When reviewing insurance needs – whether it’s life insurance, disability, long-term care or even annuities – advisors need to consider possible costs in delaying a regular review of their client’s products.
There are two main costs of waiting that are commonly understood:
As clients get older, premiums go up. Waiting until a year or two to make the same change to insurance will result in higher premiums. While these costs will not increase astronomically, premiums are always a consideration.
Medical changes, however, can have an enormous impact. Waiting to review insurance could potentially result in going from being insurable to uninsurable. Even if your client remains insurable, they could experience a medical condition that changes them from a top-rated class to a standard class, resulting in significant differences in the price of insurance. No one thinks it’s going to happen to them… until it does.
In addition to premiums and medical changes, there are other considerations advisors should be aware of.
The first is product changes. Remember that insurance companies are in the business of making money. The industry is very competitive, and companies use product changes to stay ahead of one another. The problem lies in products and features that are TOO competitive. For the carrier, this means that they are probably not making as much money on it, and for clients this means they will likely take it away.
Every year, new products get introduced to the market which are designed to be more profitable for the insurance companies. For example, in 2007, there were annuity products available with a guaranteed 7.2% interest rate for 10 years. Those products went away very, very quickly after the financial crisis.
Another example is guaranteed universal life insurance. These products offered low premiums, guaranteed for life, but with the low interest rate market and environment, insurance companies were not able to make much money with them. Those products are no longer offered as they were originally; now they are much more watered down and not quite as attractive. It took only a couple years for insurance companies to pull those products.
This doesn’t mean that everything that is available today will be gone tomorrow, but understand that if there are opportunities and good products available now, they may not be available for long.
The second motivational tool for getting clients to review their insurance is irreparable damage. When products are purchased, and not purchased or structured in the right manner, as time goes by the available solutions become less. If someone buys a policy and problems are identified in the fifth year, there are many more options than there would be after 10 years.
By proactively looking at and reviewing insurance on an annual basis, advisors can find problems and present clients with multiple solutions rather than saying, “Here’s the only thing you can do” – which a lot of times just means outlying a tremendous amount of money.
What other costs have you found when waiting to review insurance needs?
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