The Insurance Gap

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