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August 30, 2012
As Published on Investment Executive’s Website
Written by: Gavin Adamson
While many advisors specialize in one type of life insurance, it pays to branch out into living benefits
The banks are eating other advisors’ lunch, so to speak, by selling great volumes of small creditor life and health insurance policies to middle-income clients.
The solution, some advisors believe, is to broaden the range of products they offer to clients. For many, that represents a wholesale change in thinking.
According to Chris Karram, a certified financial planner with the independent firm SAFEBRIDGE Financial Inc. in Toronto, many advisors begin to believe in a single specialization after a few years in the business. “Some advisors will focus on whole life over universal, for example,” he says. “And they’ll begin to believe in their product completely, over anything else.”
But that’s not necessarily the best approach to building a business in an increasingly competitive marketplace, Karram adds. He recommends advisors expand into living-benefits policies, which pay benefits prior to death, typically when the policyholder experiences serious illness.
Demand for such products will only increase. While baby boomers are reaching retirement age, life expectancies are increasing. Boomers clients will eventually need coverage for all sorts of expensive medical services and drugs that are not covered by provincial health plans.
But it can be difficult for an advisor to shift focus from a single product to a broader shelf. “The challenge for advisors who have been in the business for 10 to 15 years,” says Brian Shumak, a CFP and advisor based in Toronto, “is that they’ve stopped picking up the phone and sitting down at a kitchen table to discuss basic needs with their clients.”
As a matter of course, says Tracy Broeze, a CFP and advisor with Cumming & Cumming Wealth Management Inc. in Oakville, Ont., every advisor should call their clients annually, at least, to revisit their needs, At that time, you can raise the topic of additional products. An approach that often connects quickly with clients is the suggestion that a new product or group of products may be a good way to both boost coverage and save money.
An increasingly crowded marketplace makes that pitch even easier to communicate. “Over the past few years,” Broeze says, “insurance rates have become a lot more competitive for some term products.”
Often, even after paying a penalty, a client can save money under a different policy — either because the rates have come down or because five years after acquiring the policy, the client simply doesn’t need as much insurance. Clients may also be able to tap into their own growing affluence. Says Broeze: “Maybe they can self-insure partly with their own assets.”
Once you’ve established your client’s willingness to discuss other insurance products, the outcome of the discussion depends on individual circumstances: does the client need to consider insurance for long-term care or critical illness, for instance. “It’s a matter of their stage of life,” Broeze says.
Disability insurance, for instance, will appeal to clients who are looking to preserve 70%-80% of their income if they can’t perform the principal duties of their jobs. But most group plans available through employers offer some form of DI, says Karram. As a result, apart from certain upgrades to these plans, he concentrates on finding out about their other needs.
There are many people who are self-employed, however, and they need DI. That is the segment on which Karram focuses his efforts. “Disability through individual plans,” he says, “offers options and riders that you don’t have through group plans.”
When working with employed clients, CI insurance may be a fruitful area. These policies pay a substantial lump sum to your client if he or she is struck with one of a number of life-threatening illnesses, which are defined to varying degrees in the policy.
While such insurance tends to be more expensive than a term life policy (one of the lowest-cost types of insurance), it covers events that are far more likely to occur prior to retirement than death. And the younger the client, the less costly the premiums will be, although so-called “return of premiums” riders, which repay premiums at the end of policy’s term, are substantially more expensive.
CI policies entail detailed medical checks, however, and Shumack acknowledges that the underwriting process, including medical assessments and history, may take a lot longer than some advisors are used to. Escorting clients through the longer administration period of this relatively new product line is a matter of managing their expectations, he says: it’s important to caution older clients with a history of serious illnesses such as heart disease or cancer in their families, that coverage may be denied or limited, or premiums may be raised in line with the increased risk.
CI insurance has particular appeal among affluent clients; they are the most likely to be able to absorb the premiums with little impact on their budgets, while also being more sensitive to the potential for having to scale back their lifestyles significantly during a period of trauma when they are coping with a life-threatening illness.
LTC insurance carries fewer benefits, paying out only if the policyholder suffers from an illness or injury that prevents him or her from performing at least two daily living activities, such as eating, bathing or dressing.
Bruce Cumming, the owner of Cumming & Cumming, admits he used to be a critic of LTC insurance, arguing that most people can count on a spouse or another family member for care. But his experience has shown that even the most natural caregiver may not be able to handle full-time nursing duties. He now recommends the product to couples when there is a risk that one partner’s health could deteriorate more quickly than the other’s. IE
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