Why insurance agents don’t talk about death


One of the first things life insurance agents are told while being trained, is to not talk about death, while selling an insurance policy.

And that perhaps explains, why the agents tend to talk about everything from the prospect of good returns to tax savings that can be made by buying an insurance policy.

People don’t like being told that they will die one day. And in case of an untimely death the life insurance policy will come to the rescue of their family, to some extent. Hence, insurance agents tend to talk about everything except untimely death.

Such behaviour stems from the fact that people react to things differently, depending on how they are framed. As Thomas Gilovich and Lee Ross write in The Wisest One in the Room—How You Can Benefit From Social Psychology’s Most Powerful Insights: “Psychologists over the past thirty years have demonstrated time and again that the tiniest change in how a question is worded or how an option is described can radically alter how it is understood—and therefore how people respond.”

So, if life insurance is sold as something you buy for the financial safety of your family in case of your untimely death, it doesn’t get sold. This happens because people don’t like being told about the most obvious truth in life.

Nevertheless, when they are told about returns and tax saving advantages, they queue up to buy the same insurance policy. In fact, another impact of this is that most insurance sold in India is not pure life insurance. Most insurance sold in India is essentially some form of investment with a dash of life insurance being built into it.

This leads to a situation, where people who buy insurance thinking it is insurance, are not adequately covered. In case of untimely death, the insurance payout along with the value of the investment, is unlikely to help the family maintain the same standard of living, as was in the past.

Such behaviour is visible not just when it comes to buying insurance but in other areas of life as well. As Gilovich and Ross write: “[People]…are more impressed by condoms whose manufacturers boast of a 95 per cent success rate rather than a 5 per cent failure rate. They are more supportive of taxes on the rich when the existing level of income inequality is described in terms of how much more the rich earn than the median wage earner than when it is described in terms of how much less the median wage earner earns than the rich.”

Hence, the way an option is framed leads to how people react to it. Let’s go into the issue of inequality a little more through the example of a factory. Let’s say the median salary of a worker working in this factory is Rs 5 lakh per year and that of a manager is Rs 25 lakh.

So the salary of a manager is 400 per cent more than that of a worker. But the salary of a worker is 80 per cent lower than that of a manager. Even though both options mean the same, the 400 per cent option sounds much worse than the 80 per cent option. And that is why Gilovich and Ross say what they do about taxes for the rich.

Another area where framing is put to good use are retail sales. Instead of having sales two or three times a year, retail chains can have lower prices all through the year. It would basically amount to the same thing. But lower prices all through the year, just doesn’t have the same emotional appeal of a discount, which gets people into the buying mode.

The point being that how an issue is framed essentially decides how it ends up in the mind of the consumer and how he or she reacts to it.

This column was originally published in Bangalore Mirror on August 31, 2016

What is the right price of anything?

rupee Vivek Kaul  
A few years back when I went to get a new pair of spectacles made, I was given an estimate of Rs 5,700. “Chashma khareedna hai, dukan nahi (I want to buy a pair of spectacles, not the shop),” I quipped immediately.
The shopkeeper heard this and quickly moved into damage control mode. He showed me a new frame and we finally agreed on a price of Rs 2,700. The frame I ended up buying was not very different from the one that I had originally chosen. The shopkeeper tried to tell me that the earlier one was more sturdy, easy on the eyes, etc.
But to me both the frames looked the same. I have thought about this incident a few times since it happened, and come to the conclusion, that the shopkeeper was essentially trying to figure out the upper end of what I was ready to pay. In the end he sold me more or less the same product for Rs 2,700 even though he had started at Rs 5,700. He was playing mind games.
Was he successful at it? Prima facie it might seem that I saved Rs 3,000. (Rs 5,700 minus Rs 2,700). But is that the case? One of the selling tricks involves making the customer feel that he has got a good deal. Barry Schwartz provides a excellent example of this phenomenon in his book The Paradox of Choice: Why More is Less.
He gives the example of a high-end catalog seller who largely sold kitchen equipment. The seller offered an automatic bread maker for $279. “Sometime later, the catalog seller began to offer a large capacity, deluxe version for $429. They didn’t sell too many of these expensive bread makers, but sales of the less expensive one almost doubled! With the expensive bread maker serving as anchor, the $279 machine had become a bargain,” writes Scwartz.
Now compare this situation to what I went through. Before you do that, let me give you one more piece of information. When I went to the shop looking to buy a pair of spectacles, I had thought that I won’t spent more than Rs 2,000 on it. But I ended up spending Rs 2,700.
The shopkeeper’s first prize of Rs 5,700 gamed me into thinking that I was getting a good price. Thus, I ended up spending Rs 700 more than what I had initially thought. Behavioural economists refer to this as the “anchoring effect”. As John Allen Paulos writes in A Mathematician Plays the Stock Market “Most of us suffer from a common psychological failing. We credit and easily become attached to any number we hear. This tendency is called “anchoring effect”.”
Marketers use “anchoring” very well to make people buy things that they normally won’t. As Schwartz points out “When we see outdoor gas grills on the market for $8,000, it seems quite reasonable to buy one for $1,200. When a wristwatch that is no more accurate than one you can buy for $50 sells for $20,000, it seems reasonable to buy one for $2,000. Even if companies sell almost none of their highest-priced models, they can reap enormous benefits from producing such models because they help induce people to buy cheaper ( but still extremely expensive) ones.”
Anchoring is used by insurance agents as well to get prospective customers to pay higher premiums than they normally would. As Gary Belsky and Thomas Gilovich write in Why Smart People Make Big Money Mistakes and How to Correct Them “If you’re on the “buy side” purchasing life insurance, for example you’ll be susceptible to any suggestions about normal levels of coverage and premiums. All that an enterprising agent need to tell you is that most of people at your age have, say, $2 million worth of coverage, which needs $4,000 a year and that will likely become your starting point of negotiations.”
Hence, it is important for consumers seeking a good deal to keep this in mind, whenever they are thinking of buying something.
The column originally appeared in the Mutual Fund Insight magazine, March 2014 

(Vivek Kaul is the author of Easy Money. He can be reached at [email protected]