The average client has quite a few different needs when it comes to life insurance. Some are temporary, while others are permanent. And some clients may even have needs they’re not aware of yet. So how do you find one policy that can meet all of their needs? Most of the time, you don’t. You may just need to shift their way of thinking about life insurance coverage.
A diversified life strategy can help you design customized solutions for clients, which can provide them with significant flexibility for changing needs. With this approach, clients allocate their total budgeted premium for life insurance needs among two or more policies in order to diversify among product types and policy durations. This helps meet multiple needs and balance product risk.
- Using products with different designs can create a portfolio of policies that complement each other.
- Having multiple layers of coverage helps maintain a level of protection even if one policy expires.
- Owning policies that use different crediting methods, i.e., fixed rate, indexed rate and variable rate may result in less exposure to a single type of interest crediting risk.
- When multiple policies are purchased at the same time, the insured may only need to go through the underwriting process once.
- A life insurance diversification strategy can complement a broader overall financial plan.
Determining the right product mix
When beginning the diversification conversation with clients, talk about needs first and distinguish between temporary needs like covering child-care costs and permanent needs such as covering estate taxes.
Once needs are identified and prioritized, walk the client through a life insurance needs evaluation. When you discuss income needs, remind the client to think about all of the possible annual income needs (food, shelter, clothing, childcare, education expenses, mortgage payments, debt payments, etc.) and any future income needs (college tuition, weddings, new cars, home improvement, etc.).
You’ll also want to cover assets with the client. Be sure to identify all of them (liquid or not) as well as sources of annual income other than the insured’s salary.
Once the total life insurance need is established, you can begin to break down the following types of insurance that will best cover temporary and permanent needs.