Why client insurance needs could change even if their life doesn’t

A client’s insurance needs are never set in stone.

In fact, they can and likely will change even without a major life event. As an advisor, it’s important to recognize the less obvious factors that can alter someone’s situation.

“Most financial professionals watch for the ‘loud’ insurance triggers: marriage, birth, divorce, death. The quiet ones are just as important, and easier to miss,” explained Seth Miller, chief distribution officer at Empathy.

By committing to annual and periodic reviews, you can identify gaps that may otherwise go unnoticed.

What can prompt a shift in insurance needs?

Many clients assume their insurance needs will only change when they get married, start a family, buy a house, retire, or go through another major life event.

The reality is that their coverage may require adjustments without any of these milestones. Inflation, for example, can change the amount of protection someone needs.

“The cost of healthcare, rebuilding a home, replacing property and even replacing someone's income can be very different than it was several years ago,” said Jennifer Schaefer, founder and CEO of JS Benefits Group.

Career transitions may also warrant a new insurance plan.

“Someone may have gotten a significant raise, moved into a different position, or taken on more responsibility at work. Their employer benefits may have changed too,” Schaefer said.

Even when an employee stays put, their benefits can change from year to year.

“I see this a lot with health insurance. An employee remains at the same company and still has a very different health plan than they may have had a year ago,” Schaefer explained.

Deductibles, out-of-pocket costs, networks, prescription coverage, and plan design can all change.

In addition, lifestyle changes can affect a client’s insurance needs. More travel, working remotely, buying another property, or simply taking on more financial responsibility can increase the amount of risk someone is carrying.

How to spot outdated coverage

Every year, sit down with your clients to review their current financial situation and circumstances.

“I would start by asking what the client owns, what they owe, what they earn, what benefits they have through work and what insurance they currently have,” Schaefer said.

Then ask a simple question: If something happened tomorrow, would the coverage they have actually protect what they have today? That is where you often find the gaps.

Also, remember that employer benefits often get overlooked.

Clients will often say, “I have life insurance through work,” or “I have health insurance through my employer.” This is all well and good, but it’s important to ask: How much coverage is available? What does it actually cover? What happens if they leave the company? Has the plan changed?

The goal of annual reviews isn’t necessarily to change coverage every year. It’s to determine whether existing coverage still aligns with a client's financial position, assets, liquidity needs, family and business responsibilities, health and lifestyle circumstances, and retirement or estate-planning objectives.

Whatever you do, don’t assume that nothing needs to be changed because nothing major has happened.

Also, look beyond the amount of coverage a client has.

“The limits, exclusions, deductibles, beneficiaries and other provisions are just as important,” Schaefer added.

Miller agreed that annual reviews are effective but only when they’re supplemented with periodic reviews.

“A yearly conversation provides an important checkpoint, but many coverage-relevant changes occur between scheduled reviews,” Miller explained.

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