People seek out life insurance options for a wide variety of reasons. These include income replacement, providing for college, leaving a legacy, or ensuring children are taken care of in the event of some unexpected tragedy.
Before I can recommend the right policy, I need to understand what brought the client to me in the first place. That’s why, when I first sit down with a client to discuss life insurance options, I always ask, “Why do you think you need life insurance?”
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After we’ve established what’s driving this decision, the next step is helping the client find the right policy to achieve his or her goals.
To accomplish this, I take the client through a series of questions that help me understand how to structure a policy that will meet the client’s needs. During this process I am trying to determine a few basic things such as:
How much insurance does the individual actually need to accomplish the client’s goals?
Is the policy designed primarily for a death benefit or as a cash accumulation?
Does the policy need to have convertible options?
If so, what kind of flexibility do those options require?
Understanding how the client plans to use his or her insurance is critical to finding the right policy. Permanent life insurance can be used as a savings vehicle to cover payments for as long as the coverage is needed. If a client plans to use insurance this way, it’s important to consider the investment options in the policy and the related cost of those investments. If they are more interested in having insurance primarily for the death benefit — to help pay for college or eliminate debt — a term life insurance policy that will provide for their family following the loss of income may be a better option.
Another important factor in finding the right policy is selecting the right carrier. There are many options available, and clients typically have very little understanding of the differences between them, which is why they need your expertise. Clients should never feel pressured to choose the largest carrier, but it is important to select a financially sound option to ensure that they will be able to pay on a claim later on. Ultimately, the right carrier will be a trustworthy option that offers the flexibility a client needs to achieve their goals and will be there to support them in the long run.
While cost shouldn’t be the most important consideration in selecting a policy, there is no denying that it is a significant factor in the decision-making process. When considering pricing options, I always remind clients to remember that with insurance — like most other things in life -you truly do get what you pay for. Just because one option is cheaper than another, it doesn’t mean it’s the best value.
Features of a policy create value and often, for a slightly higher premium, you can have a few additional features in your policy that will provide you with much greater flexibility down the road. Unfortunately, many people fail to see the value of insurance until it’s too late — and by then, expensive term insurance is often the only option. For that reason, I cannot overstate the importance of looking at plans with flexibility.
If price is an obstacle for a client, I will work with them to find ways to reduce costs while still providing adequate coverage. Starting with a convertible term is usually a good option in most cases, but it’s important to make sure you are buying the right policy for the right reasons. For example, while a second-to-die policy may be attractive, the cost may be prohibitive. If my client is a diligent saver and anticipates the death benefit need will decrease (as it likely will) over time, I might recommend laddering some policies. For example, if you need $1 million now, consider recommending they purchase $500,000 of 10-year term and $500,000 of a 20-year term. The shorter term should be less expensive, decreasing the cash impact in the early years.
For families, I always recommend some form of coverage, usually permanent, when discussing life insurance for a minor. The primary need for minor coverage is to get a policy in place prior to any potential health issues at a later age. A general rule for any age: Buy insurance when you are healthy, as you never know how you will feel tomorrow.
As a client’s health status improves, or if industry underwriting assumptions become more favorable, there may be an opportunity to switch plans. Of course, existing coverage should never be dropped until underwriting is complete and the new policy is in place — this is especially true when dealing with term coverage and ensuring a ‘convertible’ policy has been either paid out or transferred over. When dealing with policies that may have a cash value, there are often surrender charges, so changing policies can become very costly. Always remain aware of the tax implications of a surrender as the additional income may impact tax brackets, deductions or even future Medicare premiums.
As I tell all my clients, I find that I am able to provide the best service and assurance of their financial success when I truly understand them and their goals. Setting up a client’s future all starts with an honest discussion. In the end, ensuring clients reach their goals is how we as advisors reach ours.
— Read Capturing The Millennial Middle Market With Smart Analytics on ThinkAdvisor.