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How to build a diversified life insurance portfolio for your clients

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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.

 

Client benefits

  • 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.

 

Going beyond the needs conversation

When you take the time to really get to know your clients beyond their initial goals and objectives, the conversation becomes very personal, and they begin to share what’s inside their hearts and minds. And when you know what’s really important to them, that’s when you can truly add value by building a well-diversified insurance portfolio. Here’s a basic formula for approaching clients:

Start the conversationListen. Focus everything you do on the person sitting across the table. Once you create a personal connection, you can understand what his or her true needs are. And the rest becomes easy.

Present the best personal and practical solutionsAsk. How else can you provide the right information and options? By managing the conversation and demonstrating value, you can get clients to think differently about their life insurance planning needs.

Follow upEmpower. Help clients make informed decisions by ensuring they understand all of the choices and opportunities that exist. Going forward, stay up-to-date on any changing needs by communicating regularly and conducting policy reviews.

Making it happen

List potential clients you want to speak with about a diversified life strategy. Then set yourself apart by introducing the concept and offering a differentiated marketing message focused on comprehensive solutions.

A few tips

As you help clients diversify their life insurance protection, keep these tips in mind: 

  • Life changes, and so do people’s needs. Incorporating a product with some level of flexibility may help them adapt to unexpected changes.
  • Consider diversifying across multiple products. It’s just one more way to create better portfolio stability.
  • The cost per dollar of a life insurance policy increases as the amount of coverage decreases. Don’t diversify too much, or the premium payments may become too high.