Advisor Today - September/October 2012 - (Page 30)
| By Mark Hug
Demystifying Life Insurance
Help your prospects get the protection they need by explaining the true cost of life insurance, the right amount of coverage they need, and for how long.
f it is September, it is Life Insurance Awareness Month, and a good time to demystify life insurance to your clients and prospects, and let them know that owning adequate amounts of this valuable product is one of the wisest things they can do to ensure their family’s ﬁnancial security. Ownership of individual life insurance is at a 50-year low; yet we are seeing a record number of households saying they need more coverage, according to the latest research by LIMRA. For many people, life insurance is a strange and scary product, with elusive answers to the most basic questions such as, “How much insurance should I own?” As ﬁnancial advisors, we tend to take the long view. We know that failing to have the right amount of life insurance—or worse, none at all—can be a disaster for the families we serve. And yet, what we increasingly hear from people who don’t have the coverage they need is, “Nobody asked.” There are many reasons for this. We have fewer people in the industry selling life insurance. And those who do are spending less time talking about the product. Yesterday’s life insurance representative has evolved into a fullservice ﬁnancial advisor who can offer guidance on retirement savings, investments and other related products, but that means there is less time to walk clients through whatever reticence they may have about life insurance.
No one buys life insurance without trusted assurance.
coverage in the coming year what might prevent them from following through, 55 percent said they didn’t think they could afford it. But the survey takers overestimated the cost of a policy by a multiple of three or four times the actual cost. Another concern is getting the right amount of coverage. Calculations are a lot simpler than most people think, and an advisor can help by breaking down financial considerations into two categories. First, what debts would a family face if the policyholder were to die tomorrow? This could include a mortgage, college loans, funeral costs, and the like. Second, what income would the family need going forward and for what period of time? The latter part of this question is key. A young family with several children who will one day go to college will need a lot more money than a family with grown children and a spouse nearing retirement. A rough rule of thumb is to have coverage that equals 20 times your annual income, but ﬁve times is obviously a lot better than zero coverage if that’s all you can afford. Another way to help is by emphasizing that insurance needs can change over time. Not everyone needs graduation-to-grave coverage, and many insurers are introducing creative policies that reﬂect these changing needs. There is an old adage that life insurance is sold, not bought, but a more apt sentence is that no one buys life insurance without trusted assurance. That can come from a family member or friend, but the most informed inﬂuencer is likely to be a trusted ﬁnancial advisor. Delivering the message Owning life insurance is some of the best advice a professional can pass on to his clients and prospects. Here’s a quick summary of how to deliver that message: • Ask. Nothing can undermine ﬁnancial planning more quickly than the lack of life insurance protection. Make sure your clients have considered their options. • Explain. Misperceptions about costs and coverage needs are easily dispelled, but only if you initiate the conversation. • Be ﬂexible. There are a number of different products that ﬁt differing needs. Find the right one for your client. ■
Mark Hug is executive vice president, Marketing and Distribution, Individual Life Insurance, Prudential Insurance Company of America.
Barriers to coverage What are some of these barriers to coverage? One of the biggest is misperceptions about the cost of owning life insurance. When LIMRA asked families who were considering new or expanded
30 ADVISOR TODAY | September/October 2012
Table of Contents for the Digital Edition of Advisor Today - September/October 2012
From The Editor
Making the Transition
Will We Avoid the Fiscal Cliff at the End of 2012?
Boosting Retirement Plan Participation
Protecting Younger Workers’ Greatest Asset
From Term to Perm
Demystifying Life Insurance
Four Under Forty
My Best Sales Ideas
NAIFA Government Relations
Insuring People in the World of Sports
Advisor Today - September/October 2012