Life Insurance Too Often Left Out

Financial advisers often miss the opportunity to speak to their clients about the important role life insurance products can play in financial planning, according to a recent survey by Saybrus Partners, Inc.

Results of the survey showed that only about half of adults who currently have a financial adviser and a financial plan have ever discussed adding life insurance to their plans.

“We believe life insurance is foundational for a well-designed financial plan, not only for the protection it provides but also its tax efficiency, and potential for cash accumulation and wealth transfer,” said Kevin Kimbrough, national sales manager for Saybrus Partners. “The survey affirmed statistically what we have heard anecdotally for years — financial advisers often do not discuss life insurance during the financial planning process. They are missing an opportunity to fill a critical gap in some existing financial plans while at the same time differentiating themselves and expanding their practices. Additionally, there are benefits to including assets such as life insurance that are not tied to the financial markets and therefore not subject to the same volatility we are currently seeing.”

About half (49%) of U.S. adults who have a financial adviser and a financial plan have spoken with their adviser about adding life insurance to their financial plan.

Among those who have discussed life insurance with their advisers, 15% said the conversation took place more than 10 years ago, while 40% have discussed it within the past year. While this may indicate that discussions about life insurance are becoming more common, they do not necessarily include a review of existing policies for critical issues such as performance, affordability and potential policy lapse. According to the study, nearly half (47%) of U.S. adults who have a financial adviser and have life insurance said their advisers have never reviewed their existing life insurance policy with them.

One-third (34%) of U.S. adults who have a financial adviser and a financial plan said that over the last two years, their adviser has recommended that they add some form of insurance to their financial plan. However, less than one quarter (24%) were advised to include life insurance specifically. Only 10% said their adviser had recommended long-term care insurance.

“Life insurance can be complex, and many advisers are reluctant to introduce it into the financial planning conversation. However, some of these financial professionals are finding that they can use outside specialists to help them advise their clients on the most effective and efficient life insurance uses for each unique portfolio,” Kimbrough said.

The most fundamental role of life insurance is to protect families/heirs with a death benefit, and 81% of U.S. adults who have a financial adviser and have life insurance said the a primary reason they carried such policies was to protect their family and/or heirs. Only 17% cited wealth transfer as a primary reason they had life insurance and 15% cited the potential for cash accumulation, which is a key feature of many permanent life insurance policies.

"These statistics demonstrate that typical life insurance policyholders may not be aware of the many other uses for life insurance beyond family and heir protection," Kimbrough said. "They may be relying on IRAs or annuities for wealth transfer, which are designed for asset accumulation and retirement income but not for wealth transfer, especially from a tax perspective. Life insurance offers potential for tax-efficient cash accumulation, which can be accessed for a variety of reasons including supplemental retirement income or health care costs, as well as a tax-efficient vehicle to provide for heirs."

According to the survey, more than four out of five U.S. adults who have a financial adviser and life insurance (83%) said they would be interested in life insurance policies that carried additional features not present in their current policy, with varying degrees of interest in specific features. For example, 30% said they would find a feature that would allow them to receive the life insurance payout as income if they were diagnosed with a terminal illness beneficial. Another 28% of indicated coverage for long-term care needs would be beneficial, and 18% thought a waiver of premium payments if they became disabled would be a beneficial addition to their policy.

"Clearly, consumers are interested in getting more from their life insurance policies. Given the well-known concerns about healthcare costs that dominated the national news last year, this relatively modest interest in health-related benefits is likely due to lack of knowledge of how they would work. This is another opportunity for financial advisers to help their clients maximize the benefits they can get from their life insurance," Kimbrough said.

The survey asked U.S. adults with a financial adviser to indicate areas where they expect their adviser to be knowledgeable. The highest expectation (70%) was for mutual fund knowledge, followed closely by stocks and equities (68%). Just 38% said they expected their adviser to be knowledgeable about life insurance.

This survey was conducted online between July 22nd and 26th, 2011 among 2,410 adults (aged 18 and over) by Harris Interactive on behalf of Saybrus Partners.