The Insurance Conversations Younger Clients Need to Have 

Everyone hates paying for insurance until they actually need it.  

That’s true for health and auto policies, but the picture for life insurance is more nuanced. Increasingly, these products are getting a seat at the table during client meetings, and some advisors see insurance as core to their process. Others agree that insurance can play an important role, but it’s crucial for policy purchasers to know exactly what kind of protection they’re getting and why. To turn the old adage on its head, life insurance policies should be bought, not sold.

“I’ve seen the devastating impact on families when the primary breadwinner passes away without life insurance,” said Jeffrey Walters, founder of Advisia Financial Planning. “In many cases a cheap term insurance policy could have been purchased while the breadwinner was healthy, but was not, due to unawareness or inertia.”

Real Insurance Talk  

Sure, insurance is important, but clients still need to be wary. Asking a commission-based insurance agent what type of insurance to buy is like asking a jeweler what type of stone to get in a necklace: The financial incentives are strongly in favor of an expensive, complicated policy. Fortunately, term life policies for healthy people under 50 are often affordable, offering protection from the worst-case scenario described above. 

“Where and from whom someone learns about insurance products is often more predictive of what they end up owning than what actually fits their needs,” said Skee Orr, co-founder of Kinetic Wealth. That’s unfortunate, advisors agreed, but people who avoid the conversation entirely can end up underinsured. The best outcomes begin with fiduciary financial planning that clearly defines what protection a family needs. From there, advisors can recommend working with independent brokers who can shop the market for fitting products. 

Another consideration is disability, according to Michelle Crumm, financial planner at Belle Eve Financial. “For younger clients, they are statistically more likely to become disabled during working years than to die prematurely,” she said. “A high-quality, long-term disability policy that covers a client’s own occupation can be one of the most important protections in a financial plan.”

Randy Bruns, founder of Model Wealth, agreed. “Nearly every retirement plan depends upon one enormous assumption: that you’ll remain able to work and earn an income,” he said. “An accident or serious illness can change that instantly.”

When Insurance Isn’t Needed. “A two-income family where either single income is enough to support the family may not need insurance at all,” said John Bernstein, founder of Bernstein Financial Advisory. “Contrast that against a single-income family where the spouse is a stay-at-home parent caring for children.” 

At minimum, that family should carry enough insurance to pay off the mortgage and cover childcare costs until the surviving spouse can find adequate employment. If the preference is for the surviving spouse to remain at home, the policy has to be much larger to replace lost income indefinitely.