“Drive the hearse up to the client’s front door and let them smell the flowers,” was the mildly repellent metaphorical tip favoured by old-time life insurance salesmen.
I haven’t heard this suggestion for some years and one might suppose that none of the string of regulators we have enjoyed for over two decades would have approved of the approach that this sentiment implies.
But it is still imperative for financial planners to help clients understand why they should divert what could be several hundred pounds a month to pay for protection.
Nowadays there are different, and possibly more effective, ways to persuade clients of the need for insurance and why they should make the outlay. The protection pages of the Taxbriefs Professional Adviser’s Factfile provide advisers with some powerful ammunition.
First of all, the flow chart and life cover calculator show how calculating the amounts of insurance needed are based on a logical process linked to the client’s circumstances and wishes.
Most people have very little idea of what the odds are of their dying prematurely. So it can be useful to be able to answer clients’ questions authoritatively about their risk of dying during their working life and after.
The Professional Adviser’s Factfile contains various mortality tables showing life expectancy at birth and then from age 65. Other tables demonstrate the chances of a person dying in the next 10 years at five-yearly intervals between age 20 and age 95. And another table shows how life expectancy has improved over the decade between 2001 and 2011. The quick non-disclosure guide for consumer insurance can then be a helpful document to go through when completing a proposal form with a client.
But perhaps the best way to help clients make committed and well-informed decisions about their life and health cover is to use the cut-down insurance rate-book for life, critical illness and income protection insurance. It shows the monthly premiums for various ages, terms and sums assured. It has proven to be very effective for educating advisers and paraplanners but it also helps to provoke productive discussions about priorities with clients, especially at an early stage in the planning process.
The rates are obviously approximate so the tables just provide a very rough guide and it is important to emphasise that point with clients, especially if you are extrapolating for higher or lower amounts of cover.
What’s more, there is underwriting to get through and clients need to understand that the actual rates could turn out to be very different from either the rough guide or the proper quotation.
But having access to this kind of information helps clients to get to grips with the comparative costs of cover in its various forms. That should help inform discussions with clients about levels of cover that they can afford and really need as well as the priorities between different kinds of insurance.
So, for example, you have established in the fact-finding process that a 40 year-old client has a need for additional life cover of around £500,000 as well as income protection and critical illness insurance. To provide flexibility, the ideal would be for him to take out convertible term at about £65 a month. But let us assume that the client could compromise by shortening the term to 15 years, saving about £7 a month – just over 10 per cent; or he could switch to a level term costing about £43 a month and save over a third. All very easy for the client to understand, and useful information to them as they ponder their decision.
Of course, you can achieve that with the normal computerised quotations systems but it would take longer to establish the principles and the message would probably be less clear and take longer to deliver.
Any client who wanted to have a life policy that paid a surrender value could immediately grasp the cost of this eccentric – but still quite common – request, by comparing the rates for whole life non-profit and level or even convertible term. The premiums for the equivalent sum assured would be over eight times as much as the 20-year level term.
There are specimen tables for critical insurance and income protection. A huge cost saving can be made by setting up IP for 52 weeks’ deferral, but that would require the client to have either continuing income for at least the first year of illness or a very large rainy day fund – both of which have financial planning implications.
Unsurprisingly, there is a substantial discount for writing IP to age 60 rather than 65 because of the relatively high frequency of claims in the last five-year period; but such a decision would only make sense if the saving was invested in additional pension provision.
An outline rate book is helpful in putting together the first rough life and health protection budget for initial discussion with the client when working out broad priorities.
Danby Bloch is editorial director at Taxbriefs
The Professional Adviser’s Factfile is the essential sales aid for busy financial advisers. A single-source compendium of key facts and figures, Factfile supplies monthly updates, targeted statistics and concise explanations of core concepts so that you can focus on providing quality advice. Readers of Money Marketing who are new subscribers can order Professional Adviser’s Factfile for a 10 per cent discount using promo code ARTM. Simply call 020 7970 4142 or visit www.taxbriefs.co.uk/paf