As an advisor to successful professionals and other affluent individuals and families, you are accustomed to conducting regular reviews for your clients – be it investment portfolios, business strategies, or estate planning updates.
However, one aspect of financial health that is often overlooked is life insurance. When was the last time your clients reviewed their life insurance policies? If the answer is “never” or “not in years,” they could be missing opportunities and exposing themselves to potential financial shortfalls.
Let’s explore why policy reviews are critical and the importance of considering term policy conversions.
Why Policy Reviews Are Critical
Much like annual financial or legal reviews, proactive life insurance policy evaluations lead to better client outcomes than reactive adjustments prompted by expiring options or sudden life changes.
If your clients are not reviewing their policies regularly, here are key triggers that signal the need for a review:
- Career and Income Growth: A higher income often comes with additional liabilities or a greater need for legacy planning. As earning power increases, life insurance coverage should reflect expanded financial responsibilities and goals.
- Family Changes: Marriage, divorce, children, or grandchildren can all impact insurance needs. A growing family may require more coverage to ensure their future financial security, while a divorce might necessitate adjusting beneficiary designations or reallocating coverage.
- Business Ventures: Business ownership often introduces complexities such as key-person insurance or buy-sell agreements. Insurance plans should address these scenarios to safeguard a client’s business and ensure continuity.
- Tax and Estate Planning: Laws and strategies evolve, and insurance coverage should align with a client’s current estate plan to maximize tax efficiency. For high-net-worth individuals, life insurance can play a critical role in minimizing estate taxes and providing liquidity.
- Policy Performance: If a client owns a permanent life insurance policy or policies, periodic reviews ensure the policies are performing as expected and that premiums, cash value, and benefits align with their then current goals. Economic changes, such as interest rate fluctuations, can impact the performance of some policies.
- Health and Longevity Trends: Advances in healthcare may extend life expectancy, requiring a reevaluation of how long coverage needs to last. Additionally, changes in a client’s health can make certain features, such as term conversion, particularly valuable.
- Market Opportunities: Life insurance products and riders continue to evolve. A policy review can uncover new options or enhancements, such as long-term care riders or hybrid policies, that may better suit your current needs.
Don’t Forget About Disability Coverage
Many of the same triggers that indicate a need for a life insurance review also signal the importance of evaluating disability insurance. Changes in income, career progression, and business ownership can increase the need for income protection.
If a client’s earning potential has grown or their financial obligations have expanded, ensuring they have adequate disability coverage is just as crucial as reviewing their life insurance policies.
Term Policy Conversion: A Strategic Opportunity
If a client owns a term life insurance policy, it’s designed to provide coverage for a specified period – often 10, 20, or 30 years. While term policies are cost-effective for temporary needs, they’re not intended to last forever. Many professionals purchase term insurance early in their careers, but as they approach their 40s or 50s, their priorities shift from protecting young families to securing long-term wealth transfer and legacy goals.
This is where conversion options come into play. Most term policies include a conversion feature that allows a conversion of some or all of the term coverage into a permanent policy – such as whole life or universal life insurance – without undergoing additional medical underwriting. This option can be a game-changer for several reasons:
- Health Preservation: If a client’s health has declined since they first purchased the policy, conversion locks in coverage at your original health rating.
- Lifetime Coverage: Permanent policies provide coverage for life, ensuring your client can leave a financial legacy or fund future estate taxes.
- Cash Value Growth: Permanent policies often build cash value that can be accessed for supplemental retirement income or other financial needs.
However, conversion options have deadlines. These vary by policy but often expire after 10 years or when a specific age is reached. A review ensures clients don’t miss this important opportunity.
Expanding Your Value
By incorporating life insurance reviews into your practice, you can:
- Enhance Client Relationships. Regular policy reviews demonstrate proactive oversight and reinforce your role as a trusted advisor. They also create natural opportunities to discuss broader financial and business planning strategies.
- Identify Planning Opportunities. Insurance reviews often uncover the need for additional planning in areas such as business succession, estate tax mitigation, or charitable giving – all areas where your expertise adds significant value.
- Strengthen Professional Networks. Building relationships with life insurance specialists who understand the needs of high-net-worth clients can enhance your professional network and create reciprocal referral opportunities.
To incorporate life insurance reviews in your practice, consider these steps:
- Schedule Annual Policy Reviews. Make life insurance discussions part of your regular client check-ins, especially for clients approaching key transition points (term conversion deadlines, business transitions, estate tax exposure).
- Partner with Life Insurance Specialists. Collaborate with experts, such as Blue Herring, who can provide deeper policy insights and solutions.
- Educate Clients on Policy Benefits. Life insurance isn’t just a death benefit; it’s a key tool for estate planning, business continuity, and tax efficiency.
We’re Here to Help
At Blue Herring, we specialize in supporting professional advisors with sophisticated life insurance solutions. We can:
- Provide policy review support and analysis.
- Offer technical expertise on complex cases.
- Supply educational resources for your team.
- Collaborate on joint client presentations.
- Handle implementation while keeping you informed.
Your clients rely on you for comprehensive financial guidance. By partnering with the life insurance specialists at Blue Herring, you can ensure this crucial aspect of their financial strategy receives appropriate attention while maintaining your primary advisory relationship.
Let’s discuss how we can support your practice with professional life insurance expertise that complements your client service model.