The Insurance Gap

An overlooked and underserved area of the client financial plan
Kellan Finley, Managing Director, Insurance Decisions

Often when I speak with advisors, I’m surprised by how many of them do not include insurance as an integral part of their client’s financial plan. Many advisors will initially ask if their client has essential coverage, or at least what they consider to be essential coverage, but that’s usually where the conversation ends.

I’ve spoken with advisors who explain they do not participate for a host of reasons, such as a lack of time and resources, compensation arrangements, and medical invasiveness. Whatever the reason, they are missing a significant opportunity to help their clients.

The insurance landscape has changed in recent years with legislative changes as well as carrier and product enhancements. Additionally, with all the news around the Affordable Care Act (ACA), insurance is very much top of mind with individuals. A better understanding of the recent developments, trends, and resources in life insurance, disability and long term care can go a long way in beginning the process of adding real value to your client in this critical area. Here are a few things to consider:  


Life Insurance is unfortunately often sold poorly, at the wrong time, and serviced even worse. With commissions as a driving force behind many sales, individual often have insurance that is inadequate. Whether clients are paying too much, own policies that will prematurely lapse, or have inappropriate types of insurance – we find that 70% of the policies we review fall into one of these categories.

Disability Insurance is perhaps the most overlooked of all. Studies show that 67% of all workers in the private sector have no long-term disability insurance. This is significant since many people don't have enough money saved to cover their regular living expenses if they are unable to work for a year or longer.

Those employed in the private sector who have secured generous benefit packages for themselves may think that they can rely on that alone -- but group disability coverage of this sort generally only covers about 50% of the policyholder’s income, which is not inclusive of bonuses, commissions or any other non-salary compensation.  In addition, these funds are fully taxable, so in reality, that person may actually be collecting only about 35% of his or her regular paycheck (minus bonuses and commissions) during the disability. Given this precipitous drop in earnings combined with escalating medical bills, it is easy to see how important a good long-term disability insurance policy is.

Long-Term Care has seen significant changes in the marketplace, but there are still opportunities for clients to have coverage. A recent study by UBS Investor Watch found that unaffordable long-term care costs was one of the 2 biggest concerns that investors have regarding their financial futures. The old adage “Clients who need long-term care can’t afford it and clients who can afford it, don’t need it” is becoming less true. Many wealthier clients are seeing the benefits of leveraging insurance to their advantage.


People don't like to think about life insurance, disability or long-term care. Perhaps it is because the benefits of such insurance policies are only seen when something unpleasant happens - but it is in your client’s best interest, as well as your own, to be covered for life events that are inevitable.  As trusted advisor, you are presented with both a responsibility and opportunity to take a more proactive role in helping in this all important area affecting your client’s financial, personal, and professional future



Kellan Finley is Managing Director for Insurance Decisions, providing insurance resources for Registered Investment and Independent Advisors.


Discuss this Article 3

on Jun 25, 2014

Agreed on the points you made. A financial plan without insurance analysis isn't a financial plan.

One part of group disability you didn't include is sometimes these benefits are reduced even further than the tax "offset". For example, I have more than one client that has 60% coverage through their employer, but if that employee qualifies for disability under the Social Security system (which mine do), then their group disability benefit is reduced even further. The rub is that it takes a long time to receive Social Security benefits, yet the group policy will count the amount they're supposed to be receiving from Social Security against their benefit, even if they're not yet receiving the Social Security benefit!

The surprise some clients could face is they think they can survive on 60% of their base income, but after the tax and Social Security offsets, they'll actually receive far less, stressing their retirement portfolios and overall financial plan.

Advisors who don't address these issues are potentially setting themselves up for clients being forced into withdrawing assets under management, leaving the advisor's practice, or worse, bringing legal action against the advisor. Personally, I'd like to avoid all of those!

on Jun 26, 2014

People should listen to what Kellan has to say here, that insurance is an integral part of financial planning. The needs of people have changed over the years and these insurance products have adapted well to these changes, which can help provide the best financial solutions.

I would like to stress the importance of insurance for long-term care. Around 70% of people who are 65 years old and older will require any form of long term care. This should be enough to encourage people to get covered, protect their assets and as well as their loved ones. The cost of care is steadily increasing and without insurance, inflation will surely drain your nest egg. Even affluent individuals are purchasing long-term care insurance and take advantage of its benefits.

It's not true that only a few people can afford this insurance product. As a matter of fact, long term care insurance cost is anywhere around $1,000 to $7,000 and even claims that there are ways to keep premiums down. It is possible to bring down the premiums if you purchase early, take advantage of discounts and through policy features like elimination period and benefit amount.

If you really care about your future and your family's future, consider these insurance products and be covered for life once the inevitable happens.

on Jul 15, 2014

While teaching a class at a local university I was surprised to discover an attorney who did not know what a restricted auto policy he had purchased. Please extend your insurance analysis to encompass Home, Auto, Health, Life, Disability, LTCI and even business insurance, especially for sole proprietors and partnerships. Case in point: Two partners had a buy-sell agreement funded with life insurance. One died and the other discovered his partner had changed the beneficiary on his policy to cover a loan he'd taken out. You'd think insurance agents would know to use irrevocable beneficiaries or policy ownership to avoid this problem. Doesn't matter if it's life insurance or liability limits which are too low, anything that can derail a plan should be identified and addressed.

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