Why financial advisors sell life insurance

Some customers have certain doubts about financial advisers who sell life insurance. After all, the financial advisor should be the only unshakable trustee working on behalf of the client. For some people, having a consultant who also sells life insurance seems incompatible. However, the fact is that most financial advisors have multiple jobs, and life insurance policies are involved in almost any serious financial plan.

There are many reasons why financial advisers might consider life insurance as part of the services they provide to their clients. These include the ability to better meet customer needs by providing more comprehensive wealth planning services and opportunities to earn commissions. Disadvantages include the challenges that some consultants encounter when discussing life insurance topics with clients, and the need to become experts in new fields.

Key points

  • Many financial advisers regard life insurance as an important part of the financial planning and wealth protection services they provide to their clients.
  • Life insurance provides financial protection for surviving beneficiaries in the event of the death of the insured policy holder.
  • Financial advisers who sell life insurance can earn a lot of initial commissions based on the first year’s premiums and annual commissions ranging from 3% to 5%, as long as the policy is still valid.
  • Instead of selling life insurance directly, financial advisors can recommend qualified insurance professionals to their clients.

Why it makes sense for financial advisors to sell life insurance

Most people have legal life insurance needs, but which one you need depends on your family’s circumstances. As part of the client’s wealth protection and estate planning process, financial advisors who have established a trustworthy relationship with their clients are in a unique position to answer these questions.

A typical reason for life insurance is when one partner makes more money than the other and wants to ensure that the other partner’s standard of living remains the same. This may mean having enough insurance to cover the children’s outstanding mortgages and future college expenses. This may also mean providing an income-generating nest egg to supplement the partner’s smaller salary in retirement and beyond. Ensuring the future of adult children with disabilities is another case in which life insurance policies can save this day.

In short, if people suddenly lose their lives meaning their dependants will be in trouble, then they should consider life insurance. If the main contributor to the plan dies and the widower or widow must leave their house, what are the benefits of a smart 401(k) portfolio strategy?

Disadvantages of selling life insurance

The difficulty of discussing the subject of life insurance has made some financial advisers hesitant to get involved in this field. Customers may react with distrust, and even shrink from discussing the pathology of their potential death. Customers who agree to buy life insurance but are eventually denied coverage for something unpleasant (such as being overweight) may be insulted and moved elsewhere altogether.

Financial advisors may be easier to focus on stocks, mutual funds, and design investment strategies, while leaving the insurance part behind. However, many financial advisers face this situation and incorporate life insurance into their overall strategy. This can be driven by tariffs, profits, or a combination of the two.

Make money by selling insurance products

Financial consultants who make a living through commissions have a strong financial incentive to join life insurance because some insurance companies pay quite high fees for selling their products. The initial commission can be a large part of the first year’s premium, and then as long as the policy is still valid, there will be a commission of 3% to 5% per year.

For current financial advisors, it should be fairly easy to add “insurance agents” to the list of qualifications because the barriers to entry into this field are relatively low. Nonetheless, the extra time and effort to obtain formal qualifications may be worthwhile, such as becoming a Chartered Life Insurer (CLU), a registered insurance consultant, or a researcher in the School of Life Management. It ensures that consultants are satisfied with all aspects of the products they sell, which prevents awkward moments when customers encounter unexpected problems. Having proper credentials also shows a serious attitude towards more sophisticated customers.

Work with insurance professionals

Another method is for financial advisors to pass the torch to insurance professionals after the wealth planning is completed. This has several advantages.

First, it avoids the unpleasant feelings and potential counterattacks that come with rejected insurance applications. Second, it gives advisers time to focus on their investment expertise while at the same time handing over insurance planning to another dedicated expert.

Finally, working relationships with insurance experts can bring huge synergies. For example, a fee-based financial adviser who chooses not to sell insurance through the qualification process can make insurance representatives very happy by providing valuable leads. Since insurance representatives have many customers of their own, it is certain that many of them need financial advice. Therefore, both parties can benefit from reciprocal leads and help each other to generate continuous business.


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