What to Ask Life Insurance Clients

The American College of Financial Services
May 22, 2019

As a life insurance agent, it’s important to look at the client’s situation to determine why they would need life insurance as part of any financial planning engagement or financial advisory relationship. Create a list of questions that have a dynamic workflow, depending on the clients’ responses. Take notes on everything the client says in the initial meeting. Once you and the client have discussed the financial essentials, the notes will act as a guide to help you develop the solutions. 

 Why Life Insurance?

Determining why client’s need life insurance will serve as the baseline to the plan you provide. And to successfully provide the life insurance that works best for your clients, you need to know what they need life insurance for. Finding out the client’s goals, determining the assets they want to protect, and defining the family members who’ll need assistance after the client has passed away is critical.

Consider who is reliant on the client’s income. Most income producers either have dependents or can expect to acquire them in the normal course of events. Even income earners with no family dependents often provide financial support to charitable organizations. In either case, a basis exists for insurance.

Life insurance is concerned with the economic value of a human life, which is derived from its earning capacity and the financial dependence of other lives on that earning capacity. Because the economic value may arise out of either a family or a business relationship, it seems advisable to discuss the functions of life insurance under two headings: family purposes and business purposes.

Questions About Family and Health:

By means of life insurance, an individual can assure that the family will receive the monetary value of those income-producing qualities that lie within his or her physical being, regardless of when death occurs. By capitalizing this life value, an income earner can leave the family in the same economic position that they would have enjoyed had he or she lived.

  1. Is the client married?
    1. If so, would the surviving spouse be able to support themselves and their children through their current employment or by rejoining the workforce?
  2. Does the client have children?
    1. If so, are the children young enough where the death benefit would be needed to insure their future needs (maintaining the family’s lifestyle, college, etc.)?
    2. Would the client’s death cause additional expenses such as daycare?
  3. Is the client older and near retirement?
    1. If so, do they have sufficient assets to support a surviving spouse and others in the event of their death?
    2. When the client dies, does the surviving spouse have enough assets for a comfortable retirement?

Questions for Business Owners:

Life insurance serves a wide variety of purposes in the business world. Its purpose is to indemnify a business concern for the loss of earnings caused by the death of a key officer or employee. In many business concerns, there is one person whose capital, technical knowledge, or business connections make him or her the most valuable asset of the organization and a necessity to its successful operation. Because of this, it’s important for advisors to ask business owners the following questions:

  1. What is your exit strategy from your business?
  2. If your business had to be sold after your death or disability, could it be sold for a profit?
  3. Who will own your business when you retire or die?
  4. Who will control your business when you retire or die?
  5. Who will run your business when you retire or die?

A Holistic and Thorough Approach to Insurance Planning

In terms of earning capacity, the human body may be worth millions of dollars. Yet earning power alone does not create an economic value that can logically serve as the basis of life insurance. A human life has an economic value only if some other person or organization can expect to derive a financial benefit through its existence.

Life insurance can act as a key financial planning tool, and financial advisors who understand it can help their clients determine what their life insurance needs are and match clients with a policy that fits their situation.

The content of this blog post was adapted from course materials in the Chartered Life Underwriter® (CLU®) program. By becoming a CLU®, advisors learn how to how to fully serve the diverse needs of their individual and business clients through in-depth insurance knowledge. Upon completion, students have the expertise to provide guidance to clients on types and amounts of life insurance, make recommendations on aspects of risk management, and expert knowledge of various insurance solutions.

A CLU® designee understands the legal aspects of life insurance, and assisting clients in making decisions about estate planning, including various wills and trust arrangements. With particular emphasis placed on ethics and commitment to clients, the CLU® has earned a distinguished reputation backed by security and stewardship.