Although insurance products such as life and living benefits are essential risk-management tools, most clients do not understand these products and how they fit into their financial plans. Thus, the onus is on their financial advisors to educate them about insurance and provide the right guidance in terms of the products they need.
However, ensuring that your clients are literate about insurance can be challenging. For many clients, insurance is nothing but a mere afterthought. “Maybe less than 5% of people pay attention to insurance,” suggests Lawrence Geller, president of L.I. Geller Insurance Agencies Ltd. of Campbellville, Ont., In fact, he argues, even individuals who buy insurance “refuse to learn” about the nuances of the product.
Susan St. Amand, president of Sirius Financial Services in Ottawa, concurs: “We live in a society in which people want to be spoon-fed; they don’t want to know all the nuances.”
Raymond Yates, senior partner with Save Right Financial Inc., a managing general agency based in Mississauga, Ont., argues: “Customers often find it difficult to understand different products, how they are priced and other aspects of the insuring process.”
Typically, life and living benefits insurance are not seen as a necessity, he adds, or, in some cases, as a requirement. For instance, some individuals are reluctant to discuss life insurance because it addresses the inevitable: what happens if you passed away today?
However, Geller notes, if people really chose to understand insurance, there would not be so much resistance to acquiring it, adding: “Intellectual understanding is not the same as emotional understanding, [which is manifested in a] gap in people’s psychology” when it comes to buying insurance. The question that arises in clients’ minds is: do I want to pay for that insurance coverage?
Wendy Hope, vice president, external relations, with the Canadian Life and Health Insurance Association Inc. in Ottawa, contends that there is a general understanding of the protection that insurance offers at different life stages, but she recognizes that advisors have a difficult role because they “can take the horse to the water but cannot make it drink.”
Although clients should take responsibility for the insurance choices they make, Hope says, advisors should “motivate them to take the time to understand insurance. Trust stops with the advisor [because] people put a high level of trust in the experts they deal with.”
The challenge of educating clients about insurance also stems from the vast variety of insurance products available. “The menu of insurance products has increased,” St. Amand says, “making it difficult for clients to be educated in all products.”
In addition, insurance products have not only become more complex, they lack uniformity and have wide variations in attributes, even for similar products offered by different companies.
Still, despite the reluctance of some clients to learn the intricacies of insurance, it certainly deserves more attention than it gets. Just as your clients plan for retirement, Geller believes, they also need to plan for their insurance needs because retirement and insurance are parts of the same continuum. Promoting an understanding of insurance is, therefore, critical.
St. Amand advises that once you determine why a client needs insurance — whether for short-, long-term or some other need — the next step is to select the most appropriate product. You must do a thorough job in determining your client’s need and ensure that he or she understands the product you are recommending.
“Often, a client might not be able to afford a product,” St. Amand adds, “and you might have to recommend a hybrid product.”
In most cases, Geller says, a client does not end up buying the amount of insurance or the product determined by a needs analysis because he or she cannot afford the cost of the premiums.
“[If] affordability is a problem,” Yates advises, “you should explain the merits of different product options and don’t just try to fit the cost of coverage into their budget.”
Once a product is selected, St. Amand suggests, you should go through the details of the contract, paying attention to specific attributes, such as options to make changes, conversion options, the incontestability period, inclusions and exclusions in the policy, and how to make a claim, among other key features.
In going through the contract, she advises, “You must find ways to relate specific situations to the client — a useful way is to tell stories.”
It’s imperative you do this because the majority of clients never read the fine print in their contracts. “Just as clients rarely read the prospectus of a mutual fund, they almost never read their insurance contract,” says Geller. “Most contracts are not intelligible — they are designed by actuaries and written by lawyers. The more complex the product, the more complex the contract.”
The insurance sector is aware of the need for plain language in insurance contracts, Hope says, but the onus is being placed on insurance advisors as much as possible to understand and explain these contracts to their clients. IE