Don't cancel your policy! These 4 strategies can help customers keep their life insurance
When money gets tight, layoffs hit the headlines or recession rumours are circulating, many Canadians start looking for expenses to cut. But if clients are thinking about getting rid of life insurance along with their gym memberships and streaming subscriptions, they could be about to make a costly mistake.
Why do people cancel life insurance?
In general, people will look for ways to trim their budget with as little pain as possible. Cancelling a vacation is painful. Cancelling an insurance policy feels easy by comparison. After all, it doesn’t seem like they are giving up any immediate or tangible benefits.
If it’s been a while since they bought their policy, a client’s memory of why it was so important in the first place could be getting hazy. It might even feel like they’ve been throwing money out the window this whole time.
If you want to help your clients avoid doing something that they might regret, these four strategies could help them achieve their budgetary goals without sacrificing their coverage.
#1 Remind them why they need life insurance
We all know someone who has faced financial hardship. Insurance allows you to transfer a significant amount of life’s financial risk off your shoulders and onto an insurance company.
Clients should remember that, if they pass away, life insurance can help pay off their mortgage, car loans and other debt. It can preserve their savings and keep their family safe. Life insurance lets them know that the financial resources that sustain their household will not be radically disrupted if something bad happens.
Although you can’t see or touch the protection that life insurance provides, it is extremely valuable, and we believe that nobody should live without it.
#2 Discuss the downside of getting rid of life insurance
Living without life insurance is risky, and getting a replacement policy down the road might be harder than you think.
Let’s say you cancel a policy because you’re worried about short-term financial pressures, but you plan to replace the policy in a few years when things stabilize. By then, you’ll be a few years older, which likely means higher premiums. And, if anything changes about your health status in the meanwhile, it could push premiums even higher or, in the worst case, make new coverage impossible.
One of the great things about having in-force insurance is that it is guaranteed. You are covered no matter what. Your price is fixed. Nobody can take it away, change the terms, or raise the price. Think very carefully before giving that up.
#3 Consider cutting back in other places instead
When there’s financial pressure, emotions can run high. It’s tempting to scroll through bank and credit card statements looking for any amounts that can be crossed out - including insurance premiums.
In reality, most of us have non-essential expenses that make more sense to scale back than insurance, such as dining out, entertainment, fashion, travel or hobbies. Despite being reasonable, these cutbacks can feel like sacrifices, which can make them harder to accept.
Another option is to reconsider what’s being allocated to savings and investments such as RRSPs, TFSAs or even workplace retirement plans. As an advisor, you might recommend temporarily pausing some of those activities rather than cancelling a life insurance policy.
In addition, if a client owns investments that produce steady interest or dividends, it might be viable to use that income to subsidize their insurance premiums.
#4 Modify the coverage without cancelling it
If you’ve examined every other scenario and further cuts are unavoidable, it’s time to look for ways to make the coverage less expensive without cancelling it entirely.
A good place to start might be updating the client’s insurance needs analysis. It’s possible that changes in their situation, such as having paid down debt or decreased their living expenses, will reveal that they would be okay with less coverage.
It might also be possible to adjust coverage options. For example, you could eliminate some riders, albeit at the expense of certain protections. You could potentially increase the waiting period on a disability policy. It may even be possible to temporarily suspend premiums if, for example, the client has a whole life policy with a sufficient cash value.
Nobody said being a financial advisor is easy, but even in the most challenging client conversations, we here at Beneva are standing behind you. We believe that most people who are willing to discuss these four strategies with you will find a way to avoid any drastic measures and maintain their insurance coverage.