As a financial advisor, clients can come to you for various reasons, but all of them typically have one goal that they want to achieve — financial security.
When they become your clients, they trust that you will guide them in a way that's aligned with their financial goals, both long-term and short-term. Every client's personal and financial situation is unique, meaning you need to craft personalized comprehensive financial plans and offer advice that best suits each individual.
However, before moving on with the plans you have for them, it's necessary to implement safety measures to minimize the risks that can arise when something unforeseen happens. This is where insurance comes to play.
In this article, we’ll cover why insurance is an important part of any financial plan and how to incorporate this coverage into your client’s financial future.
Why is Insurance an Important Part of a Financial Plan?
The planning process involves setting objectives to be met over a specified period of time.
But with any plans comes risk — bumps here and there ranging from small to downright devastating.
For example, it can be something small like not meeting the monthly target — something which your client can still recoup within the next few months. Or it can be something huge like critical events that might put their material and emotional well-being in jeopardy.
As a financial planner, you can attempt to minimize the risk your client might face by helping them get insurance coverage before something unexpected happens.
In comprehensive financial planning, insurance planning is a vital component.
It keeps your client on track for their short-term and long-term goals while also granting them peace of mind.
Some things can get expensive without an insurance plan. Having one in place can help your client avert financial crises that might arise if they’re paying for their losses out of pocket.
Having the protection of an insurance policy means your clients don’t need to reach for their emergency funds when things go south. When done properly, insurance can act as a safety net to help protect their loved ones as well as the things important to them.
What Type of Insurance Should Be in Your Client’s Financial Plan?
When it comes to insurance, there's a lot to choose from.
The first thing you should do is put your client first and consider which insurance would be best to fit their particular needs.
As a financial advisor, you’re there to help them navigate the different insurance policies and coverage available in the market. The type of insurance that suits them best varies greatly depending on your client’s lifestyle, such as occupation, age, preferences, and marital status.
But at the bare minimum, everyone should have their healthcare covered by insurance.
As a refresher, we can generally separate insurance products into seven different types, including:
Health insurance: Offers coverage for medical emergencies and expenses.
Life insurance: Has a saving component, as well as a death benefit to policyholder's beneficiaries in the event of their death. Life insurance comes in a variety of forms, such as whole life insurance or term life insurance.
Disability insurance: If the policyholder is unable to work for extended periods of time, this type of insurance can replace a percentage of their lost income.
Homeowners insurance: Helps protect the policyholder's home against disaster-related damages such as fire, vandalism, or theft. It usually doesn't cover earthquake or flood-related damages.
Auto insurance: Protects the policyholder against financial loss resulting from theft, as well as protecting their vehicle from any damage caused by them or someone else driving their vehicle.
Liability insurance: This applies to policyholders who have exhausted their personal liability and lawsuit coverage in other policies.
Long-term care insurance: Covers the costs associated with long-term care, which usually isn't covered by health insurance.
When choosing the best insurance for your clients, consider factors such as their current lifestyle and premium-to-coverage ratio.
How to Incorporate Insurance into a Financial Plan
Even if you think that your client is underinsured, it might be difficult to bring up the subject without inviting suspicions that you’re trying to sell them something, especially if you’re proposing options such as life insurance or term life insurance policies.
Still, it’s an important subject to talk about, so you’ll want to add it to your financial planning list.
If you’ve always been transparent and professional in your dealings with clients, there’s a good chance that your client will consider what you say carefully.
When implementing insurance as part of your financial plan, it’s important to do it properly: by thoroughly analyzing existing insurance policies and coverage, comparing premiums between each product, and finally considering what your client needs.
Start discussing their current insurance coverage and note how this fits into their long-term goals. Mention any insurance policies that may be currently working against these goals and suggest looking into different insurance companies to find the best coverage at the most affordable rates.
Remember, your clients trust you to act in their best interest.
There’s also a case to be made when it comes to insurance as a financial product, such as implementing life insurance into estate plans or retirement plans. In theory, the benefits are quite significant, but in practice, there are a lot more factors to consider.
Let’s take a look at life insurance, for example. This type of coverage has a saving component where policyholders pay premiums with a cash value that grows over time at a fixed rate.
The cash value invested can be withdrawn or borrowed in times of need or allowed to grow. This insurance policy provides coverage for the rest of the policyholder’s life. Upon their passing, this type of insurance policy will grant death benefits and pay out a lump sum to their beneficiaries e.g. the family members left behind.
It’s considered a good product as an accompaniment to estate and retirement planning because as the cash value component grows, it’s exempted from taxation. So your client doesn't need to worry about paying income tax in addition to any other financial strains.
If your client decides to implement life insurance into their estate or retirement plan, as an advisor, you need to help them navigate the market and assist them in settling on the details, such as which life insurance company to pick from, the best death benefits, and how it fits their budget.
Policies must be reviewed thoroughly as well. It’s important that your client understands the details associated with their chosen life insurance.
Never Miss a Step with Asset-Map’s Planning Technology
Insurance planning is one of the first steps you need to take to create a comprehensive financial plan for your client. It will help them meet their short- and long-term goals, as well as keep them protected. Ultimately, they’ll receive peace of mind without fear of financial loss if something unexpected were to happen.
Bringing up this topic during your client consultations may feel uncomfortable. Though insurance coverage is essential, it can be challenging to collect all the information needed from your client to suggest the best course of action. For example, many individuals prefer not to disclose their health history when it comes to health insurance.
However, there are ways to bridge into this conversation without feeling like you’re pulling off a scam.
For one, being transparent about the benefits of adding insurance to a financial plan is an excellent way to engage clients in the conversation.
Additionally, you can also use a visual map like Asset-Map’s Target-Map to illustrate how insurance is necessary to safeguard your client’s finances. With this tool on hand, you can show clients how insurance can bridge financial gaps they face and get them one step closer to their goals.
Schedule a demo today and learn how you can make complex conversations easier to approach with Asset-Map.
