Insurance isn’t likely to be top of mind for clients who have recently joined the full-time workforce and are juggling living expenses, leisure activities, long-term saving and other demands. People in their 20s and 30s tend to believe nothing can happen to them when they’re young and healthy, says Alim Dhanji, senior financial planner with Assante Financial Management Ltd. and senior insurance advisor with Assante Estates & Insurance Services Inc. in Vancouver.
Although these clients’ insurable risks are relatively low compared with those of older people, evaluating your young clients’ insurance needs as part of the discovery process and providing guidance regarding coverage is a good idea.
After all, when recommending insurance to clients, “age doesn’t really matter,” says Lawrence Geller, president of L.I. Geller Insurance Agencies Ltd. in Campbellville, Ont. What’s important, Geller says, is managing various risks at different stages of a client’s life.
Most people, however, “prefer to bury their heads in the sand” rather than discuss insurance, Geller says.
Tony Mahabir, chairman and CEO of Canfin Financial Group of Cos. in Toronto, refers to younger clients who don’t have partners or dependants as “single income, no kids” (a.k.a. SINKs).
“SINKs rarely need life insurance,” Mahabir says. “The major risk they face is [losing] their working income, which is their most precious resource. This risk can be mitigated through disability insurance [DI], which provides replacement of about 60 %-66 % of employment income.”
Mahabir adds: “The odds of SINKs becoming disabled is higher than of dying, largely because of their more active lifestyle.” In fact, according to Canadian Life and Health Insurance Association Inc.’s statistics, a 20-year-old man is three times more likely to be disabled for at least 90 days before age 65 than he is to die before reaching that age.
Convincing younger clients of the potential of becoming disabled can be difficult. You should endeavour to make these clients aware of this probability — without instilling fear. You can broach the subject with your younger clients by asking the following questions:
- Can you survive a sudden loss or interruption of your regular stream of income?
- How will you maintain your lifestyle if you experience a loss of income?
- How will you pay any outstanding debts if you don’t have any income?
Clients also should be reminded that beyond normal living expenses, they may have additional expenses, such as student loans, car loans or credit card debt, Mahabir says. Payments must be made even if the client is not earning an income, and DI benefits can fill this gap.
While several types of DI policies are available, Dhanji recommends clients buy a guaranteed non-cancellable policy (which cannot be terminated by the insurer until the client turns 65) that has a 90-day elimination period — the waiting period before benefits begin. He suggests adding a rider to protect income for future occupations and which doesn’t require medical evidence of insurability. The premium is relatively low for younger clients, he says, and is “worth the peace of mind.”
Many of your young clients may have group insurance coverage through their employers. However, you should make those clients aware that many group policies provide limited health and disability benefits and may have ceilings that cap the amount of benefits policyholders can receive, Dhanji says. Some workplaces may not have any coverage at all, he adds, in which case DI definitely should be considered.
“Group insurance is not a perfect fit, but is better than not having any coverage,” Mahabir says. He recommends “topping up” group insurance coverage with individual insurance.
Mahabir points out that younger clients, particularly millennials, are likely to change jobs more frequently than older clients. “[Millennials] may end up at an employer without group insurance coverage,” Mahabir says. Or, he adds, they might have a waiting period before coverage at a new job kicks in. In such cases, clients’ individual coverage would ensure they are protected.
Geller suggests younger people also consider health and dental coverage beyond what their provincial plans cover if they do not have group insurance coverage or if such coverage is capped.
For young individuals who have moved out of their parents’ home and are renting, Mahabir suggests acquiring tenant’s insurance, which would cover the replacement cost or value of their property in case of theft, fi re or damage.
Some SINKs still might choose to buy life insurance, which is relatively inexpensive when they are young. In such cases, Dhanji suggests buying term insurance with a guaranteed conversion option that doesn’t need medical evidence of insurability when your client is older. The benefits of this strategy are twofold: continuous coverage at lower cost and guaranteed insurability regardless of deteriorated health, which otherwise could make the client uninsurable later in life.
Most people do not end up buying the amount of insurance they need, Geller says. The challenge in persuading younger individuals to acquire insurance to meet their needs is not in convincing those clients that they should buy insurance; rather, it is in persuading them to pay for insurance coverage, given competing demands for their disposable income.