Clients may view advisors that sell life insurance as suspect. A financial advisor is meant to be an untouchable fiduciary who works solely for the client. It might be difficult for some to imagine an advisor selling life insurance. Most financial advisors are multi-faceted, and life policy is a key part of almost every serious financial plan.
Financial advisors may consider offering life insurance to their clients for a variety of reasons. The ability to provide more comprehensive services to their clients and the chance to earn commissions are just two of the benefits. Some advisors find it difficult to discuss life insurance with clients, and they may need to learn a new area.
Takeaways from the Key Notes
- Financial advisors often view life insurance policies as a vital part of their financial planning and wealth-protection services.
- In the event of the insured’s death, life insurance provides financial protection for the beneficiaries.
- Financial advisors who sell life insurance can earn large commissions based on first-year premiums and then 3% to 5% in annual commissions as long as the policies remain active.
- Financial advisors can refer their clients to insurance professionals who are qualified, instead of directly selling them life insurance.
Why it makes sense for financial advisors to sell life insurance
Financial advisors who have built a trusting relationship with their clients are in a unique position to answer these questions as part of the client’s wealth protection and estate planning process. As part of their estate plan and wealth protection process, financial advisors with a trusting relationship with clients can answer these questions.
When one partner makes more money than another and wants to maintain the same standard of living for the other, this is a common reason for purchasing life insurance. It could be to pay off the mortgage and cover future college costs for the children. You could also provide a nest egg that generates income to supplement your partner’s lower paycheck up until retirement. A life insurance policy is also a good way to secure the future of disabled children.
If a sudden death would cause hardship to their family, then life insurance is advisable. What is the point of a clever portfolio strategy, if the primary contributor dies and the widower/widow has to move out?
Selling Life Insurance Has its Drawbacks
Some financial advisors are hesitant to enter this field because it is difficult to broach the topic of life insurance. Some clients may be hesitant to discuss their possible deaths, or react with a sense of distrust. If a client agrees to buy life insurance, but is rejected by underwriters because of something unflattering like being overweight, they may become insulted. They might even look elsewhere.
Insurance may seem like a secondary concern for a financial adviser, who would rather focus on mutual funds, stocks and investment strategy. Many financial advisors are faced with this situation and incorporate life insurance into their overall strategy. It can be based on duty, profit or a mixture of both.
Sell Insurance Products and Make Money
Financial advisors who make their living by commissions have a strong incentive to sell life insurance. Some insurance companies offer a good financial reward for the sale of their products. Initial commissions can range from a large portion of your first year’s insurance premium to between 3% and 5% per year for as long as you keep the policy in force.
It should not be difficult for an existing financial advisor to add “insurance agent” as a qualification, since the entry barrier is low. It may still be worth it to spend the time and effort necessary to earn formal qualifications such as becoming a Certified Life Underwriter, Certified insurance Counselor or a Fellow of Life Management Institute. This ensures advisors have a thorough understanding of the products they sell, preventing embarrassing situations when clients ask unexpected questions. Credentials also demonstrate seriousness to sophisticated clients.
Working with Insurance Professionals
Once the wealth planning has been completed, the advisor can pass the torch on to an insurance professional. This approach has many advantages.
It avoids unpleasant feelings, and possible negative consequences of a rejected application. It allows the advisor to concentrate on their investment expertise while leaving the insurance planning to another expert.
Working with an expert in insurance can create great synergies. A fee only financial advisor, for example, who does not want to go through the insurance qualification process can provide valuable leads to an insurance representative. It’s likely that the insurance representative has many clients, and many of them will need financial advice. Both parties will benefit from mutual leads and can generate more business.
