Understanding and approaching clients based on personal financial life stages can help determine life insurance needs as well as spot current and future financial objectives where life insurance can be the foundation.
In this approach, there are 4 distinct financial stages–planning, building, achieving and succeeding (see chart).
To identify a client’s stage, start by obtaining answers to a few simple questions. Consider using a life-event checklist–asking about changes in marital status, starting or purchasing a business, a new job, promotion or health concerns–to gain insight into events that may motivate the person to take action in a specific area of financial solutions.
Second, ask concerns-related questions. For example: “Are you concerned that your family will not be able to maintain their life style in the event of your death?” “Are you concerned about funding for both medical costs and income in the event of a chronic or terminal illness?” “Are you concerned that your current retirement savings plan will not meet your retirement income needs?” This can help build rapport as well as help determine the current life cycle stage.
Each stage presents its own risk:
Planning Stage: The primary financial risk during this life stage is loss of income upon death of the primary income earner. This results in an immediate need to pay final expenses or medical costs as well as to continue to pay ongoing monthly living expenses for the family.
Determining need in modern families is more complicated than in the past because the “husband as breadwinner” scenario is no longer as common as it once was. In dual income households, the analysis must therefore assume that 2 incomes need to be replaced. There are also more single-parent families; here, the need for income protection is even more important.
Building Stage: A primary financial risk during this stage is the ability to earn an income plus save for retirement.
The economic impact of an early death on present and future needs can be significant. Whereas previous generations depended largely on pensions and Social Security for most retirement income and on the employer for comprehensive health coverage, today’s workers are picking up more of their health insurance costs, and more retirees are relying on 401(k)s, IRAs and personal savings for retirement income.
In this environment, maxing out employer-sponsored plans as well as adding permanent life insurance to a full retirement planning package (qualified and non-qualified), can provide more flexibility. Remember, some qualified plans allow life insurance to be placed in the plan using pre-tax dollars–a way to complete the retirement plan for the beneficiary.
Achieving Stage: A primary financial risk here is loss of income while the person is still in the high-earner years. Such a loss would make the person unable to accumulate sufficient funds for retirement.
The risks are multiple. With increasing age, a person could develop health issues that cut short the length of this financial phase. Or, money normally saved for retirement may be diverted to other needs such as debt reduction, college funding or care for elderly parents. Even for dual income families, members of this group may still need to rely on life insurance proceeds to meet survivor needs in the event of one spouse’s premature death.
Many people in this stage have substantial disposable income. Once employer-sponsored plans have been maxed out, it may be appropriate for them to put additional cash into vehicles such as fixed annuities or permanent life insurance, due to the income tax-deferred growth of policy cash value, tax-favored access to cash value and riders that can protect against financial loss due to catastrophic illness. (However, keep in mind that policy loans and withdrawals and use of some riders will reduce policy cash value and death benefit, and may result in a taxable event. Riders are optional, for an additional cost.)
Succeeding Stage: The financial challenges facing this group depend largely upon accumulated assets. Two concerns are the possibility of outliving assets and being able to keep up with the cost of health care.
These individuals are focused on ensuring a lifetime income for both spouses, reallocating assets, funding long term care/medical costs and reducing estate taxes in order to pass assets on to heirs.
Those in this group who have not done any LTC planning tend to be fairly receptive to hearing about options available to them. These options include life insurance combined with LTC riders (available at an additional cost, and may reduce policy cash value and death benefit); and permanent life insurance, whether individual or survivorship, to provide income tax-free funds to assist beneficiaries with final expenses, taxes and other settlement costs.
Dorothy Vautier is an advanced sales consultant with National Life Insurance Company and Life Insurance Company of the Southwest. She is based in Montpelier, Vt. and her e-mail address is email@example.com.