As an Ochs partner, one of the first things you should know about potential insurance clients is that many are confused about the difference between term and whole life.
That’s understandable, given the overall lack of consumer understanding surrounding those two diverse products. Unfortunately, that confusion can muddy the water so much that many people never invest in the amount of life insurance that will sufficiently protect their families in the event of their deaths. One study by insurance education nonprofit Life Happens, for example, found that price is the most common reason Americans fail to buy life insurance, when in fact the average consumer overestimates those costs three times over.
Another Policygenius report found that only 57% of American adults carry life insurance at all, and of those, 32% carry only group term.
“The confusion starts with the fact whole life insurance combines two financial products — life insurance and an investment — into one that’s supposed to serve your needs over your entire lifetime,” advises Consumer Reports. “But life is unpredictable, and the circumstances that drove your initial purchase can be very different a decade later.”
Full disclosure: Recommending the right policies for your clients
Here are tips to use as you counsel your clients on whether they should opt for term life, whole life or both.
- Emphasize that everyone who has financial dependents needs some form of life insurance, but many will also wish to upgrade to whole life as an additional investment tool.
- Focus on how life insurance will directly benefit him and his family.
- Discuss the client’s budget and how much he can feasibly pay for life insurance coverage. Be clear about the cost differential; Policygenius notes that whole life premiums generally cost six to 10 times more than term life premiums, though term life fees can become more expensive with age.
- Without using scare tactics, provide realistic scenarios of what could happen if he dies without establishing any life insurance at all.
- Explain the difference in the two vehicles using layman’s terms: A term policy is typically less expensive and provides money to your beneficiaries if you pass within a given time period (usually 30 years or fewer). A whole life policy is an investment without an end point; it allows you to earn interest (and sometimes dividends) on the amount you pay in, serving as a guaranteed asset you can spend while still alive or save for others after you pass.
- Before making recommendations, ask each client for information regarding his age; the age of his children; his health; the current and financial needs of his family; his current debts including mortgages; his plans for retirement and his funeral wishes. Other factors may include his plans for setting up an estate, a trust and/or charitable donations to take effect after his death. This life insurance calculator can help support your conclusions about the amount of insurance he needs.
- Mention how life insurance can help pay for estate taxes; without it, heirs may need to sell off parts of your estate to compensate.
- Explain how a whole life insurance policy can equalize inheritances among siblings if the client plans to leave a business, house or other substantial asset to one child.
- Gauge whether the client will be comfortable paying into a limited-term policy that may never produce a payout or if he’d rather pay more into a whole life vehicle to ensure an eventual return.
- Be transparent about the fact that life insurance costs vary widely between companies. Policygenius reports the average difference between the least expensive and most expensive costs is 50% for the same person/policy.
When talking to clients, the way you explain the differences between term and whole insurance could have a profound effect on their financial futures. Take time to thoroughly explain the ins and outs so they can end up with the best possible product for their needs.
Need more support for your presentations to clients? Consult with the specialists at Ochs (651-665-3789) to learn more.