A True Tale of Piggybacking
by Glenn S. DailyLife 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.
Glenn S. Daily is a fee-only insurance consultant in New York City.
He can be reached at www.glenndaily.com.[Originally published in the April 10, 1995 issue of Probe.]