When Did We Stop Valuing Our Loved Ones?
By H. Adam Holt, CFPⓇ, ChFCⓇ
I had an experience recently when a family friend met with me seven years ago and the recommendation we made based on their Asset-Map was to protect their significant physician incomes in the event of tragedy.
They begrudgingly agreed to cover themselves for their two children at a nominal amount, but later I learned, pulled their applications before issue. When I inquired to their changed strategy, they replied that after serious consideration, they felt that either survivor would make enough money to cover their household expenses.
I remember going back to our Target-Map Funding scenario and reminding them that the exposure could be covered with simple term insurance for a nominal premium. After all, their remaining lifetime earnings were expected to generate millions of dollars to the household. Although awkward, I was not successful in making my argument.
And you can imagine the outcome. I was reminded recently of the saying that “these things always happen to the other guy”. But to everyone else, you are the “other guy”.
Two months ago I got that dreaded call to turn on the news. Tragically, an accident took the lives of both parents and one child - leaving their remaining daughter to go forward alone with significant uncertainties.
Sometimes, preparing for the future has to include uncomfortable conversations. While all of us wish that planning for retirement could be a smooth operation all the time, that’s simply not a reality for the vast majority of consumers.
As an advisor, you have to make your clients think about life events that the typical human doesn’t want to consider, like death, disability, and maybe even long-term care.
But even though these conversation topics aren’t as fun as discussing a vacation home in Florida, you are not guiding your clients toward financial security in a responsible way if you don’t prepare them for these major impact events.
And for most individuals, investments alone aren’t enough of a safeguard in tragic circumstances. A comprehensive and complete picture of financial advice has to include insurance, whether you sell it or only act as a trusted voice.
Why Insurance is Important for Financial Plans
Most financial plans tend to focus on desirable expectations. Client goals like retiring at a certain age, finally buying their dream car, funding their childrens’ or grandchildrens’ education expenses, or simply living life to the fullest in whatever way your client deems most worthy are the types of conversations advisors and clients both enjoy.
However, no financial plan is complete without an equivalent focus on protecting a client in the event that those expectations don’t come to fruition.
Caring for our loved ones means we have to put safeguards in place to protect them in case of a tragic event—no matter how uncomfortable it is to think about. In my view, it’s uncaring on an advisor’s part not to force clients to think about how a lack of insurance might affect their family’s financial situation if they die unexpectedly.
I liken it to seatbelts in a car - they may be uncomfortable, but my car doesn’t leave the driveway until everyone is clicked in. Do you have the same rules for your kids?
The statistics suggest that this conversation is required because most households lack the protection they need. Up to 40% of households in America haven’t bought an appropriate level of life insurance, of any at all, because they’re unsure of how much or what type to buy.
On top of that, one in three households would have immediate trouble paying living expenses if the primary wage earner died.
Clearly, this is a conversation that cannot be ignored. Life insurance is a need for everyone, and as your clients’ trusted financial guide, it’s your responsibility to help them understand their best options for legacy planning.
Planning for the 6 L’s
Each household’s financial plan needs to account for unexpected life events. As you help your clients plan, you can think through if they have a plan for the six Financial Fire Drills (6 L’s).
Do your clients have a clear action plan in the event of each of these scenarios?
Liquidity (emergency cash)
Long-term Disability
Loss of Life
Long-term care
Longevity (living too long)
Legacy (greater impact beyond ourselves)
For the average American household, an investment strategy alone is not enough to help them sleep well at night and protect their assets. Insurance is a necessary component.
How you approach the discussion is important. Again, it’s not a conversation most people will be readily open to having, so you need to be sensitive to your client’s personality and individual situation. You are also in a position to be the objective voice in the room, however, so don’t mistake sensitivity for passivity.
A straight-forward conversation benefits your client. Avoiding the topic does not.
Whether you earn on a commission on insurance sales or you’re a fee-only fiduciary who will only provide recommendations, the focus should be on helping each client implement the best possible strategy.
Give Better Advice with the Right Tools
Helping clients prepare is a simple task when you have the necessary tools to help start the conversation the right way.
If you find that you’re having trouble beginning a discussion about the six L’s, download our Financial Fire Drills worksheet to help your clients self-identify where they don’t have a plan in place already.
By keeping the conversation objective and straight-forward, you can help them understand the importance of how a complete financial plan can provide their loved ones with additional security—even if an unexpected event means they aren’t able to take care of them themselves.