Personal trustees of life insurance trusts have a much bigger job than they think. Advisors need to help trustees understand their role and work with them to assure clients that the family is protected.
When an advisor suggests that clients utilize life insurance as part of their charitable giving, two primary things happen. First clients are exposed
to an excellent and affordable way to have a major impact on their favorite charities. Second, the advisor becomes a hero by offering an exciting
solution that can strengthen the relationship between advisor and clients.
For almost all of my time in the industry, term policies have been convertible to permanent coverage. The right was automatic, just a part of the contract that everyone bought. Today, the privilege has been modified to being something less than it used to be or even optional. The question is whether advisors should take the option by way of higher price or selection of a carrier that offers it. Of course, as with many other elements of insurance design, the answer comes down to client needs and objectives. It can also come down to whether it is a good deal or not.
We know you have seen it on your clients’ balance sheets: the often unsuitable and expensive whole life policy that got slipped in by our friends at Acme Mutual. There are good reasons for whole life, but that is not always the case. Even if they started out well, older whole life contracts may have suffered from declining dividends (constantly for the past 10 years or so), changes in client objectives, and unmanaged policy loans. We won’t dwell on those cases where the client should have owned term in the first place.
While fee-only advisors know they should be fully on top of their clients’ personal insurance issues, a much smaller number actually do this work. This represents one of the greatest lost opportunities we have seen in the otherwise excellent work performed by fee-only advisors. The failure to help clients navigate and manage their important insurance assets, can cost the clients and the advisor. From the clients’ perspective, great planning can be upended by insurance mistakes. And from the advisor’s perspective, you are not fully performing comprehensive planning – and – you are giving up a source of fully justified revenue.
Believe me. Your clients want you to help them with their life insurance. That includes what they buy, how they track and manage their policies, and when it’s time to change their coverage. In the past, most of us relied on a life insurance agent to tell us these things. But as we now know, many of those agents have a divided loyalty to their particular carrier, and many agents simply disappear after the sale. Turnover in the industry is quite high.