Life insurance is based on several basic principles that apply to all types of insurance, and that form the foundation of the insurance contract. Understanding these principles will help us better understand how life insurance works as we begin our study of life insurance products.
The purpose of this course is to give you a much deeper understanding of life insurance products and related concepts that will help you, as a financial advisor, work with prospects and clients on ways to protect their families against the risk and financial impact of death. It will accomplish this by reviewing the basic principles of how life insurance works, the different financial needs that life insurance can address, the various types of life insurance, ways of comparing policies, the advantages and disadvantages of life insurance illustrations, life insurance policy provisions, the taxation of life insurance and some marketing and ethical concepts applicable to selling life insurance.
The information in this course is largely to educate you, not your clients. You will not necessarily discuss much of this material with clients, since it is largely technical and not relevant to the consumer, but it is important for you to understand it so you can appreciate the concepts and benefits of life insurance, how they work, and explain them correctly and with confidence to others.
The financial advisor can have a significant role in helping individuals and families establish a firm foundation of financial security. They should be able to address the fundamental financial needs and reasons for owning life insurance. He or she should be able to help prospects and clients recognize and accept their financial needs, and encourage them to act to take care of those needs.
People face many financial challenges, and the ability to plan and save for the future is often put off for the pressures and pleasures of today. This is clearly seen in recent research published by LIMRA, a research, consulting and professional development organization that helps insurance and financial services companies increase their marketing effectiveness. A recent LIMRA study (Household Trends in Life Insurance Ownership study, LIMRA, 2010, LL Global, Inc.) found that only 44 percent husband-wife families with children under 18 have life insurance coverage, compared with 90 percent in 2004.
As families have less to fall back on financially in the economic downturn, more families are living on the edge, without the safety net that life insurance provides.
Many Americans say they have not bought more life insurance because they have other financial priorities right now. Among households with children under 18, four in ten say they would have immediate trouble meeting everyday living expenses if the primary breadwinner died today. Another three in 10 would have trouble keeping up with expenses after several months.
Half of households feel they need more life insurance than they have—the highest level ever.
According to LIMRA’s study, life insurance beat out all other sources of financial assets or income that Americans expect to use to help pay bills and to maintain their lifestyle in the event of the primary wage-earner’s death. On average, households say they should have enough life insurance to replace their incomes for 6.2 years, but in reality they own enough to replace the household’s income for only 3.5 years.
Almost eight in 10 U.S. households currently do not have a personal life insurance agent or broker to turn to and most of them say they never did. These facts represent an enormous opportunity as well as a challenge to the life insurance industry and insurance producers.