by: Mark D. Milbrod, CLU
Partner, Agent Support Group
Here we are again, the summer is over, our kids are back in school and we find ourselves once again in the big push to meet our goals for the year. On a daily basis, we are inundated with so much static; NFL players refusing to stand for our national anthem, Pokemon hunting, a backlash against law enforcement and how can we forget the craziest election season we have ever encountered. It is also a tumultuous time in our industry. Its seems that every week we hear about carriers raising COI’s, product re-pricings or some other negative news story such as one that aired on a popular weekly news program stating that the very carriers we represent deliberately are not paying their claims. All of this is troublesome, but can all distract us from what really matters. After all, it is Life Insurance Awareness Month and what we do is so vital to the countless numbers of families that require our services. The trick is to not get caught up in the static and focus on what really matters.
With that in mind and in the spirit of Life Insurance Awareness Month, I thought it was a great time to repeat the content from an earlier blog post, The Top Ten Life Insurance Mistakes That People Make…
- Naming Estate as Beneficiary or Improper Policy Ownership
One of the most common mistakes is naming an insureds estate as the beneficiary. This causes inclusion of the death benefit proceeds in the insureds taxable estate. Also, the assets become part of probate and you can lose the umbrella of creditor protection. Sometimes this happens as a result of an originally named beneficiary(ies) pre-deceasing an insured. A change is never made to replace a primary or contingent beneficiary designation resulting in a “default” naming the insureds estate. In addition, a large number of policies are owned by an insured instead of a trust, spouse or children. This too can cause issues as they relate to adverse taxation.
- Believing Group Life Insurance is Portable
A common objection people have when it comes to purchasing individual life insurance is the reliance on group term insurance. People often overlook the fact that group insurance is usually limited to small amounts and is not portable if they leave their current employer. It is also mostly made up of term insurance and unlikely to extend beyond a finite number of years.
- Failure to have annual review of Life Insurance
Simply put, needs change. Life insurance needs periodically change along with status changes such as marriages, birth of children, etc. Auto and Homeowner policies are reviewed annually, so why not life insurance. An annual review of life insurance can assure that as needs change, you are keeping up with the pace of those changes. Also, there have been product enhancements such as Long Term Care Riders and Extended Guarantees that may not be addressed with current coverages.
- Sticker Shock effects your decision
Some folks get sticker shock when seeing what the proper amount of life insurance costs. Most people often reduce the amount of coverage needed to fit into a budget. That’s a huge mistake! I am a large proponent of selling to need rather than cost. There are many ways to ladder the costs so that need is not sacrificed. Always ask if they would be worse off without it? The Pros of a well constructed Needs Analysis far out way the Cons.
- Waiting to buy Life insurance
Waiting to purchase life insurance is never a good idea. The needs are ‘NOW.” So waiting to purchase it is not wise. Besides, health can change and insurability can become a factor. Even if there was not a change in health, premiums will increase as you get older and “The Cost of Waiting” is never on your side.
- Cancelling/Lapsing old coverage before new is purchased
Another common mistake is letting a current policy lapse prior to putting new insurance inforce. A lot can happen in the period of time that it takes to buy new insurance. Always make sure that there is never a gap in coverage while applying for a new policy. Your old policy may have had better rates than what you can currently qualify for or there can be a health event or death occur in the interim.
- Buying the cheapest policy
Just because a particular policy is “cheaper” than another, don’t let clients be swayed by the less expensive option. Today, more than ever, it is important to know the carrier behind the policy. It can be something as simple as financials but other things like convertability options and policy service history can be a huge part of the decision process.
- Under valuing a “non-working” spouse
Often times, a “non-working” spouse is ignored during the life insurance conversation. The importance of a non-working spouse to the financial stability of a family is often overlooked. As an example, what would it cost to hire someone to take care of dependent children if the non-working spouse/caregiver predeceases the working spouse? A properly designed life insurance benefit could allow funds for those expenses and/or provide options to the surviving spouse to take time off from work to be there for his/her family. Keep in mind that there are some carriers that will allow for a “non-working” spouse to obtain the same face amount regardless of income.
- Under estimating your family’s life insurance need
In the information age, most everything is purchased via the internet, even life insurance. Even if someone purchases life insurance on-line, it is doubtful that they have enough coverage. A properly trained Financial Advisor/Insurance Agent understands what “the right amount” of coverage should be. In most cases, people buy small amounts of life insurance (i.e. $250,000, $500,000). We all know that those amounts will be gone before you know it. Then what happens? Perhaps a mortgage is paid off with a lump sum, but then there are normal living expenses to contend with and future obligations to meet. This is when the real conversation starts and it is important to talk about all the things that a life insurance plan can do if designed properly.
AND THE NUMBER ONE LIFE INSURANCE MISTAKE…
- Not obtaining ANY at all !
Obviously, this is the worst mistake of all, but so many families have no life insurance whatsoever. What is really scary is how many of those families live one paycheck away from a financial disaster. Some of the previous mentioned mistakes are just that, but it’s better than having nothing at all.
These Top Ten Life Insurance Mistakes outlined above are the most common that we all come across on a daily basis. Each however, opens up doors for opportunity. Utilizing Life Insurance Awareness Month as a backdrop, this could be a great conversation starter for prospective clients to see if they have made any of these “mistakes.” Also, talk to your centers of influence and ask them if their clients have made any of these “mistakes” as well.
On a closing note, this month will mark the 15th Anniversary of the 9/11 terrorist attacks. This, as we all know, has forever changed our lives and the world as a whole. I would be remiss to not acknowledge it or make mention of the countless lives lost on that day. Our thoughts and prayers are still with the families who lost loved ones and our continued support and gratitude goes out to our first responders and our military who continue their unselfish bravery to protect and serve us every day.
Find more of Mark’s Bark’s Blogs on our website: http://www.asglife.com/insurance-view/marks-barks-blog/