One of the biggest challenges most financial professionals face is helping clients (and prospects) truly understand life insurance. The harsh reality is that life insurance is a very complicated, misunderstood, and often overlooked piece of a comprehensive financial plan.
The best solution I have found is to make this difficult discussion an educational process versus a sales process. What most families want, need, and truly appreciate is to simplify life insurance into something they can grasp. This will allow them to make an educated and informed decision. In other words, what most clients really want is a basic understanding of the good, the bad, and the ugly regarding:
- What they currently own
- The other options available to them
- The "right amount" of life insurance to buy
Below is a brief overview of a simple three-step process that addresses these key topics.
1. Understand exactly what they own now.
Begin by asking each client, "On a scale from 1–10, with 10 being an expert in life insurance, how would you rate yourself when it comes to your knowledge and understanding of life insurance?" You will find that the large majority will rate themselves at a six or less.
Another helpful way to gauge your client's level of life insurance knowledge is to say, "If I asked you to explain exactly how your existing group policy (or individual policy) works right now, do you think you give me the good, the bad, and the ugly?" Again, you'll find that the large majority don't know the features and benefits of the policies they currently own.
Ultimately, the large majority of your prospects who already own life insurance likely purchased something that was "sold" to them, but was not fully understood or appropriate. Also, these prospects may own a policy that was the right fit at that particular time in their lives, but no longer works given their current family situation. For example, their income or net worth may have risen significantly, they may have more children now, they may have a new income or estate tax need, etc.
2. Explain the different kinds of life insurance and how they work.
One of the most helpful exercises you can go through with clients or prospects is to explain the basics of:
Term Insurance: Key topics for discussion include the different kinds, riders, time frames, convertibility features, pros and cons, etc.
Universal Life Insurance: Key topics for discussion include the various types, costs and fees, riders, cash value, where this usually fits best, pros and cons, etc.
Whole Life Insurance: Key topics for discussion include the lifetime death benefit, cash value, loans, level premiums, riders, dividends (if applicable), rates of return (both guaranteed and assumed), pros and cons, etc.
