The 8 life insurance questions your clients might not ask
Life insurance can be a scary subject. After all, it sounds like yet another financial obligation your clients have to take on, and it brings to mind the thought of their own death. So it’s no wonder the average Canadian does not spend much time learning about it.
As a financial advisor, life insurance presents an educational opportunity. In order to get clients engaged, you may need to ask and answer some of the questions that they don’t even know to ask. Here are eight good ones to help you get the conversation started.
1. What life insurance should I get?
A core principle of life insurance is to start with understanding your needs, then purchase the right type and amount of insurance to fit those needs.
Broadly speaking, there are two types of life insurance. Term life insurance will provide a death benefit for a specified period of time, such as 10, 20 or 30 years. This can make sense when you are insuring a risk that has a set time frame, such as a mortgage.
On the other hand, permanent insurance covers you for the rest of your life. There are several variations that your advisor can recommend based on your particular needs, including the desire to use insurance as a vehicle to build up your long-term wealth.
2. How do I buy life insurance?
Your financial advisor will help you decide the best way to purchase life insurance and walk you through the process. You will generally need to answer some questions, either on paper or using a digital application. You may be required to have a nurse visit you at home or work for some quick tests depending on the life insurance products you choose.
No matter which application method you use, once you are insured, you have your protection in place for as long as your policy remains in force, even if your health changes in the future.
3. Do I really need life insurance if I don’t have kids and don’t own a home?
The real question is this: would anybody face financial hardship if you were gone?
That could mean anyone who has co-signed a loan with you. It could mean family who have to pay for funeral expenses or an outstanding student loan. It could mean a partner or spouse who would be on the hook for rent or need to take time off work to grieve.
Even if you’re single today but planning to start a family in the next few years, it might make sense to get insured now, while you are younger and healthier.
4. How do financial advisors get paid?
Financial advisors are self-employed, and they are paid by the insurance providers when customers are issued new policies. In general, their fee is based on a percentage of the total premiums the insured person will pay in the first year of having their policy.
Financial advisors have strong incentives to provide good advice, because they can earn additional bonuses for maintaining happy clients over time, and they may have to forfeit their fees if unhappy clients abandon their policies.
5. Why buy individual life insurance when I have insurance at work?
If your workplace life insurance would be sufficient to cover all of your financial obligations, including paying off your debts and sustaining your family in the event of your death, then you may not need to buy additional life insurance.
However, if your workplace insurance does not cover all of your needs, then you may wish to purchase additional coverage. You might also want to consider what would happen if you changed jobs or if your employer rolled back your benefits for some reason. For most people, the security of additional personal coverage makes sense.
6. Am I too young to buy life insurance?
There’s something about human nature that makes us think that accidents, illnesses and even death are only things that happen to other people. And, even if you accept the inevitable, you still might ask if it’s a waste of money to pay life insurance premiums for years or even decades before you actually pass away.
The simple answer is that a good financial plan takes into account your current expenses, investing for the future, and a protective wrapper of insurance that holds everything together. You can hope that you will never need it, but rest easy in the knowledge that, even if the worst were to happen, it will not be a financial disaster for your family.
7. What if my health changes?
When your life insurance is in force, health changes are not a concern. You remain fully covered. Health only becomes a concern in the periods when you are not covered.
For example, if you are procrastinating about purchasing life insurance and your health declines, coverage could become more expensive or even impossible to obtain in the meanwhile. Likewise, if your term life insurance policy ends and you need a new policy, premiums could be much higher than when you first signed up.
To guard against these risks, it generally makes sense to purchase coverage as soon as you can and have it last for as long as there is a risk to protect.
8. I already have life insurance, why do I need Critical Illness insurance?
Critical Illness insurance can pay a tax-free lump sum benefit if you are diagnosed with one of many common but serious illnesses, such as cancer, stroke and heart disease. This is different than life insurance, because there is a good chance that you will survive rather than die.
Critical Illness can help bridge the gap when you are ill. That could mean covering your mortgage or loan payments, replacing lost income for you or your caregiver, or paying for treatments, therapies or home modifications that will help you make a full recovery.
They say insurance is sold rather than bought. The reason is largely an information gap. Issues like mortality are easy to avoid, and this leads to a lack of awareness about life’s financial risks and how insurance can help. As a financial advisor, you can turn a potentially difficult topic into a healthy conversation.