How Financial Advisors Can Add The Life Insurance Dimension
August 13, 2013 by Kevin Kimbrough
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
Since they already know a lot about their clients’ financial and personal profiles, financial advisors are uniquely positioned to offer life insurance. They have all the information and data at their fingertips to identify basic needs, as well as planning opportunities like generational wealth transfer, business succession and supplementing retirement savings.
That said, some advisors say they lack the time and resources to get up to speed on the vast world of life insurance. More than a third (37 percent) in the Saybrus survey said the most complicated part of selling life insurance solutions was the variety of policies and riders. Another 25 percent said it was the abundance of paperwork required to sell and issue a life insurance policy.
Financial advisors also found the frequency of product development and regulatory changes to be complex, and some have struggled to understand combination products that address multiple needs.
Certainly, life insurance product types, policy riders and combination offerings constantly change to reflect the needs of the market. So it’s understandable why in the Saybrus survey, of those 30 percent of advisors who don’t regularly provide life insurance to clients, nearly one out of five said they don’t sell life insurance because “it’s too complicated.”
Ways To Get In The Game
Generally speaking, advisors who have most successfully integrated life insurance into their practice have done so by joining forces with a knowledgable life insurance expert. Partnering with an outside specialist enables an advisor to identify clients’ needs and opportunities and to propose the most appropriate life insurance strategy for each individual situation.
The specialist, who should have expertise in both life insurance and hybrid products that offer long-term care benefits, can work with the advisor to assess his or her client base. Together, the specialist and the advisor can systematically review the client demographics assets within the advisor’s book to identify multiple opportunities. Then, the specialist can help the advisor map out a plan for approaching the clients, discussing their needs and proposing solutions.
While it’s usually helpful for the specialist to join the advisor during client conversations, it is particularly important to assign roles and responsibilities for these meetings. The advisor owns the relationship with the client, and the specialist can help to foster and maintain that relationship. Discussing how the specialist will be introduced and other speaking roles for the appointment will go a long way to inspire confidence and trust for the client and create a positive overall experience.
2. Keep It In-House
A financial advisor may feel most comfortable hiring an employee or bringing in a specialist from their institution or broker-dealer to take the lead on life insurance. This individual will be charged with keeping up with policy changes and analyzing upcoming client visits to determine which clients can most benefit from having life insurance options.
At the same time, an in-house life insurance specialist can still benefit from relationships with the greater insurance world. It’s a good idea for them to team up on occasion with freelance insurance specialists and cultivate relationships with insurance company representatives. These experts can help offer industry perspective, as well as practical information about product offerings and sweet-spots.
3. Going It Alone
A financial advisor may simply want to go the self-education route to become versed in providing life insurance products. An advisor should work with insurance companies to find accessible information and avoid being overwhelmed by research. This will be an ongoing process, so taking an industry study course once a quarter or twice a year can help the advisor stay up to date on market changes.
Certainly, going it alone will require a time commitment. As many advisors have noted, life insurance is a complex subject and products are constantly changing. That said, the benefits of becoming an expert on life insurance products are myriad and can help expand and strengthen an advisor’s business.
Each approach to incorporating life insurance into an advisor’s practice has its unique considerations. Selecting a life insurance partner requires the advisor to find someone with the know-how, commitment to the relationship and a complementary style. It also will require effective communication from both parties. Hiring an employee will require that person to drive strong sales growth in order to make that route economically feasible. Finally, while self-educating offers the greatest control and least cost, being all things to all people can sometimes prove too difficult.
A New Dimension
Certainly, providing life insurance will be supplemental to a financial advisor’s investment business. That said, given the opportunity in terms of strengthened relationships, client retention, assets under management stability and new revenues, advisors who offer life insurance have the ability to add a new dimension to their practice. Advisors who choose to embrace and integrate life insurance into their practice will expand their value proposition for their clients and enhance their overall business.
Kevin Kimbrough, CLU, is principal, national sales, at Saybrus Partners Inc.
