A True Tale of Piggybacking
Life insurance sales practices are in the news. Misrepresentation, churning, piggybacking. Industry spokespeople say it's just a few bad apples. A few rogues.
Here's a 1980 letter from my Massachusetts Mutual agent (now retired):
"As you know, your father took out this policy for you at age 12. This is a standard contract and a gift to you, for a head start on your future economic security. Because of the existance [sic] of that contract, it is now possible to use it's [sic] dividend values as 'leverage' to purchase an additional contract at this time for $50,000.... In brief, at no time will you be required to take any money out of your pocket to pay premiums. The premium for each year on the new $50,000 will all be paid by use of dividends under the old policy plus dividends each year on the new policy." [Emphasis in original.]
My agent offered to answer any questions I might have. At the time, however, I didn't even know what a dividend was, so I didn't know what to ask. This sounded like a good deal, and I accepted.
With the benefit of study, I now understand what I did. I used accumulated paid-up additions -- the best bargain that life insurance companies offer consumers -- to buy another full-commission policy. And I committed myself to coming up with $484 each year, either from dividends -- thereby forgoing the opportunity to buy more paid-up additions -- or from my own pocket. Would I have done this if I had understood the concepts of dividend option, paid-up addition, and the fungibility of money? Perhaps, but probably not.
My agent was not a rogue. He was a reputable CLU who had a successful career giving financial advice to individuals and businesses. He did what he was paid to do. He sold me life insurance, skillfully choosing the path of least resistance.[Originally published in the April 10, 1995 issue of Probe.]