QUESTION: I include “risk management” in my financial planning but it doesn’t usually attract a lot of interest or amount to a lot of revenue for me. What am I doing wrong?  

There is a danger in financial planning risk management. Even though removing danger is the very reason for risk management, here’s the problem for financial advisors. If you only consider life insurance as risk management, you omit fully half the value of the product. The danger of risk management is that risk is only half the story. If that’s all you talk about, you’ve left a gaping hole and danger in your work.

Here's how you can prove your value and take full advantage of the life insurance product. First, life insurance the first part of the “essential financial security” (EFS) process because these are the products that provide the peace of mind that is financial quality of life. EFS products are those you buy before a plan that sets the stage for stronger plans. This way you plan while protected; not plan while exposed to insurable risks. We do life insurance first not because of the “probability” of dying – it’s low for most people, but because the consequences of dying without having it are very large. All other coverages have back-up options, even if unlikely or unpopular. But survivor prospects without life insurance are very grim.

There’s more to life insurance than risk management and you can explain it by explaining the 4 ways prudent investors use it. Give your clients and prospects a fuller understanding of the way successful people use the product and you give them the opportunity to use it in more than just the obvious ways. That attracts interest.

1. The first way prudent investors use life insurance is to provide their survivors “short-term tax-free cash at death”. Tax-free cash at death is what life insurance does, not what it is. This is the most obvious way, and it protects families and businesses against terminating needs like to cover a mortgage, bank loan, a young family’s survivor income, funding university education, and paying final expenses on an unexpected death. For these short-term, terminating needs, we use term life insurance.
    
2. The second way to use life insurance is for “long-term tax-free cash at death”. This provides the tax-free cash to pay those estate costs that never expire. They come to life when you are gone. These costs include things like final medical, funeral, and burial expenses; income taxes payable on the second death on a couple’s RRSP or RRIF; capital gains taxes payable on rental properties, investments, and vacation homes; business continuation and succession purposes; and special bequests for special needs children or charitable causes. Like term, this is also risk management but for these permanent needs we look for the most cost-effective lifetime coverage. T100 and Non-Participating whole life are two good options.
    
3. The third way deviates from risk management. It is “lifestyle income management”. It’s “long-term tax-free cash for life”. This is using the government sponsored wealth building characteristics of participating whole life with paid-up additions to create a non-correlated, fixed income asset that grows tax-free; can be accessed tax-free; only goes up in value; can never decrease in value (vested or reset when values are credited each year); and is paid out to beneficiaries tax-free. It can also provide a tax-free retirement pension-like income and provide tax-free funds for long-term care needs, either at home or in a facility. There is nothing else like it. It provides a long-term financial foundation that lets you take other risks knowing you are protected. It may not be for everyone, but it is a great tool for many.
    
4. Finally, there is “generational tax-free cash for family nobility” It’s the hidden purpose of life insurance… to change your family’s financial comfort level and trajectory for the better forever. Nobility is financial independence – never having to live from pay cheque to pay cheque or worry about money again. It’s about being able to do what you want but not about being able to do nothing. It’s about adding to and not drawing from society. With life insurance – really any type in this case, the nobility in your family can start with you.

All 4 ways and the products they represent are good, and you need not direct a prospect to one over the other. Anything way they choose is a good place to start. In time, you can consider all of them as your client’s essential financial security aspirations develop.

And by laying out and investigating the different ways life insurance can be used, you capture client dreams, goals, and aspirations and change purpose of life insurance for them. It can be so much more valuable than risk management for them and you when you eliminate the danger of telling them just half the story. 

This column by renowned advisor coach Jim Ruta was first published in the April 2022 edition of Insurance Journal magazine.

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Jim Ruta’s mission is simple – to preserve, promote and propel the financial advisor business. A former insurance advisor and executive manager of a 250-advisor agency, Jim is a highly regarded coach, author, podcaster and keynote speaker. He has spoken 4 times at the MDRT Annual Meeting including the Main Platform. Jim Ruta is an Executive Coach and Keynote speaker specializing in life insurance advisors and leaders. He works with top advisors around the world and re-energizes audiences with his deep insight and passion. 

If you have a question for Jim, you may send an email to [email protected]