Revisiting Protection

Filling In The Knowledge Gaps Of Life Insurance

Answering your clients’ top 6 life insurance questions

by Adam Winslow

Mr. Winslow is Chief Executive Officer of Life Insurance at AIG Life & Retirement. Visit aig.com/LifeIQ

Amidst this moment of uncertainty, Americans are thinking—perhaps now more than ever—about how to best protect themselves.

Life insurance and the protection it provides are critical components of a secure financial plan, but AIG Life & Retirement’s recent Life Insurance IQ Study highlights the pervasive knowledge gaps when it comes to knowing how life insurance works and how it can solve for many different financial challenges.

More educational conversations need to take place to help close the knowledge gap, but where to begin? Our study points to the topics advisors and agents can talk about with their clients to boost their life insurance IQ and ensure they have the proper financial protections in place.

Here are common questions your clients might have about life insurance

Who Needs Life Insurance?

Our study shows that Americans recognize the need for protection; seven in ten respondents say life insurance can protect their ability to afford a long, financially secure life.

Further, they are broadening their perspectives about who needs life insurance, overturning many long-held misconceptions. There’s a much better understanding that life insurance isn’t only for breadwinners, parents of youngsters or married couples:

  • 90 percent believe that stay-at-home parents can benefit from life insurance, and 80 percent believe that the primary earner shouldn’t be the only household member with life insurance.
  • 88 percent believe that you still may need life insurance after your kids turn 18.
  • 78 percent say singles may also benefit from life insurance.
  • 52 percent of those in relationships go as far as to say they would feel abandoned if their partner died without life insurance.

Yet, while traditional perspectives have broadened, and most Americans seem to understand life insurance to be a vital form of financial protection, this does not translate into action often enough.

Starting the conversation with your client by discussing who can benefit from life insurance can help them put things into perspective and think through the bigger picture. Together, you can identify the value in life insurance for their individual circumstance.

Ask your clients about their financial goals, as well as the fears keeping them up at night. Dying unexpectedly is probably a large concern but encourage clients to also think about how a chronic illness might disrupt their financial plan. Talk about if they have enough money put away to support themselves through a long retirement.

How Much Does Your Client Need?

According to our study, 51 percent of respondents don’t have, or don’t know if they have, life insurance, potentially leaving their families vulnerable to considerable financial risks. This coverage gap extends far beyond our study sample: an analysis from the industry research organization LIMRA finds the difference between the amount of life insurance Americans have and how much they need is $12 trillion, a staggering figure which amounts to about $200,000 per family.
The truth is that the amount of life insurance needed depends on your client’s overall financial picture, debts and goals, and wishes for the future. Who depends on them? How would those people be impacted if they were to die? What would their dependents need financially to keep going? By mapping out financial obligations and dependencies, advisors and agents can help their clients pinpoint how much life insurance they need.

Once you’ve had these conversations, encourage your clients to have the same ones with their partners. Couples typically want to be on the same page, so they know how to manage financially in the case of a loss. Ensuring your clients have checked these boxes can bring them peace of mind that, come what may, they and their loved ones will be cared for financially.

Is chronic illness a top concern of theirs? What is their family’s health history? How have elders in their family been cared for and what are they envisioning for themselves? Are they thinking about a potential future need for health care?

Illustrating The Difference Between Term And Permanent Insurance

As their names suggest, a fundamental difference between term and permanent life insurance is the duration of coverage, but Americans do not have a solid understanding of the features that make these products unique. Importantly, many are unaware of the full range of benefits permanent life insurance can offer during their lifetime, such as withdrawing from the cash value, saving for the future and building tax-deferred supplemental retirement income.

Helping your clients to understand the difference between term and permanent life insurance is a critical step in helping them evaluate their options. Term is often preferred for temporary, short-term needs while some prefer the lifelong protection and cash value that most permanent products offer.

Here is where the conversation with your client will go a level or two deeper: What is their overall budget? How do they project their income and their costs over time? How might the type of protection they need change over time? When might nearer-term financial obligations be replaced by longer-term ones? Are they concerned about their future insurability? Do they want a way to build a supplemental retirement income stream for themselves or to cover their health care costs as they age? How does leaving a legacy fit into the big picture?

Understanding these nuances can ensure your clients and their loved ones not only right-size their protection to align with their financial goals, but also select the right type of protection.

How Can Living Benefits Help Your Clients?

According to the study, an overwhelming majority of respondents (92 percent) don’t realize the full range of benefits permanent life insurance can offer during their lifetime. While the death benefit is often the most well-known reason for buying life insurance, living benefits such as withdrawing from the cash value or taking out a loan can serve as a saving grace in a time of need.

For example, permanent life insurance can serve as a real lifeline especially for individuals interested in building wealth while protecting against loss, or for those who do not want to be financially dependent on others if they were to become chronically ill.

Talk to your clients about how living benefits of permanent life insurance can provide value long before they are gone.

How To Utilize Cash Values?

Only 27 percent of respondents recognized the ability to withdraw from the cash value as a key feature of many permanent life insurance policies.

Help explain to clients what the cash value is and how it can be used while living to address any number of financial concerns. In the current climate, building a supplemental retirement income stream may be top of mind. Ask your clients if they would like to know more about lower-risk options they could lean on in the midst of an uncertain market. Might they want a source of income different from their retirement plan savings? If the answer is yes, assess whether a policy with a cash value could be a solution.

Life Insurance And Health Costs

Many of your clients will need to tackle the challenges that come with longer lives, and the cost of care is one potential pain point. Health care can present significant financial challenges, and the thought of not being able to afford the necessary care when needed most can be paralyzing.

When asked to pinpoint concerns about aging, survey respondents pointed to their health as the biggest source of worry. Forty percent said their top fear is getting diagnosed with a chronic illness, versus 34 percent worried most about running out of money and 25 percent selected dying young.

Your clients may not know that certain life insurance policies can help ease the burden when thinking about health care costs. Have a conversation about the worries and questions they may have regarding these types of costs to be able to offer appropriate solutions. Is chronic illness a top concern of theirs? What is their family’s health history? How have elders in their family been cared for and what are they envisioning for themselves? Are they thinking about a potential future need for health care? Alerting your clients to how permanent life insurance can help solve for these challenges may help ease their concerns about the future.

Just as estate planning, retirement security and wealth accumulation are often discussed and planned for, life insurance should also be an important part of conversations financial professionals are having with their clients.

Your clients may be worried about themselves and their loved ones, especially in the current climate. Advisors and agents alike are in a unique position to serve as educators and help Americans understand how life insurance can help in dealing with difficult scenarios—the ones no one wants to think about, but we all need to prepare for.

 

 

 

Policies issued by American General Life Insurance Company (AGL), Houston, TX except in New York, where issued by The United States Life Insurance Company in the City of New York (US Life). Issuing companies AGL and US Life are responsible for financial obligations of insurance products and are members of American International Group, Inc. (AIG).