For most consumers, life insurance choices boil down to term versus permanent. And while there are certainly instances where term life insurance may make more sense, most high-net-worth individuals would benefit from the long-term value and protection that is only offered by permanent life insurance options.
Fortunately, you’re positioned perfectly to help these clients understand that.
Why clients are drawn to term life insurance
Consumers like simplicity, and there’s no denying that term life insurance is an easy product to understand. Unlike permanent life insurance, which can build up cash value and be used as an investment vehicle, term life insurance is relatively straightforward.
Another factor that draws clients to term life insurance policies is price. High-net-worth individuals like to save money just like anyone else, and term life insurance is typically the more affordable option. The market for term life coverage is highly competitive, and this makes it that much easier to obtain a low price.
However, as financial professionals know all too well, term life insurance is only a temporary measure with limited potential. It’s up to them to convince clients that their default option is often the inferior one.
Permanent means forever
One truth you should relay to clients is that most term life insurance policies go unpaid. The chances of an individual outliving their term coverage are high, and with life spans only getting longer, the odds of outgrowing a specific term date are only like to increase.
Meanwhile, permanent life insurance guarantees a payout upon a person’s passing – providing peace of mind that loved ones will be seen to financially regardless of how long a person lives.
However, for many clients, the benefits of permanent life insurance go well beyond the superior financial protection it offers.
Tax benefits add up
Permanent life insurance policies provide clients with a straightforward way to create cash value and boost their savings through contributions. This cash value accumulates under a tax-deferred status. And unlike other types of investment vehicles, clients do not have to worry about paying dividend or capital gains taxes every year.
Additionally, as long as the permanent life policy remains intact, individuals can withdraw money from it without being taxed, much like a Roth IRA.
For high-net-worth individuals seeking an investment with strategic tax benefits, the value of a permanent life insurance policy is clear.
The advantages of permanent life insurance don’t end there for clients, however.
Streamlining estate planning
The flexibility offered by permanent life insurance policies means they can be structured to assist with a number of financial needs, including estate planning.
Policies can be designed to accomplish anything from replacing family income and paying off debt to helping with business succession and leaving money for heirs.
Every client’s estate planning requirements will be different, and their permanent life insurance policy can be molded to suit their changing needs.
Covering the costs of aging
Another key factor your clients will need to keep in mind as they age is the likelihood that they will require some form of long-term care at some point in their lives.
Once again, permanent life insurance’s wide range of services shine through, as these policies can be used to pay for these services by adding a rider that includes long-term care.
Put simply, term life insurance doesn’t come close to offering the vast array of potential financial benefits clients can realize with permanent life insurance policies.
However, as with any service or product you offer your clients, it remains vital to be upfront about the possible downsides to permanent coverage.
Exploring potential disadvantages
It’s a simple fact that permanent life insurance costs more, which is why it’s important for you to properly express the full value of this product to clients. However, they should know that permanent policies will require a higher cash flow commitment on their parts, at least in the short term.
Additionally, the cash value potential of permanent policies is dependent on underlying investment accounts. Based on market fluctuations and the overall performance of these investments, there is a possibility that clients will need to pay additional premiums in order to keep the policy sustainable.
Finally, since these policies are permanent, clients must keep in mind that breaking their contract will likely come with sizeable penalty fees.
However, for high-net-worth clients that have the money to afford permanent coverage and can also benefit from the multitude of potential uses, this type of life insurance is generally the best option. It’s up to you to highlight exactly how permanent policies are able to suit their unique financial needs in a way term life insurance simply can’t compete with.
The best way to accomplish this is to take a comprehensive overview of your clients’ specific needs, from tax brackets to estate planning requirements. Chances are you’ll find multiple areas where permanent life insurance can be used to help them achieve their objectives.
