Financial Planning Isn’t Just For Retirement

When people think of financial planning, the first thought that often comes to mind is saving for retirement. Although this is a very important aspect of financial planning, it is only one piece of the puzzle. Saving $1,000 a month won’t accomplish much for someone if there is a premature death, disability or illness one year into their plan.

No one likes to think about their death or other potential misfortunes; however, the reality is that ignoring these unpleasant events can throw a serious wrench into your financial outcomes.

Communicating An Individual’s Economic Value

We have all heard someone utter the phrase “I’m worth more dead than alive” in jest. However, it is unlikely anyone is worth more dead than alive. Many clients haven’t considered what their economic value might be. We all insure our cars, homes and other material assets, but not many people can say they insure their ability to earn an income. In fact, when asked, most people will tell you that their largest asset is their home, which likely pales in comparison to their income-earning ability.

Consider this: a 30-year-old earning $5,000 a month who receives a 2% raise each year has potential earnings of more than $2.9 million by the time they reach age 65. Pose the following question to your client: “If you had a money-making machine in the basement that was going to produce $2.9 million between now and retirement, would you insure it?” Of course they would. Protecting this asset should be a top priority, and insurance is a great way to do just that.

Establishing The ‘Why’

Asking what a client’s goal is if they die prematurely can be an uncomfortable subject to broach; however, it is an important question to ask because there is no right or wrong answer and different people have different goals. Remember, these should be the individual client’s goals — not the agent’s, not the father-in-law’s and not the co-worker’s. Everyone has an opinion, but prioritizing clients’ needs takes precedence and helps eliminate buyer’s remorse. Any advisor can use basic needs analysis tools to reach a number. By simply adding the reason for each of those goals, clients will have a lot more conviction about what they decide to purchase and the value you bring to their financial planning.

Presenting life insurance as a tool used to help achieve a goal can be an effective approach. For example, those with dependents may want to ensure that their survivors can stay in the family home, as it represents security and the memories of their lost parent. While a needs analysis tool might ask for the balance of the mortgage, the agent should ask why it is important that the survivors are able to continue living in the family home, so their coverage can include and align to what they feel strongly about. Others may not feel the same connection to the family home, but the same conversation should take place for other immediate needs such as debts or their children’s education. It is important for advisors to have these conversations and help determine the “why” behind the life insurance purchase.

Instilling Confidence In Policies

Many clients can tell you how much life insurance they own, but telling you why they own that amount is another story. Shifting their mindset is an easy process for an advisor to undertake, yet this is not common in the industry.

Still not convinced? Which of the following clients will have more conviction in their policy: Client A, who can tell you they own $500,000 of life insurance, or Client B, who can confidently state that they have enough life insurance to pay off their mortgage and all other debts, provide each of their children with $100,000 toward their education, and replace their income until their youngest child is 25?

The bottom line is that establishing a need for life insurance and the “why” is an integral part of the financial planning process that must be treated with the same level of attention and detail as retirement income planning. Every advisor has similar tools at their fingertips. Advisors who focus on the planning side of life insurance and who establish strong needs that are important to their clients will always separate themselves from the pack.

Jed Levene, CLU, CFP, is a financial planner with Rockwater Wealth Management in West Orillia, Ontario, Canada. He is an 11-year MDRT member.