Finance managers tell me a common objection they get for credit life insurance is “I can get a better value somewhere else.” I ask them, “Compared to what?” Look at what they compare it to.
What is the significance of the dates 1917, 1960, and 1970? I'll give you a hint, the dates relate to credit insurance and service contracts.
The most recent date 1970, is about the time that service contracts became popular. They became desirable for a couple of reasons: the manufacturer reduced the warranty they offer on most automobiles from a five-year, 50,000-mile powertrain warranty to 12 months, 12,000 miles. Customers also started keeping their cars longer because they were built better and lenders offered longer finance terms.
What about 1960? It was the 1960's that brought us the current form of disability coverage. It allowed a customer to protect their payments in the event that they are off work due to a sickness or injury.
How about 1917? That is the year that Arthur Morris is given credit for inventing credit life insurance. Credit life insurance provided a means of paying off a loan, insuring that a person's debt wouldn't outlive him or her.
These products have been around the F&I office the longest. Credit life insurance has, above all other products that we sell, stood the test of time. Yet it seems to get a bad rap. There's a myth that it is a rip-off. Sometimes dealership personnel perpetuate this myth even though credit life insurance has withstood the test of time.
Finance managers tell me a common objection they get for credit life insurance is “I can get a better value somewhere else.” I ask them, “Compared to what?” Look at what they compare it to.
What's the best type of insurance plan you can get? You know the conventional wisdom, term insurance, right? You heard the old saying, “Buy term, invest the difference.” It's almost chiseled in our brain. Proponents reason that term is cheaper and you can invest the difference. But it typically expires when you reach a certain age, usually 65 or 70. Then you can no longer receive the benefit. You mean after I paid all those premiums, they take away the coverage when I need it most? That's right!
The other insurance that people refer to is whole life insurance. How does it work? A person pays a premium that is meant not only to cover their insurance needs, but also build cash value for them. Does it cost more than traditional term? Yes. What else? It gives you a death benefit for your whole life. If you live to be 100, you cash in the value of the policy. Someone will benefit from the policy as long as the premiums are paid. So, what's a better value, term or whole life? Doesn't it depend?
How about credit life, whole life, or term insurance, what's a better value? Again, it depends.
Credit insurance is a state-regulated, group policy. That means everyone in the group pays the same rate, or price for the insurance. This is regardless of age, sex, whether you smoke, or your health history (these are, of course, subject to the policy restrictions that are filed with state insurance commissions.) Will some people pay more for credit insurance than they would for other forms of insurance? Sure they will, but others will pay much less. With other forms of insurance, the insured typically has a more cumbersome process to go through to qualify for the product, i.e. lengthy applications of health history, physical exams, urinalysis, blood tests. With credit insurance you simply answer a health question to see if you qualify.
At what point does credit life insurance become priced less than other forms of insurance? It depends on the individual person's age, sex, and health history. Two things are for sure. First, everything about the product is regulated by the state, including cost. Second, you can't buy a policy more convenient. All the customer does is answer a health question, and, if he or she qualifies, walks away with immediate coverage.
Is convenience important in our society? Sure it is, just look at how we get our own money out of the bank. You stop at an ATM. It doesn't happen to be one from your bank. You put in a request for some cash and that friendly reminder comes up, “If you proceed you will be charged $2 for the convenience.” Do we push “cancel” or do we say O.K.? You know the answer! In my case, my bank charges me another $2 when they process the same transaction. So, we just paid, $4 to take out $20. (Hint: at least take out $100 to make it worth your while. Maybe I just stumbled on to a new book idea, “How to get financial success?”)
Can it be any more convenient than answering a health question and signing the policy?
Ron Martin is a national F&I Sales trainer and the author of the book “The Vision of Finance and Insurance.” Learn more about his book, seminars and company, The Vision of F&I, Inc., by visiting www.thevisionoffandi.com or calling 219-637-2796.
