aside outside of their 401k. How much money can an agent make off of this person selling them term life insurance? Not enough to make a living. Not even close. A $20/mo term insurance policy premium is going to pay an agent somewhere between $150-$250. So what do 9 out of 10 agents do instead? They push whole life insurance as a savings vehicle that covers retirement funding, college funding, estate planning, blah blah blah, and a ton of other things that I've written about before in greater detail.
After a great discussion about planning and getting the client to self-realize they haven't really done anything, the agent takes the bait (lack of planning) and switches them into buying life insurance to kill all those birds (retirement, college funding, mortgage protection, etc.) with one stone (insurance). Of course, anyone that understands the subject of life insurance well enough knows that this client would have been better off contributing to an IRA, 529, or even a brokerage account and buying simple term insurance rather than stuffing hundreds of dollars into crap life insurance. But an insurance agent is not licensed to do those things, and even if he or she is, it is more profitable to make money selling whole life insurance than it is to open up new accounts and start an investment plan for someone. In this case, doing the right thing pays virtually nothing, so the agent opts to sell the expensive insurance and goes from making a couple hundred bucks to a couple thousand bucks. Hopefully, by now you can see whose interest the insurance agent is looking out for.
This is what happens when you work with an agent who never spits out the Kool-Aid about how their whole life insurance company is the best in the industry and is the only one that offers good products. The reality is they've figured out a good pitch that enables them to make a good living working a flexible job that suits their lifestyle. Too bad it is often at the expense of their own circle of family and friends.
