YOU’RE WIDE OPEN: Insurance Producers can Catch the Business Financial Advisors Miss
Are you still using the same phone or computer you had five years ago? Chances are, however, you’ve updated your electronics to ones that can do much more than they could a few years ago. While it might not be quite as dramatic, life insurance products have also advanced significantly and offer more flexibility and features that address the needs of clients today. For example, long-term care (LTC) riders, which were not widely available a decade ago, are now a popular alternative to standalone policies.
With the availability of new and more versatile products and the huge boomer population offering a receptive market, life insurance agents have a great opportunity to update prospects and clients on innovations. Agents are likely to be the primary—or only—source of this information. Just under half of adults with a financial plan have discussed life insurance with their financial advisor, according to a survey conducted by Saybrus Partners. Among these, just under a quarter (24 percent) said their advisor had recommended adding life insurance. Fifteen percent of those who spoke to their advisors did so more than 10 years ago.
Significantly, even those with life insurance are eager to learn more. More than four out of five (83 percent) said they would be interested in adding additional features to their existing policies such as coverage for LTC needs, a feature that would allow them to receive a life insurance payout if they were diagnosed with a terminal disease or a waiver of premium payments if they became disabled. Only 10 percent said their advisors recommended LTCi.
They also appreciate the value of life insurance itself. Of those surveyed who had life insurance, 81 percent said the primary reason they had it was to protect their family and heirs. Only 17 per-cents said it was for wealth transfer and 15 percent cited cash accumulation.
The survey, which was conducted in July 2011 by Harris Interactive, polled 2,410 adults, 786 of whom had a financial advisor. Life insurance can be a solution to some of today’s biggest challenges: pro-viding financial protection, tax efficiency, potential for cash accumulation, wealth transfer advantages and many more. Guaranteed death benefits, downside protection (but the potential for upside gain) and LTC riders are all attractive now. With the financial markets in turmoil, people value a non-correlated asset such as life insurance with a guaranteed death benefit. An LTC rider can help address the common fear that a LTC event could devastate a per-son’s finances and make it difficult to get needed care.
With expanded insurance options— combined with changes in the macro-environment, such as new tax laws and very low interest rates—agents are in a perfect position to open the life insurance conversation with their clients. The following three strategies can help them better serve their clients and expand sales.
Assess the needs of the individual and family. Whether agents are working with prospects or clients, it’s essential to under-stand their current and future goals. Are they still in their prime earning years and interested in wealth accumulation or are they retired and seeking wealth protection or a tax-efficient way to leave an inheritance? Perhaps, they’re worried about outliving their assets. Each person’s situation is unique and being a careful listener and probing for information will provide the agent with valuable information. Once agents are familiar with their clients’ goals, family dynamics and resources, they can “solve for the need” with appropriate life insurance products.
Update the policy to be sure it meets current needs and performance expectations. An annual review is critical. It’s not uncommon for people to buy a policy, stick it in a drawer and not think about it again—sometimes for decades. This “set it and forget it” practice can result in serious consequences and unwelcome surprises.
The policy may be under-funded or it could be in danger of lapsing. It could fail to meet the policyholder’s current needs or have the wrong beneficiary—such as a former spouse, rather than a current one. The policyholder’s employment or health situation may have changed. The policy may also be vastly under-performing. Many people who bought variable life insurance policies 10 or 15 years ago were expecting market returns of 8, 10 or even 12 percent. Clearly, those polices have not been performing as expected. Similarly, many fixed interest rate policies that adjust periodically based on interest rate assumptions have been
Match the client with the right policy. While many people could benefit from life insurance, there are specific categories of clients that provide clear opportunities.
WEALTHY FAMILIES: The first is wealthy families where the older generation has retired or is nearing retirement. Typically, their income is secure and they’re concerned primarily with wealth protection and transfer. Agents may find that these wealthy families can take underutilized or under-performing assets and convert them to a permanent life insurance policy, often with the added advantage of a LTC rider. This strategy helps secure their wealth and makes it possible to pass on their assets to heirs in a tax-advantaged way, as well as assuring their long-term security if they need care.
BUSINESS OWNERS: Business owners often use life insurance for succession planning, among other uses. Partners can take out life insurance policies on each other. If one dies, the other can use the proceeds to keep the business running. A business owner may also want to pass the business to a designated heir. In that case, the heir is named as the beneficiary and can use the proceeds to buy all or part of the business. Business owners also may have a need for key person insurance.
HIGH-INCOME EARNERS: The third category of likely life insurance buyers includes individuals who are still in their prime earning years and want to make sure their family has financial security if they die. They may also be looking for a tax-efficient way to set aside money for retirement, having possibly maxed out their Roth, 401(k) or similar plans. An indexed universal life policy with a guaranteed death benefit and downside protection could be a good choice for these high-income earners. Policyholders can later withdraw the cash value tax-free for planned or unforeseen events.
A current, tailored life insurance policy can offer major benefits to people at all stages of life. Significant product innovations have made life insurance more versatile than ever. Insurance agents, with their up-to-the-minute knowledge, are their clients’ most important resource and advocate.
Kevin Kimbrough, CLU, is a principal at Saybrus Partners, where he manages Saybrus’ sales training and advanced planning teams, business development functions and external sales force