Clients' lives are constantly evolving. No sooner does it seem that one has put together enough money for the down payment on their first home than children are suddenly on the way. And as the mortgage looms on the horizon along with other potentially monstrous expenses such as college tuitions, weddings, health care and retirement, the need to protect one's family often grows with it.
Yet despite this changing (and expensive) landscape, or because of it, many go without adequate protection – often knowingly – and remain uninsured or underinsured. No one is quite sure why, but what is sure is that there's plenty of opportunity for advisors to monitor changes in their clients' lives and proactively propose life insurance solutions.
Americans have a "love/hate" relationship with insurance, according to industry research firm LIMRA International (www.limra.com). Many associate such feelings as stress and confusion when asked about coverage needs, yet also express thoughts of responsibility and relief when they see how a policy can protect their families. Further, more than 25 percent of all U.S. households say they are likely to buy life insurance in the next year and 45 percent say they believe that they're underinsured and expect to buy. Yet in any given year only about one in 10 actually buy life insurance. And the Insurance Information Institute (www.iii.org) says at least 32 million U.S. households admit owning insurance policies that aren't right for them.
Still others complain about the price despite the fact that the cost of coverage has largely dropped. In a recent report entitled The MetLife Study of the American Dream, it is revealed that 60 percent of working Americans feel they carry more financial burdens than their parents did. Asking someone to take on what may be perceived as an additional expense is always challenging.
Similarly, the State Farm Family Financial Forecast reported in 2005 that financial security is one of the greatest concerns of 86 percent of the families surveyed. An overlapping second goal is to be able to provide long-term financial security for one's children. Yet 82 percent of those participating admittedly are overwhelmingly underinsured. And then there's the business of discussing your client's mortality – rarely a pleasant topic.
Other evidence is even more overwhelming. Twenty-five percent of household heads surveyed by LIMRA feel they do not have a plan to provide a decent standard of living for their family if they died tomorrow. Twelve percent of households would immediately have trouble meeting everyday living expenses, and another 15 percent would have difficulty keeping up with expenses after several months.
Ease into life insurance
Because individuals acknowledge that they need coverage, yet are reluctant to invest in it, how do you break through these barriers and get the prospect to take a policy or upgrade an existing one?
"The need for insurance arises for many families as a result of an unforeseen accident or emergency," says Philip G. Palumbo, an advisor with Smith Barney in Garden City, N.Y. "Needs a family may have are the ability to cover mortgage or tuition payments, spouses having enough money to live their retirement comfortably and heirs having enough liquid funds to pay estate taxes and settlement expenses."
While Palumbo acknowledges it is not comfortable pointing out what could happen to a family should its breadwinner die, it is also irresponsible to avoid the issue from a planning standpoint. When trying to make the prospect see the case for taking that initial policy or upgrading coverage, he urges advisors to understand their client's "whole financial picture" and ease into the case for life insurance, which has historically been a key component of most long-term financial plans. Other points to note: if the client has an existing policy, are its funding levels adequate? Is the carrier highly rated? Does the client have an estate plan? If so, there's probably a place in it for a life policy. Also consider what new policies can offer.
Evolving policies
Insurance now often plays a role in trusts, estate planning and overall wealth management. In some cases, it is a key part in tax-reduction strategies. Dual-income households, business partners and those who depend on others use insurance to help secure long-term personal and financial interests. Each of these can be entry points for savvy advisors.
"Younger prospects are often focused on wealth accumulation. Yet a case can be made for insurance as a wealth-protection tool," says Joseph Ventura, an advisor in Latham, N.Y. "While this is insurance's traditional purpose, it has changed. Ask clients 'Are you driving the same car as your parents, watching the same TV?' There's no reason they should have the same coverage."
"Second-to-Die" insurance or survivorship life is typical of the new policies that have evolved to meet changing lifestyles. Second-to-Die is commonly acquired in the names of both spouses because the benefit is often used to pay estate taxes. Because the policy is based on the "joint life" expectancy of both spouses, the premiums usually cost less than if separate "cash-value" policies were purchased for each spouse. This is one example in which relatively new forms of insurance are being used as part of an overall wealth-management plan.
