Everywhere, people are cutting back: no more daily Starbucks fixes, frozen entrees for dinner instead of eating out, and lots of movie rentals. Major discount retailers are touting their products as the new way to live well on less by doing everything yourself, from dog grooming to manicures.
Will the trend toward cutting costs impact how people look at life insurance? In many cases, yes.
Knowing that, advisors can focus on helping clients obtain the best coverage for the circumstances at the best price–whether the client is making a first-time purchase or reviewing current coverage.
There is nothing new about that; professional advisors routinely present the best value proposition for the need. However, given the extreme cost consciousness that now prevails, advisors may want to consider taking a few approaches they might not have considered in the past. Following are some examples.
For younger clients, one idea is to avoid adding riders that add quite a bit to the premium but may not be necessary for the circumstances.
An example is the waiver of premium for disability. This rider can add quite a bit to the annual life insurance premium. In one case, of the $300 annual premium, $100 was going towards the rider. The client had employer-provided disability insurance and decided that, by removing the rider, he could definitely afford the $200 annual premium on his life insurance, even if he were to become disabled.
For younger people purchasing term life and older clients who have existing policies with premiums that are about to increase, advisors can focus on getting a better rating for the client.
For example, a woman turning age 50 will be facing a dramatic rate increase as she enters the new age band. However, if she currently has a term policy for which she received a standard underwriting rating, the advisor can consider whether she might qualify for a preferred rating. Although the variables are many, if that client succeeds in achieving the preferred rating, she could get more coverage for less than the cost of her current term policy.
Other clients who might benefit from this approach are those who have made lifestyle changes–such as losing weight, quitting smoking, or reducing their blood pressure–that may change their risk classification.
For older clients, it might be a good idea to suggest they seek the longest possible term for their new coverage. Although this approach will raise the premiums, it could save money for clients in the long run.
Typically, an advisor might encourage clients to purchase a 5- or 10-year term policy, rather than a 20-year term policy, because the premiums in the early years will be lower that way. But this can create a problem if the client’s circumstances change when the policy comes up for renewal.
For example, a client who purchased a 10-year term policy and received a preferred rating will have to provide evidence that he still should receive the preferred rating. If that client has developed any health issues over the 10-year period, his rating will change and he will pay considerably more for his coverage than if he initially had chosen a longer term, such as 20 or 30 years.
Now, more than ever, it’s important for advisors to remember that clients will appreciate getting the best possible life insurance coverage at the best possible price. Later on, when their circumstances change and they need additional coverage or new products, chances are high that they will turn to the very same advisor.
Kristen Falk, FLMI, FFSI, AAPA, ACS, AIAA, AIRC, ARA, is a senior writer with LOMA in Atlanta, Ga., specializing in annuities. Her e-mail is [email protected]