Buying life insurance is not like buying a new car

By Joshua Powell

For many people, purchasing their first car and purchasing a life insurance policy are two major milestones on the road to adulthood. Although both are significant rites of passage that deserve thoughtful consideration, a car and life insurance are two very different purchases that each deserve explanation. However, today’s younger clients are more likely to understand specifics about car purchases than about life insurance, so using this analogy as a point of comparison can lead to beneficial discussions to help educate customers on the benefits of purchasing life insurance.

Appreciation vs. depreciation

A commonly quoted statistic says that new cars lose 10% or more of their value After they leave the dealer's lot. It's also known that any vehicle will lose value more rapidly during the first five years of ownership. Therefore, a car's best day, financially, is its first day.

But unlike a car, whole life insurance can appreciate over time. A well-funded whole life policy can start off at its lowest point and only improve from there, offering a unique financial vehicle that is valuable for its flexibility over a customer’s lifetime - making its first day its worst day.

Many financial professionals dread the moment they need to talk to clients for their annual policy reviews. Depending on the policy purchased and the market fluctuations, it’s possible the policy didn’t perform as expected, and there may be performance-related questions to answer. All these issues can create a tense dynamic between agents and clients.

Introducing whole life insurance solutions in the insurance planning discussion can alleviate the anxiety associated with policy review meetings. The stability and performance of whole life insurance can provide security and peace of mind, especially for clients who are cautious about financial risks.

While you wouldn’t suggest a client purchase life insurance instead of a car, or vice versa, comparing the products helps paint your clients a picture of the benefits they may otherwise struggle to envision. Whole life offers strong guarantees that usually make the first day the worst day. In the first year of a policy, carriers pay for the commissions and underwrite the policy. From there, it’s guaranteed to get better, contractually better, each year with strong early guaranteed cash values. Plus, highly rated mutual carriers have a long history of paying dividends that improve the policy's performance.

When selling whole life policies, you’ll appreciate the opportunity to have annual client review meetings. During these meetings, you may be able to pull out the initial plan and demonstrate how the policy has performed even better than previously shown.

Life insurance provides post-purchase flexibility

While there are after-market add-ons to spruce up a car, for the most part, a car is a static purchase — and aside from becoming a rideshare driver, owners don’t look to their vehicle for additional sources of funds. Contrast that with a whole life insurance policy, which offers clients flexibility through policy loans or additional funding.

Policy loans, often misunderstood, can be a valuable tool in a client's financial toolbox. When clients take out loans, they borrow not from their policy but from the company's general fund, with the policy’s cash value serving as loan collateral. This allows the guaranteed value in their policy to continue growing uninterrupted, providing a unique financial advantage.

Planned correctly, leveraging the cash value accumulation in a whole life policy can enable clients to pay off debts, which leads to potential increased cash flow, possible tax reductions, and perhaps even more significant retirement savings.

Alternatively, a well-performing whole life insurance policy could be the right option for some clients with excess cash, allowing them to benefit from the advantages of participating whole life, including high cash value growth and dividends. Clients looking to build wealth or leave a legacy will appreciate this solution.

Protection provider vs. risk maker

A third key difference between purchasing a car and a life insurance policy is the benefit it provides. Although a car provides valuable transportation, having and driving a car is a risk that must be insured and, in addition to monthly payments, an expense that must be managed through maintenance and service. On the other hand, a life insurance policy offers consistent protection for the premium provided, with no additional expenses required beyond the agreed-upon premium payments. It protects beneficiaries if the policy owner dies too soon, enabling them to live the life planned for them by helping keep a roof over their head, providing food to eat and continuing their education.

Clients shouldn’t have to choose between purchasing cars and life insurance — but they should have the knowledge to understand how these different types of purchases will impact their finances and their families — so they can have both. Using concrete examples and language that clients are familiar with to educate them on product features and solutions, rather than focusing only on product illustrations that insurance professionals are familiar with, can help you develop deeper relationships and uncover more sales opportunities.

Joshua Powell is a life recruiting manager at Mutual Trust Life Insurance Solutions, the U.S. life insurance division for Pan-American Life Insurance Group. Contact him at [email protected].