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Does insurance complement your client’s investment portfolio?

Bryce Sanders

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When people complete a financial plan, their personal investments often play the leading role. Insurance should also play a role. Here’s how you can work it into client conversations.

Stocks are exciting. Insurance is boring. At least that’s the way many clients feel. Day trading stocks on your phone is not that different from gambling. Fortunately, many people understand the importance of financial planning and will invest the time to make the process worthwhile. Where does insurance fit in? It fits into the many goals of your clients. 

Clients want their children to have the best education possible. They need to plan for weddings. The biggest goal on most people’s minds, though, is planning for their retirement. That’s an area where insurance often enters the conversation. 

When people complete a financial plan, their personal investments often play the leading role. Insurance should also be accorded a place of honor, a seat at the table. 

1. Steady growth. Traditional life insurance policies build cash value over time. Under ideal circumstances, the cash value grows to the same size as the death benefit over many years. The stock market tends to move in cycles over time. Insurance quietly builds value. 

2. Income when you need it. What’s the definition of a comfortable retirement? For many clients, it’s having sufficient income to allow them to live the lifestyle they want when they’re no longer earning a paycheck. Put another way, they reach a point when they don’t need to continue working. In many countries, a life insurance policy can be exchanged for an annuity without triggering a taxable event. If you have stocks and later determine the time is right to own bonds and collect income, selling stocks in a taxable account means capital gains taxes are due on your profits. 

3. Money when you need it. The pandemic taught us that an emergency fund is important. Your client might be looking good on paper when the stock market is rising, but the stock market is often falling when they discover they need to lay their hands on some cash. Yes, they can borrow against stocks, but this can trigger margin calls if the stock market continues to fall. Many life insurance policies include a feature allowing you to borrow against the policy’s cash value. 

4. How’s your health? Everyone needs health insurance. Even in countries with universal health care, there are times when expenses aren’t covered. In the United States, although Medicare provides great coverage, it doesn’t cover everything. Clients need to buy supplemental health insurance. This is a serious expense because health care costs and health insurance premiums have been rising faster than the rate of inflation. 

5. Long-term care. Your client hasn’t intended to spend their life savings paying for assisted living expenses. They don’t want to be a burden to their family. Part of financial planning is considering “what-if” analyses. Might they need this care? What would it cost? How would this expense be funded? 

6. Estate taxes. Clients might think: “I don’t need to worry about that.” According to the Credit Suisse Global Wealth Report, there were 18.6 million millionaires in the United States in 2020. Tax laws change over time. There’s often talk about changing the estate tax threshold at the federal level. States have their own rules. Life insurance can be an integral part of estate planning strategies. 

Clients might see the stock market as their road to wealth, but it’s important for clients to realize insurance often performs functions that stocks cannot. 

Bryce Sanders provides high-net-worth client acquisition training for the financial services industry. His book, Captivating the Wealthy Investor, can be found on Amazon. 

 

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