Getting a client in the door and signing up for a life insurance policy isn’t a permanent solution. There are a number of changes an individual may experience in their lives that may call for various levels of coverage.
Adding or losing dependents
A common change that would call for a different level of life insurance coverage is adding or losing dependents. Couples who have children should consider increasing their level of coverage, while on the other hand, older couples who have children that move out of their home could scale back their coverage. If a dependent were to pass away, a client also could turn to their insurance agent to decrease the death benefit to be paid out in the event of the policyholder’s death.
It’s common for clients with children to take out term policies to ensure the kids are provided for until they are self-sufficient, but if you have a child with a permanent disability, a permanent policy may be the best option. Typically, the longest term policies only last 30 years, so a properly funded permanent policy would be able to provide coverage beyond this initial term to better meet the needs of a disabled child for the long-term. Term conversion features of existing and proposed term insurance products should be discussed as a potential options in these situations as well.
Paying off a mortgage
While getting rid of a home loan and paying off a mortgage is cause for celebration in and of itself, financial professionals should remember to tell their clients that getting rid of such a huge debt likely means they can scale back their life insurance, too. Some people, when they take out a 30-year mortgage, also will take out a 30-year term life insurance policy so, if they were to die, their family would be able to pay off the loan. But if that loan is paid off in a consumer’s lifetime, they would be able to do away with some of their life insurance.
Similarly, if a policyholder takes on debt – like a mortgage or student loan – they may want to increase their amount of coverage for the same reason: To ensure that the debt can be paid off by surviving family members if they should pass away earlier than expected.
Transparency pays off
There are other instances financial professionals should be aware of to ensure their consumers have the appropriate amount of coverage. While some situations call for less coverage, advisors who are transparent with their consumers will benefit from an increased sense of loyalty. As some studies have shown that professional and sometimes even personal relationships are the main drivers of loyalty between consumers and advisors.
Many people never changed or even considered changing their life insurance policy. To alter the tide, financial advisors should maintain close contact with their clients so they can alert them of beneficial policy changes if their personal situation calls for it.
Editor’s Note: This post was originally published in March 2014 and has been reviewed and updated.