Owning a life insurance policy, whether it is through an employer or through an independent source, is one of the first steps of adulthood in America. Even people who are not yet married or do not yet have children own life insurance. The addition of a spouse and children brings the need of life insurance ownership to the surface for affluent Americans.
Life insurance is an industry on its own. But many financial advisors sell insurance, while others (the smart ones) have someone in the insurance industry they can send their investment clients to if the client feels the need to add to or update their insurance coverages.
When an investor and an advisor get together, whether it is the first time or the 100th time, insurance coverage needs to be a consideration discussed early in the conversation. There are several reasons for this. First, advisors and investors need to avoid making the assumption that the investor is properly covered and has taken the necessary steps to provide for loved ones. Second, insurance is not a sexy topic, and as a result, may occasionally get overlooked.
Younger investors may think they have properly inoculated their family against a sudden unfortunate event because they have life insurance through work, and therefore may not understand they need to consider more, or other, life insurance products. Many Americans shy away from insurance salesman and insurance sales pitches because it has a stigma attached, but advisors can bring up the subject without causing an investor to run out of the room screaming, or hanging up the phone.
The question of insurance coverage and ownership is simply not simple. Spectrem’s new study — Investor Attitudes and Ownership of Insurance Products — not only details the levels of insurance ownership among affluent investors, but also looks at annuity ownership, and allows investors to explain why some of them avoid additional insurance ownership and annuities over other investment products.
Eventually, all investment portfolios turn into retirement packages and then turn again into estate packages. In both cases, insurance and annuities play a significant role.
From surveys with investors with a net worth up to $25 million, the study finds that 29 percent of investors own Whole Life Insurance (beyond any insurance they own through their employer) and 28 percent own Term Life Insurance. Nineteen percent own Long-Term Care Insurance and 7 percent own Universal Life Insurance. The study segments investors by age, and obviously, younger investors are going to own different insurance products than older investors.
On the other hand, 35 percent of investors do not own any insurance beyond that received through their employer. That includes those who have no insurance at all. The report also notes that only 17 percent of investors own a fixed annuity, and only 12 percent own a variable annuity.
What makes this entire topic confusing is that investors do not always think of their financial advisor as the person to turn to for advice on insurance and annuity ownership. In our study Defining Wealth Management, which examines how investors perceive “wealth management services”, the one service investors do not expect from someone advertising wealth management service is advice on life insurance.
But of those investors who purchased life insurance beyond that which they receive through their employer, 32 percent said it was their financial advisor who recommended they purchase a life insurance policy. Only family and friends (52 percent) exceed the percentage of investors who got life insurance advice from their advisor.
The conclusion of our studies is that investors do not always consider their insurance needs or often review their insurance coverages, and they do not always expect their financial advisor to be the one to prompt them to do so. But understanding an investor’s insurance coverage and retirement income streams is one of the first steps to determining how to go forward with the investor’s investable assets, moving them into more revenue-based products.
So ask the insurance question. Ask it first, or ask it often.
© 2018 Spectrem Group