Developing a deep understanding of your client’s present and future needs can allow you to better recommend the proper life insurance product.
You likely would be surprised to know that when 35 percent of households were recently polled, they indicated they would feel significant financial stress if a primary wage earner passed away. 2018 data from LIMRA also indicates that close to 40 percent of Americans don’t have any form of life insurance.
As an advisor, life insurance can be an integral part of an overall wealth management plan and it’s vital that you are able to quickly dissect a client’s life events to help steer them towards the proper life insurance product.
Three mechanisms for assessing your client’s life insurance needs
There are three primary ways that allow you to determine a client’s life insurance needs, which include:
- Multiple-of-income approach – The primary goal of this approach, which is the simplest of those listed, is to replace the salary of a primary income earner for a set number of years. So, to arrive at an estimated insurance need, simply multiply the individual’s annual salary by a set number of years. The typical recommendation is at least 7-10 years. This approach is quite simple, but often doesn’t consider the needs of dependents, inflation or future salary increases.
- Human life value approach – This approach takes into account a client’s age, gender, job occupation, current as well as future earnings and employee benefits. There are numerous steps to consider when estimating the earning value of a client if they were to die today. The primary function of this method is to replace lost income, but the human life value approach doesn’t take into account additional expenses that may include education costs for children and other specific needs that may occur in the future.
- Capital needs analysis – The capital needs analysis is the most comprehensive approach to estimate life insurance coverage. This approach looks to not only replace an individual’s salary, but any other sources of income, as well as address the needs of survivors.
How to determine the type of life insurance a client needs
With a wide array of different life insurance products, it can be difficult to zero in on the ideal product for an individual client. Because of this we’ve outlined a few scenarios below, which highlight the ideal clients for the most popular types of life insurance.
Who are ideal clients for term life insurance?
- Younger individuals looking for a constant premium for a set period, such as 15, 20 or 30 years. Keep in mind that this only applies to level term life insurance.
- Individuals who are not looking to build cash value with their life insurance policy.
- Individuals who are looking for life insurance for short periods of time.
- Younger individuals who may be financially stressed, but still need insurance in the event of a death of a primary income earner.
Who are ideal clients for guaranteed universal life?
- Younger clients who may be weary of stock market risk, but would like a guaranteed return as opposed to a term policy.
- Older clients who are looking for a guaranteed death benefit that will last their entire life.
- Older clients who are looking for more than what can be provided by a final expense or term policy, but aren’t ready to invest in a whole or traditional universal life policy.
Who are ideal clients for traditional universal life?
- Individuals looking for a policy that will last their entire life and also build cash value.
- Parents who may be looking to provide insurance and income for their children.
- Parents looking to have an insurance product that can be used for loans to assist with funding college or even a down payment for a children’s home.
- Clients looking for premium payment flexibility.
- Clients who may not wish to tie the returns of their policy to the stock market.
- People who may be looking for additional income replacement during retirement.
Who are ideal clients for index universal life?
- People looking for a policy that can last their entire life while building cash value.
- Younger clients who may be looking for an index universal life (IUF) policy to start saving for retirement.
- Clients who are looking for payment flexibility when it comes to their insurance premiums.
- Individuals looking for income replacement during retirement.
- Clients who are looking for less risk than traditional investments, but are still willing to take some risk.
Work with PKS Financial Services to identify your client’s insurance needs.
Choosing the ideal life insurance product for an individual is only possible after developing a deep knowledge of a client’s unique needs. At PKS Financial Services, we offer a wide array of insurance products to ensure you’re able to provide a comprehensive suite of offerings to your clients. To learn more about our products, please feel free to contact us today.