Policy Review as a Tool for Earnings Growth and Improved Client Service
You’ve made the calls. You’ve found a client who needs life insurance. You’ve become well-acquainted with your client’s life, their dreams, goals, and concerns. You’ve researched the latest insurance instruments, consulted with colleagues and team members, and at long last you’ve helped your client purchase a life insurance policy that is perfect for them and their family. The process can be exhaustive and while selling a policy can feel like an end, it is actually only the end of the beginning. As time passes, your client’s life will change in ways that render the perfect policy you once sold them irrelevant to the new circumstances that they face as they age. The good news is that performing a periodic policy view is not only an excellent tool for staying connected to the clients you serve but a policy review may often result in improved earnings over the life of the client.
When Should You Perform a Policy Review for a Client?
The short answer is every 3 years or so. If you are a hands-on advisor that regularly checks up on your clients to see how they are doing and maintain that close professional relationship then congratulations! You are not only owning the mantle of ‘insurance expert’ in the minds of your clients but you are also probably more prepared to know when the appropriate time to review your client’s coverage will be.
When you learn that your client has gone through a major life event that may change the efficacy of their policy or alter their coverage needs it makes sense to take some time and review their options.
Life Events that Warrant a Policy Review
- Career Change
- Birth of a Child
- Children Becoming Adults
- Marriage/Divorce
- Positive Change in Health Status
- Beneficiary Updates
- Caring for an Aging Parent or Loved One
- Purchase of a New Home
- Starting a New Business
The goal is always to make sure that they are covered for the life they live today. Generally speaking, if they have a change in their financial responsibilities, marital or family status, or if their insurance is nearing an important part of its cycle then it’s a great time to conduct some policy maintenance on their behalf. Take a look at this article for a deeper understanding of the policy review process for your client and what life events trigger the need for a review.
How Can a Policy Review Benefit your Business?
From the advisor’s standpoint, a policy review has a win-win element. It presents an opportunity to expand on the business that you’ve already earned. The process of obtaining new clients, while essential to commission growth, is time-consuming and uncertain. A client that you have already sold a policy to, however, is less of a ‘sell’ and more of a service as they look to you for further guidance as their insurance needs change.
In many cases, your client won’t have thought much about how a life event might affect their coverage. They are too busy actually living their lives to give much thought to a policy they may have purchased years ago. By creating an opportunity to better serve them through a policy review, they are more inclined to follow your recommendations (even if those recommendations include purchasing additional insurance) than a new potential client is inclined to purchase an initial policy. Essentially, you are only competing with yourself.
Additionally, by serving your client with a comprehensive review of their current policy it shows that you care about them. Your clients rely on you to look out for their best interests and protect their life insurance investment. This is true of both individual and business clients. The more complex their lives and companies become, the more opportunity exists for you to not only serve them with excellent, cutting edge products and options but also to maintain the relationship you have invested your time and efforts into already.
As Circumstances Change for Your Client, the Need for Policy Maintenance Presents Opportunities
Let’s take a look at how the result of a policy review could result in the necessary purchase of a new policy with higher earnings for you while protecting your client’s investment.
Example: Your client has insurance through a trust
Insurance vehicles that are maintained in a trust are subject to regulations and binding guidelines that can fall out of compliance over time. The Prudent Universal Investor Act governs the compliance of these vehicles. This is critical to your client and their policy – falling out of compliance can create a highly unfavorable tax scenario should the policy need to be activated. This would cost your client thousands of dollars or more. Sometimes, a policy needs to be tweaked to maintain compliance in this scenario resulting in higher premiums from total replacement of the policy. By protecting your client, you inadvertently realize gains to your business.
Example: Your Business Client Has Named Their Business as the Beneficiary
A common mistake that can be made on insurance policies that are paid for by the owners of a company is a policy where the company itself is the beneficiary. This can happen on the onset of the initial policy or through lacking appropriate ‘backup’ beneficiaries resulting in an awful tax exposure scenario. You should always keep in mind the tax implications for any named beneficiaries as they compare to the payor. Allowing Uncle Sam to take an unnecessary cut of a death benefit through higher taxation based on some of these unforced errors in policy writing can result in tremendous losses for your client that could have been avoided altogether.
This is why a policy review is so critical. Mistakes are common. Moreover, what may have been the only way to craft a policy 10 years may be totally different today due to the constant evolution of new tools and vehicles available to reduce the tax burden, premiums, and other aspects of the initial investment for your clients. A total replacement policy that corrects these mistakes can result in gains for you and security for your client. Truly a win-win.
Term Life Conversion: Keep Your Clients Safe and Insured
As we mentioned earlier, a client who purchased a policy years ago does not necessarily track where they are in the coverage life cycle. Term life insurance is undoubtedly a popular choice for many Americans when they first set out to purchase coverage. The reasonable opening premiums combined with the ‘peace of mind’ from finally addressing their life insurance needs can lead to a sense of complacency as the term rolls on.
Did you know that, according to a LIMRA study, over 10% of all people with term life insurance allow it to lapse without renewal, replacement, or conversion? Your clients may not realize that their term is nearing completion or that renewal will occur at much higher premiums than the original policy. The ethical advisor tracks these policies on behalf of their clients and creates an opportunity for convertibility to whole life, purchase of new term, or guidance towards a UIL vehicle to help keep their client insured. The result of this approach to each of your clients is better service and higher, continued earnings.
In the Absence of a Life Event for Your Client, a Policy Review is Still Important
Sometimes, knowing that their coverage is still appropriate for their life is just as important as discovering new needs for a client. Beyond the positive impact a review has on your relationship with your client in showing that you are ‘on top of’ their policy on their behalf, there may still be other opportunities for your meeting to anticipate future needs.
It is important to possess intimate knowledge of your client’s policy. There are many reasons to keep the existing policy. Here are few:
- Surrender charge periods
- Existing loans
- Health issues
- New acquisition costs
- Tax law changes
- Interest rates
Depending on their policy, you may discover that their investment is underperforming and could be better served by a new product that did not yet exist when they initially purchased coverage. In today’s insurance marketplace, with Universal Index Life, updated mortality tables, and a revolving carousel of riders, there is often something better today than was available yesterday. It is incumbent upon a great advisor to stay abreast of all of these changes so that they can grow their business by serving their existing client base.
The Takeaway: Excellent Client Service Leads to Excellent Earnings Potential
We have discussed the benefits of conducting a policy review both for your client and your bottom line. The truth is that the best-served clients reflect the most successful advisors. It is always about caring for your clients, their lives, their dreams, goals, and families. Life is a personal business that requires frank conversations about where people are and where they are going. If you focus on the interests of your clients, you will realize a substantial growth in your own revenue stream over time.
The policy review is still the most powerful tool the industry has to maintain and grow policy over the life of a policyholder. By utilizing the tremendous resources of a partner such as Trust Financial Services, you will be able to conduct comprehensive policy reviews that benefit you and your client. Everyone needs a team and your client deserves the best.
