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The financial planning industry paints a very incomplete picture of the outcomes in your life. We tell you to save money, get insurance, budget, and the like, and whoosh, we wave our hands around much like a weatherman does in front of a green screen telling you that there’s rain in Des Moines, but not really able to point at the exact spot where the television viewers are seeing Des Moines because he can’t actually see what the viewers are seeing.
It’s the same with us. We give a hand wave, tell you some things, and then, whoosh, off you go.
A lot of the time, everything works out just fine. You have 2.5 kids, the house with the white picket fence, work in a great job, and are happy ever after. We’re good at predicting the usual outcomes because they are, after all, the usual outcomes. It’s not terribly difficult to say that the sun will rise in the morning since it rises every morning. We have a stranglehold on the obvious.
What we’re not good at is handling what to do if the unexpected happens. As planners, we tell our clients to get life insurance, but we never walk through what needs to happen if a spouse dies. We at least hope that we’d get a phone call at some point from the widow/er asking what to do.
What about the poor person who, through a stroke of good fortune, bought a life insurance policy, but, in a stroke of bad fortune, bought it from a commissioned salesperson who then sees that grieving as a walking bank account, ready to sell him or her an inappropriate variable annuity or “manage” that person’s lump sum benefit by selling front-loaded mutual funds and charging exorbitant assets under management fees?
There are two factors which serve to make this poor grieving spouse a lamb walking into the slaughterhouse.
- That salesperson sold the life insurance policy in the first place. So, even if the path was wrong, the outcome was right. There’s a level of trust and comfort; if the sales rep was wise enough to sell a life insurance policy in the first place, then certainly, the grieving person thinks, the same person can manage the benefit wisely.
- The grieving feel vulnerable. Numerous studies show support that people in a grieving process feel vulnerable and are, therefore, more susceptible to suggestion. They feel empty, isolated, and hurt, and want to take actions which will avoid pain. They don’t want to deal with the money, as it’s emotionally attached to the person who died, and an unscrupulous salesperson can take advantage of that emotional state by offering to take away the “concerns” of having to deal with the money by providing money management or selling inappropriate financial products which serve the salesperson more than the widow/er.
I’m no paternalist. So, I’m not arguing that there should be government intervention to force insurance companies that provide life insurance to also provide financial planning (and not the type where they’re going to try to sell these poor recipients a shedload of inappropriate products). I will argue that there is a market case to be made for providing this service as part and parcel of the insurance product.
First, let’s look at the benefits that both sides receive if a beneficiary also got complimentary financial planning as a part of the policy.
- The customers would receive better service. While every company is in business to make a profit, they want to make profits by providing their customers with great service. Part of great service would be ensuring that the customers who did need to use the death benefit would be helped and guided in their time of mourning and protected from making poor financial decisions. In effect, an assigned planner could act as a pseudo-trust manager until such time as the beneficiary was ready to assume control again. At that point, they could work together to come up with an applicable plan for what to do with the benefits.
- The customers would become stronger advocates for the life insurance provider. Nothing is more powerful in marketing than a testimonial. I wish I could have testimonials on my website. Imagine if one life insurance company provided such a service. There would be many more positive endings that come out of these situations than there currently are. How many people say “my life insurance company took care of me both after my loved one’s death and through the grieving process” right now? None come to mind. Even if other companies pick up on the notion and it becomes standard in the industry, the first one to do it will always be able to claim that they were the first, and that they “cared” for their customers longer than any other. That’s a powerful marketing claim and should bring in more policies onto the books.
In an organization that provides financial products, there is going to be a natural tension between selling and providing service. Therefore, it will be mandatory that the financial planners who are assigned to beneficiaries are measured on the quality of their financial planning service and nothing else. No sales quotas or goals. No hints that they should funnel certain people into the annuities department. Nothing. The advice should be completely independent, even to the point where they hire outside partners to provide the planning just to remove actual and perceived conflicts of interest.
How much would this cost?
Since roughly half of Americans have life insurance, that means roughly 1.25 million per year die with claims. Assume each beneficiary received 16 hours of planning and each planner worked 1,920 hours per year. That’d be 10,417 planners to hire and probably another 1,000 to manage them. At a fully loaded cost, that would be $1.4 billion in additional costs.
Let’s look at MetLife and make a couple of assumptions. They’re the largest life insurer in the United States, and about 66% of their assets are based on life insurance. They have 90 million customers across the world, so let’s assume that 50% of them are in the U.S. That would mean, roughly speaking, that they have 20% of all of the life insurance policies in the U.S. So, their share of the costs would be $285.4 million. That represents 3.7% of the overall profit of the company. They would have to increase sales by 4% to justify the spending – not an unreasonable goal. Either that, or they could increase rates by 3.7% – an increase small enough to probably not create much of a ripple.
People who are recipients of life insurance benefits are, arguably, underserved. A market friendly solution of financial planning as a part of life insurance benefits would serve those customers well, provide jobs, increase financial stability of millions of families, and, arguably, increase revenues for the insurance providers.
Otherwise, widows and widowers, in their time of grief and need, could be left vulnerable to salespeople who do not have their customers’ best interests at heart, serving nobody but the vultures whose pockets grow by preying upon people in their time of need.
What do you think? Would you pay a little more for life insurance if you knew that an independent planner came as part of the package if you actually had to use the policy? Let’s talk about it in the comments below!