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 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 and make an educated and informed decision about. 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”
So, below is a brief overview of a simple 3-step process which addresses these key topics and discussions:
1. Understanding exactly what they own now.
The large majority of clients or prospects who currently own some form of life insurance:
- Knowing how life insurance works–in general. Begin by asking each client, “On a scale from 1 to 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?” What you will find is that the large majority will rate themselves at a 6 or less.
- Understanding what they currently own. Another helpful way to gauge your client’s level of life insurance knowledge is to ask, “If I asked you to explain exactly how your existing group policy (or individual policy) works right now, do you think you could give me the good, the bad, and the ugly?” Again, what you will find is the large majority will tell you they don’t know the features and benefits of the policies they currently own.
- Understanding they own something that is not appropriate. What you will find in the large majority of situations is that your clients purchased something that was “sold” to them but was not fully understood and/or appropriate. Also, many clients currently own a particular kind–or amount–of life insurance that was a right fit at that particular time in their lives, but today their family situation is very different. For example, their income or net worth has risen significantly; they have more children now; they have a new income or estate tax need; etc.
2. Explaining 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 can be the different kinds, riders, time frames, convertibility features, pros and cons, etc.
- Universal Life Insurance. Key topics for discussion can be 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 can be the lifetime death benefit, cash value, loans, level premiums, riders, dividends (if applicable), rates of return (both guaranteed and assumed), pros and cons, etc.
3. Discussing “the right amount” of life insurance.
- How did they pick their current amount? I encourage you to ask each client, “Can you help me understand how you came up with the amount of life insurance you currently own?” Although this answer can vary, some of the most common responses are: to pay off their mortgage or other debts, to pay for the kids’ college, to help get to retirement, or they don’t really know and this was just an arbitrary number.
- How do they feel about their current amount? An excellent question to ask every client is, “Do you feel like what you currently own is the right amount, not enough, or too much?” What you will find is the large majority of clients will say they do not own enough.
- Recommending the “right amount” of life insurance. This can vary, and many financial professionals have different opinions on what the “right” amount should be. I firmly believe there is only one answer to this question: the right amount of insurance is as much as they can get. This usually equates to about 20 times their income when they are younger, 15 times their annual income when they are older, and 10 times their income when they are age 70 or older. The easiest way to justify this amount is to back up this recommendation using two facts. First, insurance companies are not allowed to “over-insure” someone’s life–nor is it in their best interest. Therefore, there is no such thing as someone having “too much” life insurance. Second, I have yet to hear of a story where a surviving spouse (or heir) said to a life insurance agent, “This is too much money.”
Explaining the Next Steps
After you take your client or prospect through this simple 3-step process, and assuming there is a life insurance need, then you should further explain the following important details:
- Step One : Applying for life insurance by completing a simple application.
- Step Two: Scheduling a time for a mini-physical exam at your preferred time and place.
- Step Three: The insurance company’s request and review of their medical records.
- Step Four: Receiving an official “offer” from the life insurance carrier.
Once you receive this life insurance offer, you will set a time to meet again and review the actual offer, which contains their health rating and the specific prices. This is the time when you can begin working together and determine which kind–and which amount–of life insurance makes the most sense. (Note: I strongly suggest that you do not provide any recommendations regarding any specific life insurance amounts or types until after you receive the actual offer.)
Minimize Pressure and Expectations
I also recommend that you make sure every client knows:
-There is no cost to apply for life insurance.
-There is no cost when the insurance company acquires their medical records.
-There is no obligation to purchase any life insurance.
-Every client reserves the right to accept all, some, or none of your recommendations.
In summary, once you take client through this 3-step educational process so they understand what they own, how the other options work, and the “right” amount, this usually creates an opportunity for changes and improvements.
The key here is that by educating versus selling, the client is much more likely to recognize there is a life insurance problem and/or need, and they become educated and empowered to solve it. What this means is that you are not selling life insurance but rather they are purchasing it from you. A true win-win for everyone involved, both directly and indirectly.