“Inspect what you expect. If you’re a business owner or you’re a manager and you have employees, if you expect them to do something or perform in a certain way, you’ve got to observe it. It’s the same thing for your financial future whether it’s your 401(k) or your life insurance policy, if you’re not periodically looking at it, the chances of you not getting what you expect go up so, inspect what you expect.” - Barry Flagg
In this episode of GET READY!, I spoke with Barry Flagg, the Founder of Veralytic about the importance of reviewing insurance policies. We also discussed what people should look for when reviewing their insurance policies along with how Veralytic reports are an important tool for managing an in-force life insurance policy.
Bio: Barry D. Flagg is the inventor and founder of Veralytic, the only patented online publisher of life insurance pricing and performance research and product suitability ratings. Barry is a recognized expert in applying Prudent Investor principles to life insurance product selection and portfolio management and serves as sub-advisor to thousands of life insurance trusts.
“Inspect what you expect. If you’re a business owner or you’re a manager and you have employees, if you expect them to do something or perform in a certain way, you’ve got to observe it. It’s the same thing for your financial future whether it’s your 401(k) or your life insurance policy, if you’re not periodically looking at it, the chances of you not getting what you expect go up so, inspect what you expect.” - Barry Flagg
In this episode of GET READY!, I spoke with Barry Flagg, the Founder of Veralytic about the importance of reviewing insurance policies. We also discussed what people should look for when reviewing their insurance policies along with how Veralytic reports are an important tool for managing an in-force life insurance policy.
Bio: Barry D. Flagg is the inventor and founder of Veralytic, the only patented online publisher of life insurance pricing and performance research and product suitability ratings. Barry is a recognized expert in applying Prudent Investor principles to life insurance product selection and portfolio management and serves as sub-advisor to thousands of life insurance trusts.
Welcome to the get ready with Tony Stewart podcast. I'm pleased to be joined today by very flat. In this episode, we'll be discussing applying print investor principles to insurance policy reviews. Good morning, Barry. Thank you for joining me today.
Speaker 2:And our budget would be your Tony. Good to see you again, man.
Speaker 1:You as well. Uh, so let me, uh, tell you a little bit about Barry before we get started. Um, Barry flag is the inventor and founder of very lytic. The only patented online publisher of life insurance pricing and performing performance research and product suitability ratings. Barry is a recognized expert in applying print investor principles to life insurance, product selection and portfolio management, and serves as the sub-advisor to thousands of life insurance trust. Barry has written articles for numerous national publications in this delivered continuing education courses to attorneys, CFP CPAs, and CTFs on the management of life insurance as an asset, according to established and proven asset management principles. Um, so very, uh, now that we've given a little bit of your background, can you tell us a little bit about what you do and what your day looks like?
Speaker 2:Sure. Um, so what is not in the, kind of the, uh, the, the list of things that I've done? Uh, you know, I started in this business in the, uh, in, uh, as a analyst in a pension investment advisory department of a full service financial planning firm to my father started. Um, and so it's ironic, uh, that this, this journey that I've been on has taken me on pretty much full circle. Uh, back when I was a 19 year old kid, still in college, the partners in the firm would bring pension and profit sharing plan statements back to the office and give them to me. And I would look the funds up in Morningstar and, uh, give them a summary back of, you know, these funds have good fees or low fees. These funds have high fees. These funds have good reformers. These funds have bad performance and you fast forward, you know, golly, what's now almost 40 years, um, 30, 30, some years. And, uh, I'm doing the same thing, but I'm doing it with life insurance, uh, because of the V the, the invention of athletic wear. Now, our customers, uh, send in policy statements or Inforce illustrations is what they're called in the insurance business or new business proposals. They send them into paralytic. Um, and instead of me doing it by hand, it's all automated, uh, the, uh, processors pick up the submission. Uh, they enter it into the Validic database, uh, which, because the insurance industry is still in the 15th century when it comes to electronic data exchange requires some, some manual input and some manual mapping, but once they get into the database, they hit a button and out, out pops a paralytic report that says whether or not they policy has low costs or high costs, whether it's got good actual performance, regardless of what some hypothetical projection says, do they actually have good performance of investor invested assets, underlying cash values, or do they not have good performance? So I'm pretty much doing the same thing I was doing when I was 19 years old.
Speaker 1:That's interesting. And that's so important is I don't think people take the time to analyze and really consider so many of their financial services and products, and especially, uh, as you and I both know, life insurance is definitely an area where people don't analyze and they get their policies and they put them in a drawer and then that's that. So, yeah,
Speaker 2:No, there was actually a good reason for that. You know, my dad, uh, before, before being something of a pioneer or putting words, financial planning together in the same sentence in the 1960s, which not every, you know, he wasn't the only one doing that, but there were not, not as many people in 1960s putting the words, financial and planning together in the same sentence as there are now. Right? But back in those days, you know, you bought a whole life policy, you bought it out of a rate book. There was no projection that you would get every year. Um, and the dividends always outperformed. And so th the notion of buying a whole life policy and putting it in a drawer is not nonsense. It comes from from reasonable beginnings, but those days are long gone where, you know, now what, uh, used to be come out of the rate book and always come true. Now, it kinda, it doesn't come. It doesn't come true more often than not, uh, in, uh, you know, it is, as I often say, the last largest, most neglected and most disappointing, uh, asset class or asset type relative to client expectations.
Speaker 1:That that is an excellent point. I think that is something that's so often missed in the conversation is the evolution of life insurance policies, where for, I don't know, 60 years, a hundred years, they were pretty much fully guaranteed contracts that sometimes would have a little bit extra. As you mentioned, dividends on top. And between the seventies and eighties, they started to transition to products that have multiple moving components. And I think a lot of the world has still been slow to catch on to that difference. And that's where these issues STEM from.
Speaker 2:They, they became a modern financial instrument with, uh, a lot more, uh, I mean, the concern that the pricing got better, uh, uh, th th the pricing, the opportunity for good good pricing got better. Um, the opportunity to capture more performance got better. Uh, but it also, uh, the, the, it was based on actual experience. And so the guarantees got less and it puts more onus on the financial advisor or the consumer to understand what they have and monitor what they have and review what they have more frequently than
Speaker 1:Those old days, a hundred percent, a hundred percent. So, you know, as we're talking, uh, we've already kind of broached this a little bit. Why is it important to review an insurance policy?
Speaker 2:Uh, w there's lots of reasons. I mean, the usual ones, uh, you know, same reason why you'd want to look at your 401k and make sure that you're on track to have enough money to retire, right? So you want to make sure there's enough money in the policy, um, and just paying the premium doesn't mean that there's going to be enough money in the policy to keep it going for as long as you originally expected to keep it going. So the usual reasons are, you know, is it doing what I expected to do? Um, but I think what's, and that's really the same for any thing on the client's balance sheet is my 401k doing what it's supposed to be doing is my stock ROJ account, right? So that's the usual reason. That's the one that, that, uh, uh, I think people focus on naturally or understandably, but the thing that's unique to life insurance is that is too many people think the premium is the cost of the life insurance. And with some exceptions, some limited exceptions that is just not true, that you can pay the premium that you were told to pay. And your policy collapse, unique to life insurance. If you pay your car insurance, bill premium bill, if you pay your homeowner's insurance premium bill, you've got coverage, but if you pay your life insurance premium bill, you may or may not have coverage. And that's because the cost is not the premium, the cost is what's deducted from your premium, kind of like what I've analogized before to the 401k. So most people, the overwhelming majority of people don't know what they're actually being charged inside their policy. They don't know what they're actually getting in performance. They know what they're getting in performance, and they know what they're being charged in their 401k, but they have almost no idea what they're actually being charged and what they're actually getting in performance inside their life insurance policy. And it is the glaring reason to have a policy review, because if you don't know what you're being charged, and if you don't know what you're getting in performance, it's no wonder that the performance, you know, you're not going to get what you expected
Speaker 1:A hundred percent. And, you know, I, you know, life insurance is almost a perfect black box is because getting some of those elements I know from my experiences, consultant can be challenging from an insurance company to get, get those breakdowns, which makes the analysis that much harder, which is why a benchmark service is so important to be able to try to, I don't want to use say, or guests maybe estimate what those costs are. So
Speaker 2:Yeah, there's definitely a need to pull back the curtain a little bit and shine a bright light on, on, uh, some things that haven't necessarily had much, much light shine on them and, and measure, you know, you can't manage what you don't measure. You can't make decisions if you, if you can't, uh, make adjustments, if you don't know where you are. Uh, so yeah, all of those things are real important, more, I would say more so to life insurance than any other asset on the client's balance sheet.
Speaker 1:Definitely. I would agree with that. So what do you suggest people look for when reviewing their insurance policies?
Speaker 2:So absolutely positively every year, maybe every other year, get this thing that's called an Inforce illustration. Um, uh, and you want to do that for two reasons and you want to make sure it includes two separate pieces of information. Like I mentioned before about the analogy to making sure you have enough money in your 401k to retire, you want to know, um, is that are the premiums that I'm paying is the cash value that I have on my account or the premiums and cash value is sufficient to cover the cost, to cover what the insurance company is going to, going to deduct from my premiums and cash value so that I get the coverage for as long as I, I, I expect to have it right. And that's how a policy, even if you're paying a premium, the policy collapse, because if the costs are higher than, than what you're paying in premiums and cash values, even though you're paying premiums, the policy can lapse, right? So you get this Inforce illustration and you want to, you want to know, are my premiums and cash value is enough to cover the costs. That's the first reason why you'd want to get this Inforce illustration or the first part of the enforced illustration. Then in most types of insurance, and there is an exception which I'll come back to, but in most types of insurance, there are also these pages that are called the detailed expense pages, or at least that's what I call them. Some, every insurance company calls them something different. So you gotta kinda explain what they are and what they are is it's a year by year, um, detail of what the insurance company is going to deduct from your policy. So you pay a premium, they're going to deduct a premium load. They're going to deduct an administrative expense. They're going to deduct the cost of insurance charge. They might also deduct a, an account value based fee, uh, kind of like in a 401k, right? And so there's the, all these charges. And if you don't know what the charges are, you can't know whether you're being undercharged or overcharged. So you want it, you want this Inforce illustration, you want it to include, you know, are my premiums enough to cover these costs the way I expect it to, and then what are those costs so that I can evaluate, whether they're just like my back in my day with a, as a, as a pension investment advisory analyst are the costs higher than peer group or the costs lower than peer group is the performance better than peer group is the performance worse than peer group. So those are the two things that you'd want to get out of any policy review.
Speaker 1:Well, that's great. Um, you know, a quick question on that, cause I, I know I've experienced this, uh, on requesting some Inforce illustrations. What do you suggest when an insurance company doesn't provide those detailed expense pages? Uh, is there a way that people can ask for them or a different way to phrase it?
Speaker 2:So the best way I know, uh, is, is whatever you refer to them. Some, another generic description would be policy accounting pages, uh, but whatever you use it as a kind of, uh, the, as the ask, then describe the ask. So you want the pages. And I mean, th this is how I would, I would make the request, you know, give me the detailed expense pages or make sure that the, the illustration includes the, uh, policy accounting pages. And, and what I mean by that is, I mean, those pages that show year by year disclosure of policy costs and cost of insurance charges, those are the PA whatever the insurance company calls them. You want the year by year disclosure of policy costs, cost of insurance charges, policy expenses. And actually it also includes the performance requirements, the interest that you have to earn for that policy to continue to perform as expected.
Speaker 1:Definitely. Um, you know, on a related question, have you found a situation where an insurance company can't or won't provide those pages?
Speaker 2:So, um, I found lots of situations where they won't at least on the first ask. Um, and so I think part of, actually part of the answer to your previous question is, you know, how do you get them? You oftentimes have to ask more than once. So a little bit of persistence, um, and I'm not saying it's nefarious. Uh, I mean, I can't tell you how many times that an insurance company employee will tell one of my subscribers, those pages don't exist. And then we go to the paralytic database and we look and sure enough for that product, those pages, they not only exist, but we then give the arc our, our subscriber, the name that, that insurance company calls those pages. And we tell the, tell our subscriber or the, or the insured to go back and ask specifically for those pages, by the exact name that the insurance company requests or calls them sometimes even then Tony, believe it or not. Sometimes even then they say, well, we can't do that. And we have to get on the phone sometimes with the insurance company employee and walk them through their own illustration system and say, check this box right here. And they check it. And lo and behold, there are the detailed expense pages.
Speaker 1:Well, that's great. I, I think that's, um, so important and I think you hit on something that's really important. I found, you know, through my own work, as well as it's, so often you have to make a repeated request to the insurance companies. And I think it's, um, one as you point out that there's not a standard terminology for these pages. Um, so sometimes it's hard to know what tack to their quest and then you have the issue of is the person that you're making the request to able to understand that request and put it into the computer system. So what you're suggesting I think is very valuable suggestion is that you have to have the ability to work and communicate to the insurance company with exactly what you need and to be able to sometimes help them, um, without I agree with the, I don't think that, uh, there are nefarious intentions. I think it's just that it's, it's a complex situation and, uh, there should be some standard terminology and pages.
Speaker 2:I, I think it is common. Um, more standardization is common. Uh, you know, regulation does create standardization. Uh, the, you know, before I founded this company, the number of people asking for these pages, uh, wa was far fewer, uh, regulations like the New York best interest rule require, uh, the, the information that's in these pages, uh, to be considered or communicated to the, to the customer and new York's a big, big market for insurance. The sec reg BI requires this, the information that's included in these pages, uh, CFP, the, the updated CFP practice standards require the information that's included in these pages. So, um, I, again, I don't think it's nefarious. It's just that they haven't been asked for before. And so no one built a training manual around it, but now there's going to be more requests for it for a variety of reasons, and someone's going to build a training manual around it. And, and it won't be as hard to get this information going forward as it has been in the past.
Speaker 1:That's great to know. Um, can you give us a quick summary of what a Vera lytic report is?
Speaker 2:Sure. So, um, the, just like when I was a 19 year old kid using Morningstar to measure cost and performance, that was kind of the idea that in 1999, I was 37 years old in the middle of the.com boom capital was a plenty 37 year old men think they can do anything. Anyway, you add a bunch of low cost capital to it. And, and, you know, there's, there's the, sky's the limit. So I just came up, came to the conclusion, uh, that back back then that no$3 trillion segment of the financial services industry, which is what the life insurance industry is, right. It's a$3 trillion segment of the financial services industry. It's actually bigger than the hedge fund industry. Uh, if you add up all the hedge funds, right? And so there was, and it's the only segment of the financial services industry where no one knows what they're being charged. No one knows what they're actually getting in performance. And I just became convinced back then that that would not last somebody, somebody somewhere was going to invent Morningstar for life insurance. Right. And so at 37 years old with capital planning, I said, why not me? So I applied for the first of our patents, um, and was granted the first of our patents in accelerated status. Um, and then set out to, okay, well, there's more to life insurance than just cost and performance. Uh, there are some other considerations, financial strength and claims paying ability. Um, there's, it's not as easy to move in and out of a life insurance policy as it is a mutual fund. So the stability of the carriers pricing representations or, or the illustrated expectations, uh, ha is germane to, to, uh, a prudent decision about acquiring or retaining a life insurance policy. And, and there are, there are more restrictions on, um, your access to policy account values. Uh, you can, you know, you can, uh, there, there aren't the same restrictions in a mutual fund, but like in a hedge fund, you can't get your money out. So, and that's, that's a material difference. So we measure financial strength and claims paying ability. The competitiveness of internal policy costs the stability of illustrated re uh, expectations, the accessibility or restrictions on, uh, account values relative to peer group product alternatives. And when we measured the actual historical performance of invested assets in our lion cash values, which is oftentimes much different than the, the, the, the, uh, performance expectations being set in the illustration. So you can get an idea, you know, how reasonable are these performance expectations. So we measure those five things.
Speaker 1:That's great. And I think that's so important that it's not just one thing that goes into the evaluation process, that there are all these different components, and some of them are very specific to the life insurance industry. Um, I'd encourage people to contact baring and get a sample of their elliptic report and try it out for yourself. Um, in, in the show notes, there will be a link, uh, to paralytic. Yeah. Thank you for that, Tony. Oh, sure. Um, you know, they are something that should be in your toolkit if you're analyzing a life insurance policy. Uh, so very, uh, what's your number one tip on being financially prepared?
Speaker 2:So, uh, one of my favorite lines, uh, is inspect what you expect, right? Um, if you, if you're a business owner or you're a manager and you have employees, if you expect them to do, do something to perform a certain way, you know, you've got to observe it. You've got to look at it right as a parent. You know, if I expect my kids to do a certain thing, I had to be involved in their lives. Um, and it's the same thing for your financial future. Uh, you know, whether it's your 401k or your life insurance policy, if you're not periodically looking at it, chances of you not getting what you expect go up, uh, so inspect what you expect, uh, when it comes to life insurance, um, just like your 401k, they're deducting costs out of your policy, inspect those costs. Are they reasonable? Uh, are they changing? Some insurers are increasing costs. Uh, some specifically in response to COVID, uh, are the prices stable? Are the, are the, are your expectations from this illustration? Are they, uh, reasonable? Um, and, and, and what's your actual performance been? Uh, you know, everybody's shown these, these hypothetical proposals that, that, you know, sometimes are very optimistic, um, you know, and if it's optimistic and you get it great, but if it's optimistic and you don't get it inspect what you expect, uh, periodically once a year, every other year, just inspect what you expect.
Speaker 1:That's such great advice. I mean, we take our car in for an annual checkup. We go to our doctors annually, we get our teeth checked up annually. However, most people don't take a look at their, um, financial service products annually. Um, so that's a wonderful tip. So where can people learn more about you and I, and I'll put all the links in the show notes.
Speaker 2:Uh, so, uh, website is www dot paralytic. That's V E R a L Y T I C, and like verified analytics for life insurance. So[inaudible] dot com. Uh, I'm also very active on LinkedIn. Um, if anybody wants to follow kind of the conversations like having today about new developments, uh, you know, New York adopted a best interest rule, which really changes, uh, the consumer protections in, in New York. Uh, there was a debate at the national association of insurance commissioners convention about adopting some of new York's changes, uh, nationally. It was not adopted nationally, but there are other States who are interested. So I, I post almost daily on LinkedIn about basically client best interest developments as it relates to life insurance. So you can follow me on LinkedIn, um, uh, either bury flag Barry D flag, uh, or, um, uh, Vera Ledek. Uh, and then I have a small Twitter following. That includes pretty much my sister and my two kids. So anybody who can follow me on Twitter and help me expand my Twitter following that would be more for my benefit than yours, but it would be
Speaker 1:That's great, Barry, and I will definitely put all those links, um, in the show notes. So people will be able to reach out to you, and I would encourage people to follow Barry, uh, Barry and I talk quite a bit on LinkedIn and, uh, there's other people are commenting on these issues. So if you want to keep in the know about what's going on with life insurance and suitability and best practices, I'd encourage you to follow Barry. So, Barry, um, thank you so much for joining me today. It's been a pleasure as always. It is always, so, uh, thank you everybody for, uh, joining, uh, joining me for get ready, and please remember to subscribe to the, get ready with Tony stir podcast on your favorite podcast service until next time.