Editor’s Note: At the author’s request, this article was updated on Aug. 18, 2016.
Before you talk to clients about life insurance, educate yourself on the different varieties of the product.
The record-low interest rate environment has increased the importance of life insurance products for both advisors and consumers. Many consumers begin their planning process confused, meaning it is imperative their financial professionals understand the differences between life insurance products. The terms, “universal life,” “whole life,” “variable life” and “variable universal life” should never be confusing to our clients. The ability to make suitable recommendations stems from being knowledgeable on the options and being able to communicate them adequately.
The overarching challenge with life insurance products is the struggle in educating our clients on what we are selling to them—what they are buying. First and foremost, we must reiterate the importance of life insurance to a comprehensive financial plan. In most cases, the client’s plan should consist of a three-legged stool composed of:
1) Planning for available income in the event your client becomes disabled.
2) Planning for producing income for family members if your client dies.
3) Planning for your client’s retirement.
A unique protection for those who live
Most clients are well aware of the importance of saving for retirement because of an available 401(k). However, the lack of comprehension of whole life insurance is staggering. Typically, consumers will think of life insurance more as “death insurance.” We currently promote life insurance by saying the product provides coverage in the event of premature death. With this approach, we are inevitably putting the life insurance product on the back burner for our clients. The last thing they want to talk about when discussing their finances is their demise.
Once we are able to convey the importance of life insurance properly, it is critical we consider the misconception of death insurance. A whole life insurance policy will certainly provide benefits for your client’s family if they pass away prematurely. What we must reiterate is that the policy is also designed to provide benefits to those who live, not just to those who die. This product is unique in that it directly protects those family members close to our clients.
Needs vs. costs
A lot of times, agents/brokers will first talk to clients about what they can afford to put aside, and then move on to deciding the amount of death benefit their policy should produce. What agents/brokers should do is analyze and understand not what our client currently has, but what they need—what does the family need for income in the event of an unplanned death? Each client is different, meaning each client’s financial plan should be unique.
After coming to an agreement on the amount of money your client’s death benefit should provide, it is important to address the differences of whole life insurance versus term. Addressing term insurance first is key, followed by a discussion on the benefits of permanent life insurance. If we understand these products correctly—what the key differences are and how they provide clients benefits—we can walk through the differences more effectively. We must help our clients clearly understand the benefits each product will provide (no one knows how long they will live).
Old school vs. new school
Keeping up with occurring changes is one way to ensure you possess the knowledge to effectively serve clients. One way of doing this is working toward one of the various industry designations such as: CLU, ChFC or LUTCF. A resource I find extremely helpful is the Million Dollar Round Table (MDRT) website. Being a member of MDRT not only allows me to learn from the most talented financial professionals in our industry today, but also grants me access to the MDRT library, where I can learn an immense amount of information about new and old products and sales skills.
While it is important to stay current, we must always remind ourselves to stay familiar with the basics—even if these basics are older products. A solid foundation will allow you to stay up-to-date without losing sight of the fundamental principles. For example, many agents/brokers have begun to stray from the traditional whole life product to more risk-based insurance products (universal life insurance). Agents/brokers may think these products appeal to the consumer, yet some consumers have trouble understanding how these products actually function.
Products like whole life insurance, something that’s been available for more than 150 years, may seem out-of-date to many. However, the reason they’ve been popular and around for so long is because they work for the consumer. Whole life policies available today offer competitive dividends, especially with mutual life insurance companies*. Your clients could potentially be getting some very attractive dividends with a mutual company. A mutual life insurance company is owned by its policy holders and not by stockholders. Mutual life insurance companies are beholden to its policyholders and not stockholders like stock insurance companies are. This is very appealing to clients.
Educate yourself on what you’re selling
If there is any uncertainty from the financial professional, confusion will undoubtedly carry over to the consumer. Our clients rely on us to make recommendations, and if we don’t know exactly what we’re selling or are unable to explain products, this disconnect grows. Educating ourselves on the differences between these products allows us to adequately convey them to consumers. By refreshing old sales skills and combining them with new approaches, we can help our clients understand the various considerable options.
*Dividends are not guaranteed. They are declared annually by a company’s board of directors.
The views and opinions expressed herein are solely that of the author and do not necessarily represent the views and opinions of The Guardian Life Insurance Company of America or its subsidiaries or affiliates thereof.
2016-27242 Exp 8/18