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Clients Can Never Have Too Much Insurance

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What You Need to Know

  • To hold down the cost of funding an annuity or other retirement income arrangement, the client should begin saving as early as possible.
  • To protect the ability of the client to fund the annuity, the client should insure the house.
  • To protect the house, the client should insure the ability to pay for the house.

If you’re here, you probably already help clients with retirement planning, other types of financial planning and insurance.

Even if you don’t, it’s good to take a broad approach when helping clients with personal risk planning, and to recognize that creating a sound retirement plan involves more than buying the investment that’s hot now.

Many people seem to think buying insurance is a “one and done” activity. They “set it and forget it.”

But there are many reasons why your clients should increase their insurance coverage, especially if inflation is a potential threat.

1. Retirement Planning

Consumers liked defined benefit pension plans because they knew what you were going to get once they started collecting benefits in retirement.

Your clients are likely making active efforts to use 401(k) plans, IRAs and annuities to create their own private pension.

But when are they starting to do that?

Talk to clients about setting up an annuity as early as possible, making monthly contributions through automatic monthly debits to their checking account.

Project how the money might grow over decades, and how much income clients could receive if they begin this process early.

2. Homes

Hazard or homeowner’s insurance is meant to repair or replace the structure, isn’t it? The Core logic Case-Shiller Home Price Index showed between September 2020 and September 2021, home prices increased by 19.5%. The National Association of Home Builders reported in June 2021 that building material prices increased 26.1% over 12 months.

Does your client have enough insurance coverage to repair or replace their home if disaster struck?

What would happen to the client’s retirement plans if a disaster destroyed an underinsured home?

3. Families

Then, there’s the client. What if the client weren’t in the picture? The client’s income would vanish. Bills would keep showing up.

How would those bills be paid? What about child care? What about college? Inflation has been making everything more expensive, and interest rates are still low.

Have you talked to your clients about the possibility of paying for a larger lump-sum death benefit?

If the clients or the families needed to replace a breadwinner’s income, how much money would have to be put into an annuity to replace that stream of income?

4. Estates

Some people wonder if the estate tax exemption will be lowered in the near future. Federal estate taxes on amounts beyond the exemption range from 18% to 40%.

Should your clients have extra life insurance benefits that the beneficiaries can use to pay estate taxes?

5. Collections and Equipment

We once laughed at people who collected things like lunchboxes, comics and baseball cards. Then the collections started to be worth serious money.

Your client has some insurance for the contents of their house. Do they need additional insurance for an itemized and photographed list of collectibles?

And what about their tools and computers?

6. Causes

There are many ways donors can support a local nonprofit they feel is really making a difference. Naming a charity as the beneficiary of a life insurance policy is one course of action, but there are others. Have your clients considered buying a new life insurance policy, and naming the charity as the owner and beneficiary?

Explain that the charity is responsible for paying the premiums, but that, in reality, the client is writing checks to the charity for the same amount, and taking tax deductions for these contributions.

The charity receives a lump sum on the death of the donor. If the donor lives a very, very long life, the policy will build cash value along the way.

In sum, insurance isn’t something you buy once and forget about. It’s a part of their financial strategy needing periodic attention.