Selling the Correct Amount of Insurance

When selling life insurance, it is important to understand the client’s needs for protection against financial loss.  One of the primary purposes of life insurance is to provide a stream of income for the surviving family beneficiaries if and when the insured breadwinner dies during the policy’s term.  As such, knowing the correct amount of life insurance to fulfill the family’s living needs is vital to providing the necessary funds to maintain the family’s lifestyle and future financial security.

While we would all love to have multi-million dollar life insurance policies to give to our loved ones when we pass away, the premium costs involved would be quite expensive and unrealistic.  In contrast, not providing financial protection for our families in the event of our premature death is not a situation in which we would ever want to put our family.

So, how does a life insurance agent know what amount of life insurance is necessary to satisfy the client’s financial needs?

While everyone has different lifestyles and respective financial needs, several general factors should be considered when providing a client with a financial assessment and respective life insurance recommendation.

The following financial factors should be considered:

  • Medical bills and final expense costs (burial) of the deceased insured
  • Home mortgage and estate or property taxes (these payment don’t stop when the breadwinner dies!)
  • Ongoing utilities and other home maintenance costs
  • Any debts incurred by the deceased breadwinner or surviving family (car loans, college loans)
  • Cost-of-living needs including food, clothing, and home supplies, health and life insurance payments for the surviving family, medical bills, schooling costs, and any other common ongoing family expenses

In addition to providing financial security to surviving members’ cost-of-living expenses, an insurance agent should also assess the family’s long-term financial needs such as:

  • Future schooling and college education costs
  • Retirement income needs for the surviving spouse
  • Ongoing mortgage payment sand long-term life maintenance needs
  • Inflation on the cost of all of the above ongoing financial needs

This complete assessment of a family’s financial needs will help determine the correct life insurance provider, type of insurance (term life, whole life, or a combination of both), death benefit amount, and the amount of monthly premium the insured can afford to maintain the policy.

2 types of assessments common to life insurance are:

1. The Human Life Value assessment
2. The Family Needs assessment

Using the ‘human life value’ assessment, an agent can determine the correct amount of life insurance based on the client’s occupation, annual income, planned retirement age, short and long-term family expenses, and finally, the depreciation in the value of the dollar, otherwise known as inflation, in the future.  This assessment determines a client’s income potential to formulate the corresponding death benefit, should the client die today, to continue to provide for the surviving family in the future based on the client’s occupational income history and future potential.  Essentially this assessment provides the surviving family with the income stream that is lost upon the death of the breadwinner.

Using the ‘family needs’ assessment, an agent can determine the correct insurance amount based on the needs of the family.  This assessment is more commonly used because it evaluates the specific financial needs of the client’s family including medical deductibles and final expenses, surviving family maintenance income (mortgage, cost-of-living expenses), and future income needs such as college tuition and spousal retirement income.  This assessment should list all of the family’s future financial needs to determine the correct death benefit to allow the family to survive past the insured’s death.

Assessing a family’s financial needs provides an agent with the necessary understanding to recommend the correct life insurance policy to satisfy the client’s financial security.  After determining the death benefit amount necessary to sustain financial security for the surviving beneficiaries, the agent should recommend a life insurance policy that not only fits these needs, but is also sustainable in premium payments.  The agent should evaluate both whole and term life policies as well as level, increasing, or decreasing premiums, in determining the correct life policy that best fits the client’s budget.

The ultimate goal of a life insurance agent is to find the best policy for the client based on the client’s needs and budget.  The client’s needs, not the agent’s desire for commission, should be focused on when determining policy type, premium and policy face amount.  Offering an ethically sound recommendation to the client not only ensures the agent with a commission, it will lead to referrals and additional clients.  When the focus is on helping the client, the client will reciprocate and help the you!