Life insurance is one of the oldest financial products in existence. The first life insurance policies date back to the 1500s when merchants would pay someone a small premium for a death benefit for their family should they fail to return from their voyage.
Life insurance has evolved considerably, but the concept remains the same. The insured pays an insurer a premium in exchange for a more significant death benefit for their beneficiaries if they die while the contract is in effect.
Consolidated Planning is affiliated with insurance companies, but that doesn’t mean that our advisors have to sell life insurance- many don’t! We are first and foremost a financial planning firm. Our planning philosophy focuses on financial strategy rather than products. That said, we believe that before we should plan for one’s tomorrows we should protect their todays.
Most financial advisors consider life insurance the foundation of a solid financial plan. Still, philosophical differences exist between financial advisors about the type, amount, and who should sell the product. In this article, we’ll discuss these differences so you can make an educated decision about the kind of advisor you want to be.
Why Do Some Financial Advisors Sell Life Insurance?
Many financial advisors sell life insurance and embrace its presence in their client’s financial plan. There are several reasons behind this choice, so let’s dive in.
Life Insurance Is A Fundamental Part Of A Planning Philosophy
Financial advisors sell life insurance because they believe it is critical to a client’s financial foundation. Life insurance replaces a client’s income if the client dies prematurely. Because of this, life insurance allows financial advisors to build self-completing financial plans.
The inclusion of life insurance in a client’s plan allows the plan to become self-completing because the client’s financial goals are achieved whether they live or die. If the client lives and sticks to the plan, they will build the savings needed to achieve their goal. If the client passes away prematurely, the death benefit from the life insurance policy achieves the goal for the client’s beneficiaries.
On the other hand, the absence of life insurance from a client’s financial plan can turn the tragedy of a client’s premature death into a financial disaster for the client’s surviving family. Financial advisors recognize this possibility and work diligently to protect against it by using life insurance as the foundation of their work with clients.
Clients Want To Buy Life Insurance
Once clients understand life insurance’s importance and its benefits to their families, they want to buy it. Life insurance provides much needed protection and security for clients and their families.
Many financial advisors find it easier to sell a life insurance policy to their clients directly versus referring the client out to an insurance agent. Selling the policy to the client also allows the advisor to retain control and ensure that the policy aligns with their recommendations.
Financial advisors selling life insurance can position themselves as a one-stop shop for clients’ financial needs. Clients appreciate this convenience, and financial advisors can provide better service because the policy is in-house. The advisor also has the bonus of the additional revenue generated by the life insurance sale.
Some financial advisors have contractual obligations to sell a certain amount of life insurance every year to maintain their job or benefits. This is called a Minimum Production Requirement and is expected at insurance based financial services companies. Typically, these requirements are not excessively high, but occasionally, advisors will struggle to meet them.
Minimum Production Requirements make sense from the insurance company’s perspective because they don’t want a bunch of financial advisors selling one or two policies every couple of years. From an advisor’s perspective, these production requirements shouldn’t be an issue if the practice is thriving because there is more than enough business.
Some people in the industry argue that minimum production requirements can create conflicts of interest because advisors are incentivized to sell life insurance over other financial products even if they aren’t in the client’s best interest.
For a struggling advisor, a minimum production requirement can be a source of stress and potential conflicts of interest if the advisor is desperate and pushes too much insurance to meet their production requirements. However, this is more of a theoretical possibility than reality due to ever-increasing compliance and regulatory oversight.
Why Do Some Financial Advisors Not Sell Life Insurance?
Some financial advisors do not sell life insurance. Instead, they focus primarily on the investment portion of their client’s balance sheet. If life insurance is considered the foundation of a client’s financial plan, why would an advisor choose to exclude it from their practice?
Life Insurance Is Not Part Of A Planning Philosophy
Life insurance is not a key component of some financial advisors’ planning philosophy. Often, this means the advisor is an advocate for the concept of self-insuring. Self-insurance occurs when a person has accumulated enough assets to no longer need life insurance. This typically occurs at or near retirement age.
Advisors that advocate for the self-insurance concept also tend to recommend much smaller death benefits than their counterparts when they do recommend life insurance to their clients. Their planning philosophy dictates that the insurance cost is not worth the potential benefit, given the low probability of the client dying prematurely.
Narrow And Deep Focus On Investments
Some financial advisors aren’t philosophically opposed to life insurance but simply focus on other planning areas due to their personal interests. These advisors are typically heavily focused on investment management and building portfolios for their clients.
Investment focused financial advisors often partner with an internal or external resource to service their client’s life insurance needs. This arrangement can work well because the client’s planning needs are met, and the advisor can focus on their specialty.
Potential Conflicts Of Interest
Some financial advisors believe selling life insurance creates a conflict of interest because the advisor will earn a commission for selling the life insurance policy. These advisors often market themselves as “fee only” advisors and pride themselves on selling commission based products. Historically, life insurance provides commission based compensation to the person selling the policy so “fee only” advisors refuse to sell it.
To Sell Life Insurance Or Not: That Is The Question
Here at Consolidated Planning, we’re a protection first planning firm. We believe in life insurance and encourage our clients to fully protect their Human Life Value (the total economic benefit they provide to their family). Life insurance is a fundamental part of our planning process and most of our financial advisors embrace it.
Even though the majority of our advisors do sell life insurance, we have several who don’t. These advisors have chosen to focus their practice on other areas of planning, from investment portfolios to corporate retirement accounts. However, even though these advisors don’t personally sell life insurance, they believe in it and partner with other Consolidated Planning advisors to deliver those services to their clients.
If you are a financial advisor who is opposed to life insurance, Consolidated Planning may not be a good fit for you.
If you are an investment focused advisor who believes in life insurance, Consolidated Planning can help you relaunch your practice as a comprehensive planning practice.
Reach out to our recruiting team today to learn how we can help you launch a planning practice and help build your income with our five year practice building playbook.
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