Why you should discuss insurance with HNW clients

By WJ Rossi

An integral part of the financial planning process is understanding what your client needs, versus what’s a nice-to-have.

For example, a client who supports their family with their paycheck may need disability insurance with an income rider to ensure they still have income despite the challenges. Much of the typical insurance advice goes out the window when working with a high-net-worth (HNW) client.

For these clients, the ideal recommendation is dependent on how the policy supports liquidity, efficiency and legacy goals. Insurance conversations with HNW clients should be focused on how they can control their assets, rather than the security their assets provide. Focus on specific goals based on the client’s capital and develop plans that leverage their assets appropriately, therefore developing lasting trust and confidence as their advisor.

Understanding HNW clients

Each client has a different story. Their needs depend on their values, lifestyle and assets. HNW individuals have a unique set of needs in comparison to the average person. Their financial situation often brings challenges like high estate taxes, a desire to protect their assets and leave behind a legacy for heirs or charities.

These needs are best met when advisors approach the situation as a coach and educator rather than a salesman. Reframe your line of questions to focus on understanding what they find most important. For example, questions like “What protection do you need?” can be altered to “What are you looking to protect or accomplish through our work together?”

HNW clients likely already work with a myriad of other professionals like attorneys, accountants, bankers and more. They often have high expectations for your work and may already have advice on what they need from their established team of professionals. This is important to consider when developing your approach to any financial recommendations.

These HNW people have already developed strong financial standing. To account for this, use words they are familiar with and understand clearly. Discuss how these steps allow the client to have control over their wealth, leverage their assets to their fullest ability and efficiently manage their estate.

Insurance as a tactic

It’s no secret that the challenges of your HNW clients are different than many. Your other clients may view insurance as a necessity that eases their concerns for potential tragedies. HNW clients see insurance as a financial lever, more of a part of a math equation than an emotional decision. For example, a HNW client’s estate will face high taxation when distributed. Approach your recommendation as a solution to their worries. For example, you may frame a policy like:

“Would you rather pay estate taxes dollar-for-dollar, or use a portion of those funds to cover the same tax obligation through a life insurance policy?” Notice how this language acknowledges the person’s needs while also describing the relationship between the policy and tax planning.

Additional examples of strategies include:

Liquidity planning: Business owners and farmers can leverage life insurance policies to create cash liquidity at death, preventing heirs from being forced to sell the business from high tax and operating costs.

Varied policy structures: There are times where the client will want to pay a single-premium lump sum to fund a policy or look to pay over time. Provide insights into how they can avoid a policy from becoming a Modified Endowment Contract (MEC).

Long term care: Wealthy clients could self-insure if they need long term care. Some may have life experiences that make LTC policies still feel valuable. For a client worth $20 million, it’s not about how to afford medical needs. They want to know how to get the most out of every dollar they invest.

Whatever the situation, it all goes back to having a deep understanding of what the HNW client wishes to achieve. Positioning a policy as leverage resonates deeply with these clients who respond strongly to strategy over emotions.

Education builds trust

Education is a vital part of any client relationship, but it takes on a slightly varied role for those in high tax brackets. They aren’t looking for convincing that insurance works or is necessary.

What they seek is understanding how a policy would be important to their strategy. I like to remember that my job is not to create urgency for them. My goal is to enhance the efficiency they have already built. You can stand out to HNW individuals by providing thoughtful explanations, transparent math and goal alignment.

These methods build trust that is necessary to act upon your recommendations. Without trust, the HNW clients will take their business elsewhere. But if you can establish a strong relationship through your education efforts, you will open the opportunity to develop further complex financial plans together.

HNW clients have a unique set of challenges and desires. While many are already interested in working with advisors to identify further financial efficiency, few automatically see insurance as a way to get them there.

Look for opportunities to weave in how insurance options could help them control their assets while aligning with their specific goals; developing lasting trust and confidence as their advisor.

About the MDRT Member
WJ Rossi, CFP, ChFC, is a partner at Koss Olinger Financial Group, a wealth management firm in Gainesville, Florida, USA. He is a 22-year member of MDRT and has achieved Top of the Table status, MDRT’s highest level of membership, for 19 consecutive years.
Mr. Rossi is an investment adviser representative of Koss Olinger Consulting LLC (the “firm”). While the firm generally acts in a fiduciary capacity for its clients when giving investment and financial planning advice, the firm’s supervised persons and affiliates earn commission-based compensation from the sale of certain insurance products under certain circumstances. Please see the firm’s ADV-brochure, items 5 and 10. This article provides general educational information and is not intended to be personalized or specific investment advice to any client.