Protect your clients’ well-being and their budget
There is often a mismatch between the amount of life insurance someone needs and what they believe will fit into their budget. It doesn’t help that the majority of people greatly overestimate the price of life insurance - some by as much as three times its actual cost (This hyperlink will open in a new tab)!
As an insurance advisor, your job is to address any misperceptions about the cost of life insurance and help clients make informed choices that can protect both their financial well-being and their household budget.
What affects the cost of insurance?
Some of the factors that affect the cost of life insurance are in the client’s control, and others are not. Knowing the difference - and controlling what you can - is a good place to start looking for cost-saving moves.
Choose the right insurance term
Generally speaking, the longer the term of an insurance policy, the more it will cost. After all, there’s simply a greater chance that someone will pass away within the next 20 years versus the next 10.
Clients can manage their costs by strategically matching the term of their coverage with the length of their financial obligations. For example, they may not need as much coverage when they hit milestones in paying down their debts, or once a dependent child starts earning their own income.
Choose the right insurance coverage amount
There’s no way around it - a larger death benefit comes with a larger insurance premium. However, similar to choosing the right term, there may be strategic approaches that can help bring down costs.
For example, you may be able to decrease the death benefit of an existing policy as your insurance needs decline over time. You may also be able to prioritize the risks you want covered, such as deciding that covering the mortgage is an absolute must-have, while covering a child’s college education is a nice-to-have, but only if it fits the budget.
Apply for insurance at the ideal age
Younger clients generally pay less than older clients. Although there’s no way to turn the clock back, the takeaway here is that it’s better to apply for life insurance sooner rather than later.
A client who finds the premium they are quoted today somewhat costly will find that it will most likely be higher down the road. And any adverse health events along the way could put future coverage further out of reach.
Make lifestyle changes to lower insurance costs
From a health perspective, the simplest way to cut the cost of life insurance is to quit smoking, for those who are smokers. Other lifestyle changes also have the potential to improve insurance costs in the future, such as lowering bodyweight and keeping blood sugar and cholesterol under control.
While it’s not possible to change a serious pre-existing condition or a family history of heart disease, high blood pressure, diabetes, and cancer, it’s still worth applying for insurance. There are now solutions that make life insurance viable for a wider range of people.
Be aware if jobs or hobbies change
Clients who take part in potentially dangerous hobbies, such as skydiving and scuba diving, are likely to pay higher life insurance premiums. The same applies to those with risky job descriptions, like pilots and firefighters. If this is a concern, the main opportunity is to know that, if these conditions change, it might be beneficial for future coverage costs.
Preparing a budget-aware insurance proposal
Clients have a budget to follow, and as an advisor, it's your duty to respect it. At the same time, clients who decide not to buy insurance or who think about cancelling an existing insurance policy could be trading a little budgetary relief today for a much larger financial problem later.
The solution? With the right planning, almost everyone can afford coverage. Try starting with the “ideal” insurance proposal, then work with the client to understand their needs, preferences and areas of flexibility to scale back and optimize as needed. Some areas to focus on include:
- Matching policy terms with predicted future insurance needs
- Deciding the minimum face value needed to cover essential risks
- Acting sooner rather than later, especially if young and healthy
- Making lifestyle changes that might bring down future costs
- Exploring opportunities to recalibrate the household budget
- Agreeing to collaborate and adjust the strategy over time
The best client relationships are a lifelong journey. As long as you continue to ask questions, probe for needs and listen closely, you can guide your clients towards the best possible mix of insurance solutions without breaking the bank.