It’s not a fun topic to talk about, mostly because the basics of this kind of insurance is not about life, but death. We generally don’t want to talk about our own mortality, much less plan for the eventual inevitable.
Life insurance is a much more difficult topic to think about than it is to actually talk about.
Because of the difficulty of this subject, many companies have started utilizing the multi-level-marketing (MLM) format which emphasizes selling to people you know.
The problem with the MLM format
There are five main downfalls we have found with the multi-level-marketing format of life insurance.
- Agent dedication
- Marketing efforts
- Product direction
- Effective servicing
- Recruiting model
Before we get into these problems, let’s define a MLM organization and an agent.
Multi-Level-Marketing organizations are companies with a group of offerings that focus on both product sales and recruiting. Rather than being a service and sales oriented company, they focus on selling a business model to prospects. For instance, World Financial Group (WFG), is a multi-level marketing company that offers various life insurance products. Their agents are taught life insurance basics, what anyone needs to learn to get licensed, and then are trained to recruit prospects to join their downline.
The downline is simply people an agent has recruited to work under them. Conversely, the upline is the people who recruited the agent.
Whether MLMs are legitimate businesses is a debate for a different website, as we here at Bow Tie Financial Group are all about insurance, not the nuances of what constitutes an “actual” business.
Most MLMs in the life insurance realm have a partnership with a few companies. WFG, for instance, has special contracts with Transamerica, Pacific Life, and a few others. People Helping People (PHP) has a special contract with AIG and, I’m certain, a few other carriers. Primerica has partnerships with Metlife, Franklin Templeton Investments, Lincoln Financial, and others.
You might be aware of a few other multi-level marketing organizations out there, such as World Ventures, Mary Kay, Amway, Avon, Jamberry, LegalShield, Herbalife, and innumerable others. There’s even a magazine periodical dedicated solely to the development of MLM participants.
All of these promise full-time income potential with part-time effort.
It’s time to dive into why, in our opinion, MLM life insurance companies are best to be avoided as life insurance consultants.
1. Agent Dedication
Agent dedication is critical. What do we mean by agent dedication, though?
We mean an agent whose primary focus in business is insurance. Who is solely focused on learning the policy types, differences between products, how each company operates differently, and wonky insurance nuances most people aren’t even aware of.
What else? Agents should be dedicated to their clients and to their carriers. Obviously their clients need to be properly protected. The carriers all have a demographic they best fit, usually represented by rate. Pairing the two up is really the thrust of the agent’s job.
Dedication also comes into play with longevity. If you have insurance questions about a universal life policy, or what some options are with a whole life policy after a few years of cash accumulation, you’ll need an agent who has been with you since it was the setup.
Speaking of setup, we need to make sure your agent is setting up your cash-value life insurance policy with your best interests, not maximizing their commission. Other than cash value, do you need a child rider, return of premium rider, or maybe a waiver of premium rider on your term policy? Do you even know what they are or what they do? These are all things full time agents know which many MLM agents don’t even have on their radar.
2. Marketing Efforts
This is a complicated part of this writing. Marketing is probably the most critical part of the prospecting and sales process, other than making sure things are written correctly.
MLM companies market to three distinct groups of people, on behalf of two entities. They market to
- Current representatives on behalf of themselves
- Current representatives on behalf of their specially contracted carriers
- Prospective representatives on behalf of themselves
- Specially contracted carriers on behalf of themselves
Agents have one job: marketing to prospects and clients.
What happens when you have a MLM company bringing agents to their annual convention, where their top one or two carriers talk about how great they are and how, without them, the MLM all these people “work for” would not exist? What happens when agents, who by their licensing, are in a position of authority, are lead to believe they’re superior to people with a job (which is often spoken derogatorily as a ‘j-o-b’) because they’re “owning their own business”?
Agents have, in our opinion, one job: match our clients up with the best program for their needs. The only thing we are superior in is our knowledge of insurance product, not business, life, or how to live.
Multi-level marketing organizations have an insular culture of us-first, largely because of their marketing. This results in an often cultist organization where people first represent the MLM company rather than the interests of their clients. Sure, they touch on the best interests of prospects, it just comes as one of the tools for the organization’s strategy rather than the root of the agent’s process.
So, to answer our first question, what happens when they bring agents to their convention and their agents buy into the idea of independence built upon the back of this organization? People are given options that are limited, at best, and duped into joining an organization that will suck them dry, at worst.
Agents are dedicated to marketing to new prospects to consult with them. That’s the daily marketing effort of the independent agent. We don’t want to recruit or sell a dream of owning your own business — we just want to set you up with an insurance program that benefits you.
3. Product Direction
Product direction is not a term the insurance industry uses. In fact, it’s a term we made up to describe the focus of how agencies position their products. It ties closely in with marketing efforts, though it slightly different.
A life insurance product is intimate. It is often the one barrier between your family’s success and destitution in the event of a death. It can be a cushion that lets you take time off for grieving and therapy after losing a child or loved one. It can save an entire matriarch’s legacy from ruin.
Life insurance is often the one protection between destitution and success
The one direction product for full-time life insurance agents is toward clients. It’s finding the blend of term, cash value, and long term care. It’s figuring out whether juvenile life is best set up as a whole life to help fund college, or if it’s more advantageous to set it as part of the parents’ coverage.
Our one goal is to build a client for life, as it were.
Furthermore, product direction is based in experience. A direct agent will have a team of underwriters backing them to answer any questions they have. Many even long-time representatives with MLM organizations are still in a beginner level of knowledge with how to set people up properly.
Agents’ products are focused on client protection, growth, and development. We are experienced and backed by teams with an immense collective knowledge focused on selling the right product, not selling mass quantities of product.
4. Effective Servicing
Servicing applies to more than a missed payment or adjusting how much you put into your indexed life insurance policy. Servicing is anticipating your needs when you call in with a problem. It is a periodic review of what you currently have and suggestions on how to move forward.
Servicing is critical to insurance, especially life insurance. It comes from a desire to maintain good relationships and empower people to maintain knowledge and control over their assets and life. Servicing is one of the most powerful tools in an agent’s set.
Speaking from experience, servicing through a MLM representative’s perspective and from a direct agent’s perspective is wholly different. A representative with a MLM does not own their book of business. What that means is while they have access to it, it can be taken away at any time. A direct agent owns their book and is able to stay on top of any issues faster.
What that means, for you, is one less layer of red tape to cut through on the day before payday when you realize there’s a little more month left than there is check, and you need to adjust something. It means that direct agent is more likely to be able to pull you out of a sticky situation. It means that question you have about your unique underwriting case has fewer steps to get through for a solid answer.
It’s the difference between a policy being issued in days and one being issued in weeks. It’s often a 10% difference in premium, whether $18/month vs $20/month or $270/month vs $300/month. Oftentimes it even comes down to accuracy against speed.
Direct agents are more flexible and empowered to service their — our — clients. And we’re proud of it.
5. Recruiting Model
Most of this comes down to the recruiting model multi-level marketing organizations employ. In order to make recruiting attractive, there are weaknesses built into the representative’s business plans.
One of the largest problems is commission: a MLM representative’s commission is significantly lower and will still only go up to a fraction of a direct agent’s rate unless they can become among the top 5% of recruiters (recruiters is emphasized because amount and quality of sales don’t contribute to their commission).
We don’t work for free, of course, which is why we need commission. Our consultation to help you find, apply, and be accepted for the right insurance plan is our commission. It’s what keeps our lights on, our fridges stocked, and our tanks full. It feeds our pets, raises our children, and gives back to our community. The commission paid out on a policy is the same, whether it goes to a MLM or direct agent. It’s just your direct agent gets a higher commission because they’re empowered to service and work on your policy. The MLM organization absorbs 30-75% of the commission (usually on the higher end) to maintain their organization.
What this pay cut means is instead of being solely an insurance consultant and agent, MLM representatives have to recruit to survive and grow their business. This makes their friends, family, and insurance prospects potential downlines, to participate in these cut-rate commissions and recruiting models to train their own competition masked as teammates.
Direct agents only sell, service, and manage policies. We do not recruit.
As distasteful as we find the vast majority of multi-level marketing organizations, we don’t wish to discourage people from joining them should they find a fit. Much like food, we can’t fault people for enjoying what they do. I, Eddie, the author of this post and president of Bow Tie Financial Group, cannot stand eggplant, yet I don’t think people should never eat it if it suits them.
This is more a warning, a tip, something to encourage people to take a second look at the organization they’re purchasing something so, so critical from.
Direct agents are local business owners with full stakes in their business. We are people who dedicate ourselves to knowing what you don’t know, and what you don’t want to know. We ask ourselves each day “What do I know? What do they need to know? Have I told them it yet?”
Keep it local, keep it in your community, and keep it in your best interest. Go direct.