Back in the old days kids would buy a comic book for 10 cents (5 cents if the cover had been removed for re-sale) and peruse the back pages for ads that peddled everything from x-ray glasses to work-out programs that promised to make you into a he-man in two weeks. Purchases were made by mail and paid for with cash, checks or stamps. Buyers were alerted to allow 4-6 weeks for delivery!
Not today. Now “graphic novels” cost around ten bucks and things kids need are purchased online with delivery assured almost the moment of the last key stroke. Comedian Steven Wright described the acceleration of the pace of life well when he said, “Last night I made some instant coffee in my microwave oven and it almost went backward in time.”
The insurance industry has responded to the fast pace to which a new generation of buyers has become accustomed with abbreviated and accelerated policy underwriting and issuing programs.
And now you can do the same in drawing conclusions with regard to determining financial need for coverage in less time and little financial information. Try this:
For most people, there is only one need
If a client doesn’t have estate tax concerns, then the only insurance need he or she has is for income replacement protection. If a family is managing its affairs properly then maintaining its anticipated income level for the anticipated number of working years left will allow for maintaining the household and achievement of retirement goals.
Coverage for that need is easily calculated
Simply take the client’s current earned income and multiple it by the number of working years that remain. In fact, because a death benefit is received income-tax free, use of after-tax income would still be adequate, but allow for a reduction in the amount of coverage sought.
Protection can be purchased economically
Coverage is needed for a known period of time (i.e. estimated number of working years remaining). This is exactly when term insurance is needed. There is no reason to buy higher-priced permanent coverage. Beyond retirement clients may want to maintain some coverage for estate liquidity, but they can either apply for new permanent coverage or exercise the conversion privilege under the term policy.
The cost is guaranteed and can reduce over time
Clients can “lock-in” the cost of their income replacement protection with guaranteed level term insurance for a period that covers the number of anticipated working years. As the number of working years reduces with time the death benefit on the policy can be easily reduced. But often the face amount is left level to accommodate for raises, bonuses, or inflation.
A two-policy proposal
Don’t forget coverage on a spouse, especially if he or she is also a wage-earner. But even a stay-at-home spouse raising children should be considered for insurance in an amount that would allow for providing the services necessary to keep the household in its accustomed style and schedule of life.
This simplified sales process also allows for more profitable execution of a term sale which, given the lower premium size, is less cost effective for you in terms of commission revenue.
Groucho Marx once commented on the pace of life when he observed: “Time flies like an arrow. And fruit flies like an over-ripe banana!” I believe he would advise that to save time you call for help with your case-related tax and planning issues.