By: Matt Meyer
Matt Meyer, co-founder at The BluePrint Insurance services is a contributor for Nasdaq.com. The below article can also be viewed at Nasdaq.com. Please click here.
As a person who has spent twenty years in the business of life insurance, I get a good chuckle when I hear it is “Life Insurance Awareness Month.” My knee jerk feeling is usually, “so what?” I can appreciate the idea of “awareness” putting a spotlight on life insurance and the importance it can play in someone’s life plan. However, to make a real difference, we need an awareness month followed up by an “action” month. I think most people can agree that life insurance has its place in a client’s overall plan, but the follow-through is where there is a disconnect. As my previous articles suggest, my business mission is to help financial professionals be more comprehensive in their approach with clients. It is to help them take action. I feel a financial professional can provide significant value to their clients by being the financial quarterback to initiate these types of conversations. This month I want to focus on actionable ideas as part of Life Insurance Awareness Month.
Covid-19 has hopefully provided you with a new perspective or reinforced what you already know…life happens! It is funny to me how I often hear “it won’t happen to me” or how “impossible” specific outcomes are only to see them happen regularly in our lives. The financial concept of “Family protection” fits perfectly into this box. If someone is married and has children, the family protection conversation is a must. You cannot make someone buy life insurance to protect their family, but I think it is an advisor’s responsibility to have the conversation. Term insurance is inexpensive, and the protection it provides is immense. I can tell you story after story of people who never believed dying young was a possibility only to have that fate, unfortunately. The ones that had protection in place helped make a terrible event, more manageable. The ones that did not have protection in place left their family with not only having to deal with their death but also the fear and anxiety of how to move forward financially. It all starts with a simple conversation today. Provide the client with a simple path to understanding the “what if” scenario and how much coverage would be appropriate given the family's situation.
“It won’t happen to me” exists in the business owner world too. However, sometimes a business can add more layers of complexity in the event of early death. Sadly, I have seen successful businesses evaporate overnight when the owner or a key employee passes away. A business can impact the family of the business owner, as well as the employees and their families. Having a proper plan in place can be the difference for ensuring those people, as well as the business, is protected. Just like family protection, it starts with a conversation and asking the right questions. If you don’t know where to start, feel free to contact me and I can provide you a shortlist.
Don’t Forget About Those Taxes
Life insurance is unique. It has tax advantages that many investments do not. Below is a high-level summary.
1. Structured appropriately benefits can be income and estate tax-free. Think about that. In a world where most people expect higher tax rates, this vehicle can not only provide you leverage on your dollar; it can be tax-free as well.
2. Income tax deferral- Permanent insurance allows for accumulation. The money that grows inside the policy grows tax-deferred. Some people will overfund their policy so they can defer taxes on the growth and use the excess funds in the future.
3. Tax-free income with loans - In certain circumstances, a policyholder can access the account value they have been deferring in a permanent policy tax-free by taking loans from the policy. For some financial planners, they purposely create a strategy for tax-free income in retirement with this strategy.
Do You Want to Start Small?
As we suggested earlier, you may think these ideas make sense, but putting them into action may seem hard to you. If you want to start small but have a big impact, you should consider offering policy reviews. Many of your clients already own life insurance and often know little about how they work, whether they have the right coverage or if the coverage is still relevant to their needs. Providing policy reviews is a simple way to add value and to start incorporating the risk management conversation. So, in the spirit of Life Insurance Awareness Month, one easy idea to take action is to contact your top clients or those scheduled with you in the next month and ask them to bring in their existing policies. My hope is you take action for the betterment of your clients and your business.