Many financial advisors are not consistently speaking to their clients about life insurance, and it’s easy to see why.
The advisors may be uncomfortable addressing the subject, concerned that they don’t have enough knowledge of current products, strategies and practical elements like running illustrations and navigating the underwriting process. As a result, many advisors unconsciously wind up waiting for clients to bring up the topic. But clients typically don’t ask about life insurance on their own, as they often consider it to be separate from their financial planning. This passiveness regarding life insurance often is not an intentional choice by advisors, it’s just a natural result of a focus on their core business.
That said, advisors should take a second look at the potential of life insurance. These products can be a crucial piece of an advisor’s business and a means for an advisor to create deeper and long-lasting client relationships. Life insurance is known to be a “sticky” asset, meaning that once they buy a policy clients tend to hang on to it––and the advisor they purchased it from––for the long term.
In addition to strong client retention, life insurance can help keep assets under management. Advisors are often looking to mitigate risks to a client’s portfolio, and in that process focus on choosing the right investments to do that. Yet many overlook one of the greatest risks to a clients’ portfolio: depletion due a catastrophic event such as a death or long-term care need. A life insurance death benefit can replace lost income and help pay off a mortgage or other debts, and certain policies offer long-term care benefits that cover at-home care as well as care within a facility.
Another reason to recommend life insurance, particularly fixed products, is that they are not correlated to market performance and therefore can add stability to a client’s overall portfolio. But the single most important reason to talk with clients about life insurance is that they need it, and they aren’t likely to ask about it.
Changing The Status Quo
Life insurance remains an untapped resource for many financial advisors. A majority (52 percent) don’t consider their life insurance sales and advice to be “successful” or “very successful,” according to a recent survey by Saybrus Partners Inc. at the INSITE 2013 conference in Hollywood, Fla., in early June.
The survey also discovered a gap between client needs and advisor opportunities. About 44 percent of advisors said that no more than 10 percent of their current portfolio of clients had asked them about approaches to life insurance that would be appropriate for them. Here’s what’s interesting: A great majority of advisors (70 percent) said that they do provide life insurance to clients “when appropriate.”
The survey results suggest a notable gap between client needs and requests when it comes to life insurance, and a financial advisor has a great opportunity to fill it.
Knowing Your Limits