Stockbrokers often introduce possible investments to a client with three words: "if you believe."
As in: "If you believe the stock price will go up, you might want to consider this. If you believe it won't, how about another choice?"
By comparison, insurance professionals talk about "if-this-then-that." They zoom in on what is guaranteed and protected, not what the customer believes might happen.
As in: "If this (covered event) happens, then your insurance will pay… If you want a guaranteed return, the fixed annuity is a good option. If you want your life insurance to last a lifetime, let's put a lifetime no-lapse guarantee on your universal life policy. If you don't want to pay premiums for insurance you never use, you might like guaranteed return-of-premium insurance."
These are subtle but very important distinctions that not everyone gets or talks about. But given what has happened in the economy in the last half of 2008, those points need to be brought front and center.
Securities and insurance professionals both need to make it clear that believing in a securities investment is not the same thing as knowing that the money is guaranteed to be safe, to grow and to pay out according to the contract terms.
They need to educate clients that a security is not the same thing as insurance, and that belief is not a guarantee.
No doubt, all those deep-pocket customers of the now-defunct Bernard L. Madoff Investment Securities, knew these things intellectually. But, judging by their shock last month upon learning of Madoff's gigantic Ponzi scheme and their own losses, it's safe to say they really were operating more on belief than solid facts, guarantees and understanding.
For instance, news reports indicate they believed that investing with Madoff was just ducky. They believed their investments were sound; they believed the firm was trustworthy; and they believed their impressive investment results would just keep on going up–but not up, up and away.
Millions of other people–mid-market investors, people in 401(k) plans, employees of companies that dole out stock options, etc.–are suffering a similar shock. It's not because of a Ponzi scheme, but rather because of the decimation of their security account values stemming from the credit meltdown.
