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Give A Dog A Bad Name: Examining Life Insurance In A Different Light

23 May 2017

Eight positives of having life insurance that are often clouded by the negative connotations of life insurance salesman

By David Crossley, CFP® and Business Manager at BDO Wealth Advisers

When I first announced to my parents that I had accepted a position as a Life Insurance agent, my father was extremely suspicious and went to great pains to contact my manager and find out whether this was the sort of career that would suit his 22-year-old son.

That was 43 years ago, but it is an unfortunate fact that many people view life insurance with a certain amount of suspicion and not a little cynicism. The Financial Planning environment of the 70’s, 80’s and the 90’s was a very different environment to the one we enjoy today.

The Financial Advisory and Intermediary Services Act (FAIS) and the science of financial planning was a dot on the horizon and organisations like the Financial Planning Institute had not been formed.

As young insurance agents we looked up to the super salesmen in our company who consistently produced dozens of life insurance applications and attended all the incentive conferences overseas that the company invited them to.

Life insurance was all about how many sales you could make and had very little to do with quantifying what the client needed in terms of financial planning. Insurance salesmen ranked very low on the list of “Undesirable occupations” – at one stage falling below encyclopaedia salesmen in terms of moral and ethical values!

It is a pity that some people still look suspiciously on “Life Insurance” because it should form a vital cog in the overall financial planning and financial wellbeing of an individual.

It is one of the very few commodities that has steadily decreased in price over the years and now offers an extraordinary benefit – providing a lump sum of money when it is most needed – either in the event of death, disability or critical illness.

Life insurance can be used effectively to mitigate the risk an individual has if he or she has debt, family obligations or even business commitments that need to be covered.

Rather than thinking of Life Insurance and its attendant negatives, it should rather be looked on in the following context:

  1. Dying too soon – replacing income for the surviving spouse and children.
  2. Becoming temporarily or permanently disabled – to replace regular income.
  3. Suffering a critical illness which could severely prejudice the cost of treatment as well as future earnings.
  4. Liquidity requirements of a deceased estate.
  5. Collateral security for fixed and movable property – housing bonds and vehicle loans.
  6. The provision by a company for the replacement of a key person in the business.
  7. Partnership “Buy and Sell” insurance, coupled with an appropriate agreement – to enable the surviving partner(s) to buy the deceased’s partner’s share of the business.
  8. Contingent liability in the event of the repayment of a company loan account or to cover unsecured debts.

A competent financial planner will include Risk advice in any dealings with his clients, in order to ensure that his client’s financial goals are completely ring-fenced and cover all eventualities. Having enough capital to retire on is all well and good, but in the event of premature death or disability, there are other critical income considerations to be considered and planned for.

Maybe it’s time to bury any prejudices and misconceptions we have about Life Insurance and look at it as part of the financial planning we should all have or aspire to.

The great British statesman, Winston Churchill coined the memorable quote:

If I had my way, I would write the word “Insure” upon the door of every cottage and upon the blotting book of every public man, because I am convinced, for sacrifices so small, families and estates can be protected against catastrophes which would otherwise smash them up forever.”

When last did you speak to your financial planner about life Insurance?

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