Why clients need life insurance as part of holistic planning

Investors need holistic planning and cash value life insurance fits into that planning, said Daniel Jack at the National Association of Insurance and Financial Advisors Apex conference.

Jack is director of advanced markets at Kansas City Life and is a former Kansas State Securities Commissioner.

He cited statistics from Edelman Financial Engines that said only 6% of registered investment advisors’ revenue comes from life insurance. What mistakes are investors making regarding life insurance? Not buying insurance at all; not buying enough coverage; automatically buying the cheapest policy; thinking illustrations are fact, and viewing the purchase as a one-time activity.

Charitable planning is one avenue advisors can use to get into the life insurance market, Jack said.  Fidelity Investments research showed 75% of entrepreneurs say charitable giving is a critical part of who they are. “When talking to business owners, this is a way to get them in the door – life insurance,” he said.

“Charitable giving is a nonthreatening topic to engage a family in planning and legacy conversation,” Jack continued. With Fidelity estimating $68 trillion of wealth will transfer to heirs over the course of the next 25 years, there is another opportunity to introduce clients to life insurance, he said.

Younger investors also provide opportunities for advisors to discuss life insurance. “Three-quarters of millennials identify as philanthropists. When we’re talking to this audience, life insurance should be part of the conversation,” Jack said.

Cash value life insurance can offer a benefit to loved ones after a client dies, but it can also be a financial asset during a client’s life, he said. “Permanent life insurance enables you to invest in conservative investments such as mutual or exchange traded funds.”

Jack listed some ways clients can use their life insurance as an asset class: take a loan from the policy; use the policy as loan collateral, withdraw funds, opt for accelerated benefits, or surrender the policy and use the resulting cash in a 1035 exchange to put that cash into an annuity for lifetime income.