Your guide to bespoke life insurance conversations

Despite its numerous benefits, life insurance tends to be underutilized in financial planning. According to LIMRA research, nearly 85 percent of consumers agree that most people need life insurance, but Northwestern Mutual's 2014 Planning & Progress Study indicates that only 23 percent and 24 percent of Americans own either permanent or term life insurance policies, respectively.

One possible reason for this coverage gap may be that Americans are not particularly comfortable discussing money or death — and life insurance sits squarely at the intersection of these topics. In fact, our research further revealed that Americans would rather talk about the birds and the bees than finances or death preparations. Misconceptions about costs are another factor that may influence insurance decision-making. LIMRA found that 83 percent of consumers do not purchase more life insurance because they think it is too expensive — because they believe life insurance costs nearly 3 times the actual price.

The silver lining to the current $15.3 trillion unmet insurance need is a significant opportunity for advisors to dispel myths and educate clients about how various types of insurance can serve as the pillars of strong, integrated financial planning strategy. At its core, the underlying message about insurance (i.e., "the need never goes away it just changes over time") is universal and timeless.

However, in an age where the premium is squarely on personalization, converting skeptics into policyholders requires clearly connecting the dots between how insurance or lack thereof might directly impact your client's personal financial goals. While every situation is unique, below are some considerations by generation that could be a good starting point for explaining the multiple other advantages of insurance aside from the death benefit.

Millennials: Roaring 20s

The largest and likely the most educated generation in history, Millennials are generally best known for their predilection for social media and technology. What may surprise some is that despite their love of all things new and forward, this group is decidedly "old school" when it comes to financial matters.

In our 2014 Planning & Progress Study, nearly two thirds of Millennials said they were "highly disciplined" or "disciplined" financial planners, more so than their parents and grandparents. Findings also showed Millennials to be cautious and concerned about "catching up" with regards to saving and planning for the future.

This precocious perspective on financial planning is a fertile ground for seeding the benefits of permanent life insurance. Risk-averse Millennials will find comfort in whim-proof, recession-proof growth while enjoying access to cash value* that offers the flexibility to pursue a range of financial goals — from paying down debt to funding a start-up.

Disability income insurance may also be worth discussing with this segment. Although young people tend to have a sense of invincibility, unexpected injuries or illnesses are impervious to age and could quickly derail financial and professional goals, creating a debt sinkhole that could last for years.

Gen X/Early Boomers: Mid-Life Mayhem

Americans in their 40s and 50s share a number of the same financial planning needs as those a decade or two behind them. But their list of concerns and assets is usually longer and more complex. Interestingly, our research revealed that respondents in this age bracket feel the least financially prepared and are most likely to identify themselves as "informal" or "non-planners," even though the vast majority agrees that financial planning is important.

This group, however, more than their younger or older counterparts, is facing sobering financial realities and does not have the luxury of being lackadaisical about planning. LIMRA's 2013 Life Insurance Barometer found that 70 percent of U.S. households with children under 18 would have trouble meeting everyday living expenses within a few months if a primary wage earner were to pass.

Americans in their 40s and 50s are also increasingly becoming members of the "sandwich generation," a part of the population simultaneously supporting aging parents and their own children. Balancing elder care, child care and career responsibilities can take a substantial toll on financial and emotional well-being.

Finally, increasing life spans are deepening pressure to build adequate retirement reserves. As such it is it is not surprising that, given their lack of formal planning, nearly half of Gen Xers and Boomers expect to have to work during their retirement or know if and when they will be able to retire.

This may explain why, when respondents in our Planning & Progress Study were asked to describe their retirement years, this group chose the words "bleak" and "dismal" most frequently.

It is likely that your X'er/Early Boomer clients are facing a combination of these dynamics, underscoring the importance of a sound financial foundation. For example, in the event of an untimely demise or unexpected illness/injury, life insurance and/or disability coverage, respectively will help ensure that family financial obligations can be met with minimal disruption or strain on savings.

Another recommendation for this group is to consider planning for long term care, either for themselves or their parents. This planning should include a discussion on costs and funding options. The planning might also enable adult children to maximize their prime professional years while feeling confident that their elderly parents are well taken care of.

Finally, permanent life insurance may be the closest thing to a silver bullet for a good portion of this age group. In addition to providing survivor benefits, permanent life insurance — the proverbial "utility knife" of financial solutions — can assist with scaling any number of challenges, from estate needs to funding college tuition or a business expansion.

60s and Over: The Golden Years

While clients at or near retirement should theoretically have some level of financial security, extended longevity combined with rising healthcare and cost of living expenses can quickly upend even the best laid financial plans. Nearly 40 percent of Americans surveyed in Northwestern Mutual's 2014 Planning & Progress study are not financially prepared to live to 95, yet recent statistics from the American Academy of Actuaries find a 50 percent likelihood that at least one member of a 65-year old couple will live to age 90.

Remind your clients that permanent life insurance is a flexible asset that provides options to meet their needs over the arc of their lifetime. For those 60 and over, that may mean providing supplemental retirement income, funding long term care, managing an emergency or leaving a legacy.

*Accessing cash values will reduce the death benefit and may affect other aspects of a life insurance policy.

David W. Simbro, FSA, MBA, CLTC, is the senior vice president and executive officer of the risk products department at Northwestern Mutual.