Tip #1-11 - Explain Life Insurance as a Sinking Fund 

            Today more than ever, marketing financial services means discussing and dealing with personal insurance, especially life insurance. Sometimes people will raise the issue and other times you do this. You have several ways to accomplish your task, e.g., in your marketing messages in letters, bulletins, and workshops, as well as in your discussions. Sometimes you do it in personal interviews with clients, prospects, centers and non-insurance professional advisors.

 Think of the buyer. You can count on two things:  1) you know more about life insurance than your buyer, and 2) their life insurance ‘habits’ have been formed around the last twenty years not talking about it, talking against it as a rip-off, or it’s comparatively low return on investment compared to other investments.

In a competitive situation—whether your competition is another advisor or your client’s own close-to-the-vest ignorance—the advisor who best educates the buyer to make an informed decision will generally prevail. Make your client comfortable with some easy to understand truths about life insurance. Illustrate your important points. For example: you want to show a buyer that the proposal with the lowest premium is not necessarily the best buy or the most suitable policy in this case. The buyer is unlikely to follow a lot of technical talk, so you want to keep it simple and quite accurate. Why not demonstrate life insurance as a sinking fund and make your point? It could unfold like this…

A Sinking Fund  Premiums — plus — Investment Earnings — minus — Expenses and Profit — equals — Face Amount At Mortality

Toby, the biggest impact on illustrated premiums is the cost of mortality—the company’s estimation when you might die, all things considered. A minor improvement in mortality creates a major lowering of premiums, so if a company compounds a lowered mortality into the future, its sales illustration can show a much lower premium.

If you think of life insurance as a sinking fund, you can see this.

Pointing to your simple chart, just follow the few lines on it.

Premiums plus investment earnings, minus expenses and profits, compounded by the number of years of the contract to mortality, equals face amount at maturity.

This way, you can easily see that this assumption of compounded mortality improvement significantly and often dramatically lowers the premium required. The sales illustration looks remarkable; sometimes too good to be true. The sales illustration with the lowest premium may not be the best choice.

By using a very simple chart to present and discuss this elementary but important topic, you can solidify in the buyer’s mind that you know what you are talking about, that you can educate them by disclosing risks they may wish NOT to take, and that you can help them make more fully informed decisions. In other words, let them know that by working with you, they know how you will analyze what is best for them, implying that others may be picking products on less reliable criteria. This is still the primary difference between a broker in life insurance and an agent.

How many other topics do you work with that are generally confusing to clients and that you could simplify? Change that ‘could’ to ‘should.’

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