Special Feature

A permanent choice

Part one of this three-part series on permanent life insurance highlights evolving tax rules and other factors leading to changes in permanent insurance products. Part two, on Thursday, outlines sales strategies for advisors, and part three, on Friday, compares universal life and whole life. Photo copyright: flynt/123RF.

Products

Although some clients may be put off by the cost of premiums, advisors can demonstrate the value of permanent coverage

By Megan Harman |

Shopping for life insurance, from the perspective of clients, isn't too different from shopping for a car: most clients are either looking for a basic product to cover a basic need, or they're prepared to spend more on a luxurious option with some extra bells and whistles.

For clients in the former category, term life insurance is often the way to go. For those who fall in the latter category, permanent insurance can provide the coverage they need — and the luxury of knowing they'll always have it – along with a variety of other benefits.

Although clients in the second category may be scarcer than those in the first, there will always be a market for permanent life insurance. The key to identifying the clients who are best suited to this type of coverage is conducting a thorough analysis of each individual client's needs.

"It shouldn't be a sell," says Trevor Parry, president of TRP Strategic Consulting and a partner at Parry McCone, a Toronto-based planning and strategy firm. "It should be a process of consultation by which you help the client connect the dots."

Unlike term insurance, permanent insurance can play a more comprehensive role in a client's overall financial plan, since it has an investment component and key estate planning benefits.

Given the considerably higher price tag on permanent life insurance compared to term insurance, however, it's not always easy to get clients on board with permanent coverage. "People get sticker shock," says Parry.

It's important to position permanent coverage in a way that emphasizes the superior features that clients are getting in exchange for paying a higher price, says Helena Smeenk Pritchard, who provides life insurance sales coaching and training with Helena Smeenk Pritchard & Associates in London, Ont.

"One of the reasons that advisors don't sell more permanent insurance is because they don't know how to explain the cost versus value," she says. "If people really understood how the permanent products worked, they would be buying a lot more of it."

The most obvious benefit of permanent insurance is the enduring nature of the coverage. Unlike term insurance, in which claims are only made and paid out on a small fraction of policies, clients who buy permanent coverage can be certain that their beneficiaries will one day receive the benefits of the policy, as long as the policyholder keeps it in force.

Smeenk Pritchard suggests asking clients: When do you want your insurance to expire? "Most people," she says, "will say: ‘when I die'."

Urge clients to consider their long-term needs – not just their current financial situation – in order to demonstrate the value of permanent coverage, suggests Sean Long, an insurance consultant in Kitchener, Ont. "They have to be thinking long-term," he says. "They have to decide that later in life, they want some flexibility."

Flexibility is one of the key benefits of permanent life insurance. In particular, the cash component provides policyholders with an extra source of funds that they can access by making a withdrawal or using the policy as leverage for a loan. Clients can also use that cash to cover future premiums to prevent the policy from lapsing, in the event that they miss one or more payments.

"The access to the cash in the policy gives people options," says Smeenk Pritchard. "If you think of a life insurance contract as being a financial safety net, then the presence of available cash values is the safety net for the safety net, if people hit rough patches financially."

For clients who are looking ahead to their estate planning needs, permanent insurance can be a particularly valuable tool. Encourage clients to consider what sort of tax liabilities their estate will face upon their death, as well as the type of legacy they would like to leave, and emphasize the ways insurance can help make things easier on their loved ones, Long suggests.

"You never buy life insurance for yourself," he says. "You buy life insurance because you love somebody."

This is the second article in a three-part series on permanent life insurance.

Up next: Helping clients choose between whole life and universal life