Life Insurance, do I really need a review?

It’s interesting what happens when you don’t sell insurance but are an expert at insurance. What you hear and how you respond changes completely. For those who have bought life insurance in the past you understand the competitiveness of insurance by shear willpower of the person selling you insurance. They are typically very persuasive and relentless. Some relentlessness is good but they just never forget your number nor fail to reach out to you on a regular basis.

What does this have to do with life insurance and a review? Let me tell you a short story about life insurance and the economics. I was meeting with a client who was in the midst of buying life insurance from a financial advisor. There are many factors in life insurance dictating the direction someone will take on a clients behalf when putting together the proposal and purchase; goals, cost, insurability, and more. Making all of it work correctly requires someone understanding how they all fit. Well, when I saw the proposal for the client all the factors fit into place however, when someone is wealthy and an extra $10,000 or so is not significant because it is immaterial, what does that mean? It means the client and/or the financial advisor might offer a life insurance policy that is perfect in all ways but could potentially be more affordable offering the same goals, benefits, insurability, etc. In this case, the client could have bought the same policy but “blended” term insurance into the permanent insurance thus lowering his premium from $65,000 a year to $52,000 a year.

The review part! While everyone who sells insurance is licensed it does not mean they are an expert. And, it does not mean they have your interests in line with their interests. Life Insurance pays out an incredible amount of commission when first purchased, depending on the type of insurance;

Term insurance     85% to 125% (depending on the life insurance producers/advisors production)

Permanent Life      70% to 100%

Variable Life           50% to 100%

The commission is high and if the first year premium exceeds $10,000, $20,000 you begin to see real numbers involved. This ‘does not mean’ insurance agents or advisors who sell life insurance are doing it nefariously or they do not care about your needs it is more about awareness. Think of buying a car. We all hate going to a dealership because the sales person can be challenging. However, in todays free exchange of information online, it’a easy to walk into a dealership knowing exactly how much the cars cost the dealer and their mark-up. When buying a home you have the ability to see other prices, negotiate, and create the right situation to buy particularly as the home is a large financial transaction.

Done correctly life insurance has the same options if done correctly. Our firms core mission is to help our clients through the evaluation, finding or monitoring of their financial advisors, brokers, and bankers. However, our clients are starting to ask for more. They want us to be a part of the decision making process when it comes time to purchasing life insurance for them and their families or to evaluate what they already own so they can make the right decisions.

Another quick story to end. Life insurance is bought by those with net worths above $10mm for typically one purpose, estate planning. The taxes on estates exceeding $10mm, for married couples, can become prohibitively high and parents/grandparents do not want to burden others with the financial difficulties if they can create a way to avoid them – hence life insurance. Meeting with a client one day I was asked about my thoughts concerning life insurance. After 20+ years of working in the industry you begin to discern between, “what do you think before I do it” or “what do you think as I already did it.” This was the later. Fortunately they had bought a great insurance policy fulfilling all their needs. Unfortunately, they had bought it incorrectly utilizing a structure not allowing them to shield the insurance from being part of their total assets (topic for another day). Needless to say, something when wrong but we were able to fix it.

Remember some basics.

– Insurance is a purchase and like all purchases, the more information you have the better you will be in your decisions

– The agent or advisor selling you the life insurance is getting paid to sell it to you. Be mindful you are in a principal – agent relationship when buying life insurance. The broker or agent is working for the insurance company (and potentially their own firm) and selling the goods (insurance) of another firm

– Make certain whomever is selling you the insurance is an expert or, at a minimum, they have someone is who is an expert helping and meeting with you

– If you feel uncomfortable about the purchase, but feel comfortable you need to make the purchase contact a consultant or a lawyer with experience in life insurance and estate planning