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Designing the Right Policy

Help your clients see the value of buying the insurance that meets their long-term needs.

By Robert M. Barnes, CLU, ChFC

This is an interesting era in the life insurance business. Products are adjusted or revised at an exceedingly fast pace and it is difficult to keep track of this constant change when there are other things advisors need to be doing. Also, never before has there been such a broad range of product types, unique underwriting niches, features and riders.

This wide selection requires agents to improve the way they ask their clients questions to better determine the right product and the appropriate amount of insurance coverage these clients need. I help train many agents and understand how easy it can be for them if they know how to ask their clients the right questions. The key is to have an in-depth conversation with them. I am not talking about tediously filling out a factfinder with information that can be obtained when the application form is completed. Instead, I am talking about communicating with, and understanding your clients’ problems, situation or circumstances.

Keys to success

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There are only two things your client needs in order to have a successful life insurance program. He should have enough of it, and it should be in force the day he dies. So the most important questions to ask him are: How much and how long?

You can use two methods to determine how much insurance your client needs: a needs-based factfind to identify any existing debt and other areas of coverage that is needed, or an income-replacement approach. Of course, you can always combine these two methods.

I usually ask my clients these questions:

  • If you had a money machine that printed $100,000 a year in cash, what would you insure it for?
  • If you had to invest money conservatively to yield a monthly income, what rate could you earn today?

I then divide their current annual income by the rate of return they give me to obtain the suitable amount of coverage they need. Once this is determined, you can reduce this amount by any existing life insurance, Social Security benefits or other available sources. So if my client has an annual income of $100,000 and believes it could grow by 6 percent, then she needs approximately $1.6 million in insurance.

Ask first
Once you identify the amount of insurance your client needs, you must find out how much of her budget is available to spend on life insurance and determine the status of her health. At this time, your client may reduce the amount of insurance you initially calculated because of budget constraints or unwillingness to spend money on life insurance.

Below are five general health questions you should ask your client before providing her with quotes or illustrations:

  1. What is your date of birth?
  2. Have you used any form of tobacco in the last five years? If yes, what type of product was used and when?
  3. What is your height and weight?
  4. Are you currently taking any medications? If yes, for what?
  5. Have you ever been treated for cancer, heart disease, diabetes or other major health issues? If so, please provide details (diagnosis date/age, treatment, outcome, etc.).

Life insurance springs to its fullest value when your client or her heirs need it the most.

Crafting the policy
Once you obtain this information, you are now ready to design a policy. When receiving quote requests, I am often asked for an array of quotes to include term, universal, variable universal and whole life insurance. I know many agents who would be overwhelmed with so much information, so imagine how dazed a client can become if she is presented with so many choices. By asking the following questions you can narrow down your presentation to a few options:

  1. How much coverage do you believe you need to keep?
  2. How long do you want to pay premiums for this policy?
  3. How safe do you want this policy to be?

This is where your beliefs and understanding truly matter. With 20 years in the life insurance business, I have never heard a beneficiary say the check is “too big, take some back.” But I have watched as many people who did not buy life insurance become less insurable or even uninsurable when the need for life insurance is at its highest. Your client has to have it before she needs it. She may want to own it instead of rent it, not because she needs to but because she may value it more in the future than she can understand today.

You should let her know that life insurance is an asset, and like all assets, can increase or decrease in value. But unlike most other assets, life insurance is a leverage tool with outstanding tax advantages and springs to its fullest value when she or her heirs need it the most.

I have seen a lot and heard even more horror stories from my peers. I don’t believe life insurance needs disappear. They may dissipate over time for many, but they do not disappear. Today’s mortgage protection is tomorrow’s pension or Social Security protection. Today’s business policy is tomorrow’s estate-tax policy, and today’s life insurance coverage could be tomorrow’s long-term care coverage.

Your role as advisor
As an advisor, are you explaining to your clients why they may value their coverage in the future? Do you understand the difference between need and value? Do you drive a Chevy, a Lexus or a Mercedes? Do you need a Mercedes to get you to your next appointment? No. But you are willing and able to pay for it, aren’t you? You value it enough to pay for it. If you don’t help your clients see the value of owning life insurance, of course they won’t pay for more than a term premium.

Robert Barnes, CLU, ChFC, is with Capitas Financial of Illinois, LLC. He specializes in the use of life insurance in business and estate planning. Contact him at 630-725-0000.


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