You’re meeting with a new client and about to suggest different life insurance products to meet their needs when they stop you and say, “I’m on a budget.” How do you respond?
Listen to this article:
We’re sure you’ve heard this before, and while it’s very important to respect clients’ budgets, don’t be so quick to dismiss the importance of presenting life insurance options to clients with less income to spare. Often, bills don’t stop after death, and without life insurance, the expenses of a passed loved one can be very taxing on surviving family members, especially if their budget is already stressed. When you’re ready to propose life insurance to a client and a tight budget is an issue, be ready to show that the cost may not be as much as they think!
Let’s look at the factors that affect life insurance pricing and how you can find room in the budget for this essential coverage.
Is Life Insurance Truly Expensive?
Life insurance is widely perceived to be expensive. According to LIMRA, 50 percent of millennials overestimate the cost of a life insurance policy, and the expense of a policy is one of the top three reasons for not getting life insurance. While there are factors that can increase the cost, life insurance isn’t always expensive!
What Determines the Cost of Life Insurance?
Carriers consider many different factors when determining how much a specific policy will cost. Some of these include the following.
Length of Term
For term life insurance policies, the longer the term, the more premium payments you’ll have. There also could be an increase in cost since it’s more likely a policy holder will pass away during a longer term than a shorter one.
Despite this, it’s still important for clients to select a term that’s long enough to meet their needs. For example, a parent may need a term life policy long enough to provide coverage until their children graduate from college.
Fact: 42 percent of millennials guess that a $250,000 term life policy for a young, healthy individual would cost at least $1,000. The cost is actually closer to $160 per year.
A parent may need a term life policy long enough to provide coverage until their children graduate from college.
Amount of Coverage
To put it simply, the more coverage purchased (the higher the death benefit) for any given policy, the higher the life insurance rate, or premium that will be owed.
As the most important factor determining one’s life insurance cost, age can also influence whether a person qualifies for life insurance coverage at all. Basically, the older the individual, the more they will pay for their policy. This is due to the higher likelihood that an older individual will have developed health concerns and is more likely to file an insurance claim that needs to be paid out.
Fact: The average life expectancy for Americans was 77.8 years old in 2020.
Studies have found that women tend to live longer than men, so women often have lower life insurance costs.
Personal Health History
Life insurance carriers usually require a medical exam on the applicant before they can purchase a policy. The exam encompasses a review of the applicant’s medical records to determine their current health and medical history. If the individual has a serious pre-existing condition, like heart disease, or has had one in the past, their premiums will likely be higher. Some other factors taken into consideration include weight, blood pressure, and cholesterol levels. People in poor health can expect to pay more for life insurance because they’re at greater risk of life-threatening health problems. Those who have good health will usually have more affordable life insurance.
Fact: 38 percent of millennials don’t buy life insurance because they’re afraid they won’t be eligible for a policy.
People in poor health can expect to pay more for life insurance, and those with good health will usually pay less.
Family Health History
Many medical conditions are hereditary, and just a familial history of one could raise an applicant’s premium. Examples of genetic diseases include heart disease, high blood pressure, diabetes, and cancer.
Smoking is a well-known risk and cause of cancer, heart disease, and other potentially fatal conditions. As a result. smokers or other tobacco product users typically pay more for life insurance.
Hobbies and Occupation
Those who skydive, scuba dive, or engage in other potentially dangerous activities for fun generally pay higher life insurance rates. This is also true for individuals with high-risk occupations, such as firefighters.
What Are the Benefits of Having Life Insurance?
It’s crucial for members of low-income families to have life insurance because of how many ways a policy may be used!
Paying Final Costs
It’s common practice to use life insurance policy benefits to help pay for final expenses upon death. This may include funeral or cremation costs, medical bills not covered by health insurance, estate settlement costs, and other unpaid obligations.
Some people purchase life insurance so they can leave their loved one(s) an inheritance. By indicating a beneficiary on a life insurance policy, the death benefit will go to the named individual generally tax-free.
It’s important to note that depending on state laws, life insurance policy beneficiaries may need to pay an estate tax on inheritance they receive if it was paid to the deceased’s estate.
Paying Off Debt
Life insurance benefits can also give the policy owner’s beneficiaries money to help cover expenses like a mortgage, college tuition or loans, credit card bills, or an outstanding car loan.
The living benefits of many life insurance policies can be very useful during health and financial crises due to their ability to accumulate tax-deferred cash value (excluding term life). This cash value can be accessed via:
- Cash value withdrawal
- Policy loans
- Policy surrender (canceling the policy to access the cash value in one lump sum)
The cash value of a life policy enables the policy owner to take advantage of living benefits.
Additionally, many policies have built-in or optional living benefit riders, such as accelerated benefit riders in the event of a critical or terminal illness. These riders allow the policy owner to access the death benefit of the policy to help pay expenses in the event of a qualifying critical illness or a terminal illness diagnosis.
Also, sometimes policy owners can add a long-term care benefit to their life insurance policy to help cover expenses due to care facility stays or home health care that are not covered by Medicare or other health insurances. Typically, the policy’s death benefit is reduced by the amount of the long-term benefit that is used. Since long-term care facilities and home care can be costly, this is a big advantage of owning a life insurance policy!
How to Work with Your Clients’ Budgets for Life Insurance
As an insurance agent, it’s up to you to educate your clients on the importance of owning life insurance and breaking the myth that it’s always wildly expensive. Once you’ve determined your clients’ life insurance needs, there are different options and solutions you can present that will make life insurance attainable for clients even with strict budgets. Some of these include:
- Suggesting they purchase a term life or perm-term policy (a combination of permanent life insurance at a lower face amount with a larger term rider for a length of time) instead of a permanent policy.
- Presenting the option of purchasing a lower face amount policy initially and using the guaranteed insurability option to increase the death benefit later.
- Helping your clients examine their budgets and current expenses to determine what could be cut out or what costs can be reduced in order to make room for the life insurance premium payment.
Taking the time to work with your clients to make life insurance coverage a possibility allows you to close sales successfully, but more importantly, it gives your clients and their families peace of mind and a financial backing that will, one day, be extremely helpful.
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Life insurance is necessary coverage for just about anyone to have because of the benefits it can provide to the policy owner and their loved ones. Despite financial concerns, you can still work with your clients to help them understand that the cost of a policy can, in fact, work into their budget.
Our More than Medicare team is ready help you prepare your life insurance pitch and stock your portfolio with life products that can meet all of your clients’ budgets and needs. Schedule a call today to speak with one of our sales specialists and get ready for more than just Medicare sales success!