Financial Pros Often Downplay Life Policy Investment Features: Survey
LIMRA and Ernst & Young found that agents and advisors focus mainly on the death benefits.
Life insurers see their cash-value life insurance policies as powerful Swiss Army knives that can help clients do everything from saving for college bills to supplementing retirement income.
But the insurance agents, securities sales representatives and financial advisors who help people buy life insurance tend to spend a lot more time talking about the death benefits.
Ernst & Young and LIMRA have published data supporting that conclusion in a summary of results from a survey of about 900 financial professionals who had at least three years of financial services sales experience.
About 89% of the financial professionals who participated said they emphasize death benefits and death benefit options during life insurance discussions. Only 51% said they often talk about cash-value withdrawals.
What It Means
Life insurers are having a hard time telling your clients that cash-value life insurance policies can help with retirement planning efforts and other life planning efforts, not just with protecting families against the risk of a parent’s premature death.
Cash-Value Life
Term life policies protect an insured’s beneficiaries against the death of the insured for a set price for a specified term. The policyholder may be able to extend the coverage for a higher price or convert the coverage to cash-value coverage.
Term life policies and their riders are designed to pay benefits when the insured dies or experiences specified triggering conditions, such as a terminal illness.
Typical cash-value policies are designed to stay in force until an age ranging from 90 to 121.
The policy builds cash value over time, and the policyholder can use the cash value to buy future life insurance premium. The policyholder may also be able to use tax-free policy loans or other strategies to tap the cash value.
If the policyholder fails to pay back policy loans before the insured dies, the insurer deducts the amount owed from the death benefits.
Law firms court consumers with warnings about what can happen when policyholders take out policy loans or use the policy cash value in other ways without fully understanding the implications.
Kurta Law, for example, notes that tax benefits may disappear if a variable universal life policy lapses, and the lapse of a VUL policy may saddle clients with big tax bills.
The Discussions
Today, financial professionals may be shying away from mentioning the ways clients can use life policies while the clients are still alive: Ernst & Young and LIMRA report that only 34% of the financial professionals included in their survey often talk about policy loan provisions during life insurance discussions.
Ten percent of the financial professionals never mention cash-value withdrawals, and 18% never mention policy loan provisions.
Financial professionals also downplay some other product features: 62% of the financial professionals said they do not talk about tax-deferred account value growth or the financial strength of insurers very often.
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