Expert's Corner: Time to Talk Insurance

As if you don’t have enough on your plate–reevaluating client risk tolerance, rebalancing portfolios, developing plans to bring goals within reach–I am about to add one more essential item to your agenda: Make sure your clients’ insurance portfolios are in great shape because they may need them now more than ever.

This came home to me when I reassessed my personal situation. Before the market turned inside out, my husband and I had a nest egg that should have provided a long and comfortable retirement. As I look at our financial landscape today, two things are evident: I need to work until my late 60s, and I must save aggressively if we want to have any hope of returning to our former financial position before I retire. But what if I can’t earn an income? Pondering the consequences caused me to review my life, disability, and long-term care coverage. Many of your clients are in similar situations.

Many advisors say that they are uncomfortable bringing up the subject of insurance if their sole focus has been on the client’s investment portfolio. It is time to get over your reluctance. Clients are more receptive to conversations about helping to protect their family’s financial future than they were just a year ago. Well before their scheduled annual review, consider sending them a letter saying that an insurance review will be on the meeting agenda. If you have a personal story or experience about why insurance should become a priority, share it with your clients in the letter.

Make It Real

Many financial professionals start the insurance discussion by talking about the various roadblocks that can prevent clients from reaching their investment goals. Your clients have probably been concerned about the risk of another market downturn or the threat of a long-term bear market. As a financial professional, you should address other risks as well, including death, disability, long-term care expenses, lawsuits, fires, and so forth. But avoid statistics and bring the risk close to home. With extended families living miles apart, even your middle-aged clients may have trouble grasping the consequences of a family death, of a debilitating health issue, or of the aging process in general. It is your job to make it personal and real.

Ask about the changes that have occurred in your client’s life since he or she purchased insurance. Is there something going on now that concerns your client–an aging parent, a special-needs child, health challenges, an impending retirement, and so forth? How does your client feel this has affected his or her financial security?

A few years ago, I met with a business owner who was inquiring about key person insurance. I asked him to imagine that he had died the night before. “Everyone arrives at work this morning, but you are late. Your wife comes to the office to deliver the bad news,” I said. “Jim, what would you want to happen at your company over the next week . . . and over the next six months?” He said that he would want all his contracts fulfilled and his clients satisfied. We talked about what that would take, and I suggested that he write a letter to his business manager expressing his wishes.

Moving on from there, I asked him to imagine that he was an employee who had just gotten the bad news. What would his reaction be after the initial shock and sympathy for the family? Would he think, “I have to brush off my resume because I have two kids getting ready for college?” We developed a plan that would reward employees for staying until those contracts were wrapped up, and I asked him to write another letter to all of his employees explaining how he planned to provide for them.

All of this came at a cost that we built into his key person life insurance. When we next met, he invited his wife, business manager, and attorney into the meeting to tell them his plan and how he was financing it. What started out as a simple transaction turned into an exploration and resolution.

Sufficient and Efficient Insurance

The next order of business is determining the right amount and the right kind of insurance. Does your client think his or her current level of coverage is about right? What does your client like about the insurance products he or she has now? What would your client change? Is the selection of beneficiaries still valid? Is it consistent with the estate plan?