There's no better time than during Life Insurance Awareness Month to conduct a "life insurance checkup" for your clients and prospects.
As you know, the nonprofit LIFE Foundation coordinates Life Insurance Awareness Month to make sure Americans are reminded of the need to include life insurance in their financial plans. Each September, LIFE is joined in this educational initiative by more than 100 of the nation's leading insurance companies and industry groups. In fact, many prospects who don't have a dedicated life insurance professional watching out for them have never had a life insurance checkup. That means that their life insurance coverage may not be up-to-date and may not be working in the most efficient way possible to meet their needs. This valuable service is key to providing your clients with the best use of their life insurance premium dollars and cash values.
All of your current clients need an annual checkup from you. It's something that should be scheduled into your calendar each year. In addition, prospective clients include a wide range of incomes and professions, but substantial opportunities exist in those who have $100,000 or higher annual income. Finally, you should be approaching prospective clients with $750,000 to $1 million or more in assets for estate planning opportunities.
What questions does a life insurance checkup answer?
By providing this service, you are positioning yourself as an important resource to clients and prospects, many of whom have not looked at their life insurance policies for years. In addition, people are very receptive to this "non-threatening" analysis, especially if you can show them ways to save money or gain better coverage for the same premium outlay.
Some key questions and activities that you should be prepared for when conducting a checkup include:
o Review the clients' and prospects' current personal financial situation. Children, retirement, college education, aging parents, estate planning, jobs, and careers are all elements that should be discussed. What's happening in their lives? What's changed since they purchased the policy?
o How strong is the insurance company that is backing the policies?
o How is the policy titled? Who owns the policy? Who are the beneficiaries? Should any changes be made?
o What was the original need that the life insurance was intended to meet?
o Does the client have the right type of insurance? What type does the client currently have: variable, universal, whole or term life insurance?
o Does the client have the appropriate amount of insurance related to other assets, liabilities, family circumstances, pre-retirement death benefits, Social Security survivor benefits or inheritance?
o Is the client overpaying? It's important to evaluate current policies and run current illustrations to see if the policy is performing as it was originally designed to do.
o If the person has term policies, it's imperative to check on the policy's competitiveness in light of the person's current health. Does the term timeframe match the timing of key liabilities such as mortgage payoff?
o Calculate the true internal rate of return on cash value policies and compare them to alternatives in the market place which may include a better policy, paying down debt, or putting a Roth IRA in place.
o What other insurance or financial needs can be identified through this life insurance checkup analysis? Are there opportunities to cross-sell important products to meet other needs?
Some scenarios to consider
Let's look at some common scenarios related to the life insurance checkup. For example, how close is the person or the family to the estate tax threshold? As of this writing, for decedents dying in 2010, there is no federal estate tax. However, on Jan. 1, 2011, the estate tax exemption is scheduled to revert to $1 million per estate. Even families of seemingly modest means may be affected if you add up the value of their homes, 401(k) plans, IRAs, investments and life insurance assets.
Anything higher than $1 million may be taxed at 50-55%. If a family is even close to this threshold, their life insurance policies may need to be retitled and you may want to talk to them about considering an irrevocable life insurance trust.
It is always important to help a client think through whether or not the life insurance policy is the best policy right now. Many people who purchased variable life (say five years ago) felt great because the market was going up and their investments within the policy were doing well. But how is the policy performing today? What happened to the cash value since 2008? Should more money be put into the policy, or is a change needed? In some cases, an indexed universal life policy might make sense. This kind of product offers guarantees that are highly sought-after today. It can't lose money like the investments in a variable life product might, but it can participate in market potential.
Additionally, looking at the mortality costs associated with a current policy can be very beneficial to clients and prospects. Older policies may be based on the 1980 mortality tables of 30 years ago. Today's life insurance contracts are based on 2001 mortality tables. By comparing policies of yesterday and today while considering the client's financial situation, there may be a number of opportunities to provide a more current policy with more competitive pricing.
In another scenario, a senior couple purchased a 10-year term insurance contract to last from age 55 to 65. But what happens when they reach age 65? Will they still want the coverage? If yes, their costs will certainly be higher at the older ages. What's their asset level and do they risk bumping up to the estate tax threshold? What might be alternatives? A guaranteed UL purchased today could offer competitive costs, strong guarantees and could be placed in a trust for estate planning purposes.
As we celebrate Life Insurance Awareness Month, we also have the opportunity to piggyback on the publicity the LIFE Foundation will generate about the importance of a life insurance checkup. While you are strengthening current client relationships, you are also opening doors to prospective new customers. Through this activity, agents can position themselves as both an insurance expert and a valuable insurance and financial resource to clients and prospects. In addition, it offers the chance to improve the clients' life insurance portfolio while also investigating new financial needs and concerns that can lead to increased sales.
Lionel Lauture is vice president, Product and Field Sales Support, for Futurity First Ins. Group (www.futurityfirst.com), an independent nationwide insurance distribution organization specializing in financial security for families, seniors, small businesses and the self-employed.
