My Investopedia Posts

Halfway measures don’t help anybody – except the broker

How many times have you come across a prospect who had a permanent policy, and was wondering what to do with it? Way back when, some life insurance salesperson convinced them to buy a whole life or universal life product. The rationale was along the lines of, “you can have permanent coverage, and also grow cash so you have something to show for your money.”


The idea of growing some cash while they are alive probably appeal to them because, after all, they wouldn’t personally benefit a dime when the claim is finally paid. They will have passed on. (And, of course, the sales person makes more money in commission because the premium on a permanent product is higher than on a term policy.)


Yet, here they are some years later, wondering why the heck they did this. They don’t have enough survivor benefit; the cash is nothing really to brag about; and they’d like to know how to reduce the cost of their coverage. The sales person did OK, but the client is not OK, and that is not a good situation for a sales person to put any client in.


The state of affairs can be avoided by simply following some basic principles when trying to do the right thing by the client in a life insurance sale.


1. Make sufficient coverage the priority.

Life insurance is first and foremost for the beneficiary. The people in your client’s family, business, and favorite charity need to be protected against the loss of your client.  And, one really doesn’t know when the time may come, so make sure the face amount is large enough to cover everybody’s needs now.


2. Then, secure a guarantee for as long as the coverage is needed.

One you determine the correct face amount for your client, then make sure the premium and death benefit are guaranteed for as long as they will need coverage. This deserves some thought. With some people, it could be for a fixed amount of time; with others, it could be for their lifetime. Make sure both the premium and death benefit are locked in for the entire period, so they don’t risk the policy getting too pricey later on.


3. Then, and only then, put extra cash into the policy.

Once the face amount and coverage period have been secured, then your client is free to put extra money into the policy for living values. Remember that it should be an amount they can commit to, so that the policy can accumulate cash as expected.


Designing a policy with these priorities in mind, will avoid the situation of your client wondering why you sold them the policy in the first place.

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