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Inside Secrets: How Insurance Agents Get You to Buy

How do insurance agents get past your objections and get you to buy a product that you might not want or need? I had the occassion to find out recently when I got yet another invitation to attend an "agents only" webinar.

I don't know why, but I get a constant stream of emails and invitations for "insurance agent only" information. I've never pretended to be an insurance agent. Some invitations are even sent to me at my Los Angeles Times email address, so it seems as if they ought to know that I'm a reporter. It goes without saying that despite their admonishments that "only agents should attend" and that the information is "not for the general public," I'm going to report on what's said, particularly when it relates to a risk that you may face in the real world. If these folks really don't want a reporter learning their inside secrets, they better take me off their mailing list.

Today's seminar, "The Art of Handling Objections," was too intriguing to pass up, particularly because they were talking about selling equity indexed annuities. These are a hybrid insurance product that I actually wrote favorably about a decade ago, but don't recommend today. I'll explain why later.

During a hour-long web conference, a sales "coach," explained a four-step approach to getting past client's (often reasonable) concerns to make a sale.

How do they do it?

Step one: "Cushion" the objection. In layman's terms, this means "kiss up."

When somebody says, "but what if I don't want to lock money up for 10 years (as most of these products require)" the sales coach, who also sells annuities, responds: "That's a great question. I'm so glad you asked that."

This does two things, he told us on the call. It makes the client feel smart and it makes the sales agent appear likeable. There are three reasons why somebody will buy a financial product from you, the coach told his audience.

#1: They like you.

#2: They trust you.

"Third, and least important, is that you're competent at what you do and are selling something that will address their financial concerns," he said.

Step two: Narrow the concern. In layman speak? Find out if this, and only this, is what's standing between you and a sale.

The coach suggested that agents say, "Mr. or Mrs. Customer, is this your primary concern about this product?" If the answer is no, the goal is to get the mark talking. Have them tell you about their lives, their fears, why your product makes them nervous.

If the answer is "yes," the coach cautioned that you still shouldn't move too fast. Even though some agents will take that response and reply: "If I adequately answer that concern, will you sign with me today?" he contended that would be a mistake.

"Selling insurance is like dating," he said. "If you do too much, too quickly, you're going to get slapped and you're not going to get the sale."

Step Three: Answer with a story. In layman's terms, this means "change the subject."

The coach illustrated the right response with a tale about his high school days, when they lost an important game because they just weren't playing like they should. The coach didn't even lambaste them, he said. The coach (as told by the sales coach) just said, "You know what you were doing wrong. This week, we're going to focus on doing nothing but the fundamentals." Lo and behold, they won the next game because everybody's gotta focus on the fundamentals.

What are the fundamentals here? Why safety, of course. You say you want access to your money. The agent's going to say, don't you want to keep your money safe? That's hard to argue with, unless you're a contentious person like me who might say, "what if I want both?"

Step four: Close the sale.
I don't need to explain that one, right? But I should mention that this is an important point to the agents because equity indexed annuities pay big commissions, somewhere in the neighborhood of 7% to 14% of the amount you invest. In other words, if you put $100,000 into this investment, the agent is going to walk home with about $7,000. That's a big incentive to find ways to "overcome your objections."

The brokerage sponsoring this "webinar" was also advertising its "escape" for top producers at the Ritz Carlton in Jamaica.

My point: there's a lot of profit in these products. You should be realistic enough to realize that that profit comes out of your pocket.

What's an equity-indexed annuity?
An equity indexed annuity is a hybrid insurance product that promises stock-linked returns without a risk to your principal. If the market goes down, you generally lose nothing. Most products are structured so that the worst you can do is get a zero-percent return. If the market goes up, you get a percentage of the gain.

The catch: The gain you get can be paltry and is difficult to predict because the insurance company usually has the right to determine it based on factors that are completely out of your control. The market could rise 10% and you could get just a 2% return, for instance.

If you don't like the return, you can't just take your money and move it elsewhere. These products typically have steep "surrender" fees that last 10 years or more. Translation: If you take your money out early, they can keep as much as 10% to 15% of what you originally invested.

Why did I think they were worth considering a decade ago? Because I'm a student of market history. In those days, the average annual return of stocks had been roughly 18%--about 8 percentage points more than the long-term market average--for a decade. I thought that was a troubling sign for long-term market returns and that we might have a market drop--or simply no returns--for some time to come.

But I'm not psychic and didn't pretend to know when that might start. I also know that even in long-term bear markets, you sometimes have an up year. That could make the annual resetting provisions of many of these annuities attractive. For those who couldn't stomach the idea of taking their money out of stocks and putting it in bonds and long-term CDs, equity indexed annuities appeared worth a look.

Today, market history tells a different story. Average returns have been close to zero for a decade, which puts our recent returns far below their long-term averages. Again, I'm not psychic, but I think that's a good sign for stocks--even after accounting for their recent run. In that kind of environment, I'd rather bet on stocks than a product that provides principal protection but very little upside.

Should you buy one?
Let's be clear: I don't care. I don't sell financial products. I'm not your mother, nor your child. You're a big kid. Buy what you like.

My goal is to help you understand the techniques being used to sell you and help you steel yourself against them (if you need to) and understand the risks and rewards (if you don't).

I think there are products, such as bank CDs, that do a better job of protecting your principal; and products, such as stock market index funds, that do a better job of providing investment growth. I'd recommend that you have some of both instead of an equity-indexed annuity.

But I don't earn a commission.

Further reading
For a fabulous, step-by-step analysis of a similar product to what this "coach" was peddling, read Alan Roth's post about his $100,000 challenge.

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