Life Insurance and the Devaluation of Conversion Options
If you’ve traded stock options you’ve heard of the Black Scholes model for pricing. It’s a mathematical formula that predicts the value of an option. If I were a betting man, I would be shorting insurance policy conversion options. In other words, if you have a conversion option on your term insurance policy, now is the time to review it and consider exercising that option before its value drops or disappears.
Most life insurance contracts are issued with contractual conversion options. The option allows you to convert the policy to one of the insurance company’s other permanent plans of coverage such as a universal life, whole life or variable life. The key that generates its intrinsic value is that it can be done without any evidence of insurability and at the rate class you were given when you first went through underwriting. So if you were issued a preferred policy 5 years ago and subsequently suffered a heart attack or stroke or maybe something much less traumatic like adding a few extra pounds or having your blood pressure go up, you can still “cash in” your conversion option and purchase a permanent plan at “preferred” rates. For someone who would now be rated or uninsurable, the value of this option would be priceless.
The “price” for the conversion option is hidden in the overall pricing of the contract and not something that you would be able to see on your policy. Like any stock option, there is an end date for your right to convert. Usually you would be able to convert during the guaranteed term period or prior to age 60 or maybe age 70. Different policies have different conversion rights. Once the policies conversion option date passes, the option expires worthless.
As a consumer, the key behind the conversion option is to hedge the risk of your insurability while allowing you to purchase the needed amount of coverage at term rates. Most people will purchase term insurance because it’s more affordable and less complicated than buying permanent plans of insurance. By eliminating the insurability risk with the conversion option, insureds can obtain the needed insurance now without the risk of having to pay substantially higher rates for a rated policy or perhaps not being insurable at all.
Insurance companies know that it’s often the sick people that are taking advantage of the conversion option. In response, they are now changing the rules and designing new policies to convert to which are less desirable than what you would purchase if you are still a preferred risk. This is somewhat tantamount to a bait and switch. Insurance professionals long-held out to their clients that the conversion option allowed you to buy what everyone else was buying. That may no longer be the case in the future. For now, they may offer the full product portfolio for the entire conversion period but the trend is towards a limited product portfolio for term policies that have been on the books for many years. Likewise, agents who sell these converted products will also see commissions and compensation either reduced or eliminated to help the insurance companies compensate for the added risk.
So what should you do if you have a term insurance policy with a conversion option? The first thing I would do is read your conversion option and make sure the conversion period does not end prior to the level premium period. People are often surprised and this happens more often than you would think. If you’ve had any kind of meaningful health change, and purchasing new coverage would not be approved at the same rates, then use a delta hedging strategy and convert your policy now while full product portfolio access is available. I wouldn’t want to wait and find out that the insurance company no longer offers you the same options as they once did. Iif you’re considering the purchase of a term insurance policy, look for guarantees that allow you to convert to the full product portfolio during the entire conversion period.
A Simple Way to Test Your Company’s Strategic Alignment
There is no universal or one-size-fits-all prescription for a winning business. But corporate leaders today seem to agree that strategic alignment is high on the list.
Strategic alignment, for us, means that all elements of a business — including the market strategy and the way the company itself is organized — are arranged in such a way as to best support the fulfillment of its long-term purpose. While a company’s purpose generally doesn’t change, strategies and organizational structures do, which can make chasing “alignment” between strategy and the organization feel like chasing an elusive will-o’-the-wisp.
Harvard Business Review – Jonathan Trevor/Barry Varcoe
Four Ways To Build The Relationship Before Making The Sale
Business development is all about persuasion. But those who begin relationships by trying to persuade are missing the point. Better to begin relationships by establishing them. Here are four ways to do it.
Give value before your get value. The classic book Influence (Harper Business revised edition, 2006) by Robert Cialdini, reveals something powerful about giving. It creates a sense of obligation, or reciprocation, that can drive the receiver to respond in like manner. Examples of interactions that can engage the principle of reciprocity are producing valuable content marketing, solving a problem, and doing meaningful favors. It’s much easier to sell something to someone after you have given genuine value. It is human nature to want to give back.
Prove your concept through contrast. I started my first business (window washing) when I was 16 years old. The sales method that I developed at that time has served me well in subsequent businesses. The pitch went something like this. “Hello, I’m Larry and I’m washing windows for people on your street today. May I show you how I produce the perfect window? I can demonstrate my method on this front window right here.” Few residents could refuse this offer. I would then wash one pain glass, explaining how I get in the corners and avoid streaks, while leaving the surrounding pains or adjacent windows unwashed. The contrast was always startling, and my future customer would be surprised by how dirty their windows were. My close ratio was north of 50%. This method will work for any business that can perform a small portion of a larger contract, and thereby prove the value of the offering.
Share an adventure with your prospects and clients. You could take a prospect to lunch, dinner, or a local NBA game. Such venues are excellent for building relationships, but they are also fairly common. Assuming that the depth of bonding and rapport building is directly proportional to the quality of the shared experience, a round of golf will not create the same connection as a true adventure. Jim Lindblom is the owner of Glacier Bay County Inn, located in Gustavus, Alaska, right on the edge of Glacier Bay National Park. “Many of our guests are actually business people who bring prospects and clients along with them. There is so much to do here—fishing, whale watching, hiking, hunting, kayaking, bear watching, flight seeing, glacier exploring—that by the time people leave here they have created shared memories and built relationships that will last a lifetime.” I think Jim is right. I once took an 8-day river trip through the Grand Canyon with a group of business contacts. That experience and those relationships have made a lasting and indelible impression on me. There’s just something about getting away, disengaging from work, and connecting with fellow adventurers that cannot be replicated in everyday surroundings.
Establish genuine trust quickly.The Speed of Trust (Free Press, reprint edition, 2008) by Stephen M. R. Covey provides an excellent road map for building trust with prospective and existing customers. I highly recommend this book. Of course, suggestions 1—3 above can also establish trust. Speaking of trust, there is an attitude that I have observed that seems to build trust more quickly than anything else, and that is wanting to help a prospect more than you want to make the sale. This attitude is embodied in phrases like, our product may not be right for you; if what we offer doesn’t work for you I can recommend a competitor who might be a better fit; or, we can’t completely satisfy everyone so I hope you’ll let me know how we would need to change what we do to better solve your problem.We can all tell if a sales person has our best interests in mind, and at times they do not. When the welfare of your prospect is more important than hitting quota, you’ll probably start hitting quota more easily.
Many startup entrepreneurs dream of landing marquee clients – names known around the world. Whatever business you’re in or trying to be in, few things signal the arrival of your business more clearly than catering to the rich and famous. And few things can do more to amplify your brand – or destroy it – than working with the world’s glitterati. Just one tweet, one photo, one mention from the right person can change your brand and business immediately.
Finding celebrity clients is tricky since most of the business they do is by referral – one movie star telling another or one athlete sharing a tip with a teammate. But once you land one or two, keeping them happy under the prospect of instant, worldwide attention can be a challenge.
How To Win A Difficult Negotiation With “The Steak Clause”
“In the 2001 hit movie A Beautiful Mind, we got a peek into the brain of Nobel Prize-winning mathematician John Nash. Brilliant (but also schizophrenic), Nash pioneered a negotiating concept known as the Nash Equilibrium. His insights, in particular about when it pays (or doesn’t) to change course, would go on to be applied to everything from nuclear arms negotiations to traffic planning and penalty kicks in football.
I’m not a mathematician. I’m certainly no John Nash. And this is no Nash Equilibrium. But I’d like to humbly present my small contribution to negotiation strategy: I call it the Steak Dinner Clause. It probably won’t change the course of global affairs, but it might just improve your next business deal.”
For the third year in a row, business owners in the U.S. say retaining valuable employees is their biggest worry. A 2015 survey conducted by Payscale shows that 63 percent of businesses report “employee retention as their #1 concern … a massive (125 percent) increase in concern since 2009.”
If you’re a business owner, non-qualified benefit plans let you reward the commitment of your most important employees with financial incentives. Unlike qualified plans (such as 401(k) plans), which must be made available to all employees, you can select which key employees will receive these non-qualified benefits, and you determine the level and types of benefits provided.
How to Design a Team to Deliver Powerful Capabilities
Does the way your company manages its strategy influence the effectiveness of your teams? And does the way you manage teams affect your strategy? We believe the answer to both questions is yes, and in a new research study under way now, we’re testing that hypothesis.
There is a lot of hype surrounding data and analytics. Firms are constantly exhorted to set strategies in place to collect and analyze big data, and warned about the potential negative consequences of not doing so. For example, the Wall Street Journal recently suggested that companies sit on a treasure trove of customer data but for the most part do not know how to use it. In this article we explore why. Based on our work with companies that are trying to find concrete and usable insights from petabytes of data, we have identified four common mistakes managers make when it comes to data.