It might not sit well with you hearing about financial advisors who sell life insurance, seeing a potential conflict with the advisor’s duty to prioritize the client’s best interests. However, it is very common for financial advisors to offer different services. And life insurance can be an essential part of a solid financial plan.
Advisors may choose to sell life insurance policies for many reasons. It allows them to provide more comprehensive financial planning. And offer a good way to earn additional income through commissions.
On the downside, selling life insurance can be uncomfortable for some financial advisors, and they may need to gain expertise in this area to effectively advise their clients. Read on to the very end to know why certain financial advisors sell life insurance.
Why It Makes Sense for Some Financial Advisors Sell Life Insurance
In the United States today, many citizens and residents need life insurance. However, the right type depends on their family situation. Financial advisors who have earned the trusts of their clients are well-positioned to help answer these insurance questions, as it is part of the client’s wealth protection and estate planning.
A common reason for people to purchase life insurance is to support a partner who earns less. This could mean enough coverage to pay off the mortgage, cover future college costs for kids, or create an income-generating fund to supplement the partner’s smaller income until retirement. Another good use is to secure the future of children that are born or have disabilities.
Reasons Financial Advisors Sell Life Insurance Policies
Financial advisors are individuals that people can trust to give good answers and advice on estate planning and wealth protection. Some of the reasons they sell policies are:
• Earning money by selling insurance products
Financial advisors who earn commissions can benefit hugely from selling life insurance. Some insurance companies offer generous commissions to these advisors, with a large portion paid upfront from the first year’s premium, followed by annual commissions of 3% to 5% as long as the policy is active.
Becoming an insurance agent is relatively easy for current financial advisors because the entry barrier is low. However, it may be advisable to obtain formal qualifications like Chartered Life Underwriter (CLU), Certified Insurance Counselor, or Fellow at Life Management Institute.
These important credentials make sure that advisors fully understand the products they sell. So that they can avoid awkward situations with clients’ questions. And show more sophisticated and potential clients their commitment, ability, and expertise.
• Simplifying estate planning and wealth transfer
Life insurance can be a smart way to manage your estate and pass on your wealth. When you pass away, the money from your life insurance can cover estate taxes, which helps ensure your heirs receive the full value of what you leave behind. This way, they won’t have to rush to sell assets or deal with big tax bills.
Also, life insurance can help make inheritances fair among your beneficiaries. If you want to ensure that everyone gets an equal share, it’s a useful tool. Financial advisors recommend life insurance for your financial plans. So that you can better protect your legacy and make things easier for your loved ones.
• Protecting your family’s financial future
Life insurance is mainly about keeping your loved ones financially safe if something happens to you. It acts like a safety net, helping your family cover living expenses even if they lose your income.
This coverage can take care of funeral costs, pay off debts, handle mortgage payments, and replace lost income for a spouse or children. Financial advisors recommend life insurance to ensure your family’s well-being during tough times.
• Boosting retirement income
Life insurance can also help boost your retirement income. Some policies, like permanent life insurance, build cash value over time. You can tap into this cash during retirement, providing you with a tax-friendly way to supplement your income. Financial advisors see life insurance as a useful backup, especially for those worried about running out of savings or facing unexpected costs.
• Supporting business stability and key person insurance
For business owners, life insurance is crucial for keeping the business running smoothly. If a key employee or owner passes away, life insurance can provide funds to manage expenses, pay off debts, and ensure a smooth transition.
This type of coverage is often called key person insurance. Financial advisors stress the importance of this insurance to protect a business’s future, showing their dedication to helping both small and large companies thrive.
Drawbacks to Selling Life Insurance
When we are talking about life insurance, it can really be tough for financial advisors. Clients might react with distrust or discomfort at discussing their mortality. If a client decides to get life insurance but gets rejected during underwriting for reasons like being overweight, they might feel insulted and leave.
Some advisors find it better to just focus on stocks, mutual funds, and investment strategies. And just avoid insurance and everything about it altogether. However, there are some specific advisors who still choose to include life insurance in their plans. They are driven by a sense of duty, potential profits, or both.
Collaborating With Insurance Professionals
Alternatively, a financial advisor can refer clients to an insurance professional after completing their wealth planning. This approach has lots of amazing advantages.
- It prevents the advisor from dealing with the potential fallout of a rejected insurance application.
- It allows the advisor to focus just on their investment expertise. And leaving insurance matters to a specialist.
- It can create valuable partnerships. For instance, a fee-only advisor who doesn’t sell insurance can provide leads to an insurance agent, who in turn can refer their clients in need of financial advice.
This mutually beneficial relationship can generate ongoing business for both parties.
Bottom Line
Financial advisors sell life insurance because it’s a valuable tool for comprehensive financial planning. It helps address important needs, like making sure that partner’s financial security or providing for dependents.
Even with the challenges, including life insurance allows advisors to offer more complete advice and support their clients’ long-term goals. Whether motivated by a desire to offer joint services or to boost their earnings, many advisors find that integrating life insurance into their practice benefits both the clients and the business.
