Jim Prigg encourages advisers to debunk some myths around Australia’s Social Security system, while Chris Unwin considers some key issues relating to trauma insurance advice…
Social Security is The Reason Your Clients Need Life Insurance
The existence of a sound social security system does not mean the Australian Government can, or will, meet the financial needs of people after an illness, accident or death. Yet, it is not surprising to find people who believe this is the case and may be under-insured, or even uninsured. Jim Prigg encourages advisers to debunk this myth and suggests some conversation starters to highlight why social security is the reason people need life insurance…
One of the advantages of living in a first world, developed nation is that we have universal health care and a social security system that provides basic levels of care for all Australians.
Yet, sadly, there is a persistent belief the social security system extends to providing financial support in the event of long-term illness, accident or death.
The tragedy of this belief is that people may not plan for the unexpected, nor put in place debt redemption strategies, and they don’t allow for liquidity in their estate or investment planning if something unexpected happens to them.
For financial advisers, debunking the myth of the social security lifeline can go some way to helping clients understand why being uninsured, or under-insured, could leave them and their families in severe financial difficulty in the event of a long term illness, sickness, an accident or premature death.
The following is a list, broken down in categories, of the things the government or social security will not do for people, their families or businesses:
- Pay for special medications or treatment
- Pay extra money for health emergencies
- Pay a lump sum for a defined event or illness
- Cover all of a person’s last illness or final death expenses such as funerals, medical expenses or hospital occupancy
- Pay off a mortgage to ensure the family has a home
- Pay off credit card or store debts
- Pay extra income to a surviving partner)
- Pay extra money for children’s education and health needs
- Pay local government, water, gas or electricity rates and costs
- Pay out business partners
- Redeem business debt
- Extinguish overdrafts on draw-down facilities
- Extinguish debts on death
- Extinguish debts in the case of long-term disability
It is important to remember the social security system will not address these issues and even where it does supply financial support it will fall short of a properly constructed protection plan, which can do all of the above when purchased, completed, and owned properly.
This list paints a grim picture of what will not happen if a client fails to take up adequate insurance cover, but financial advisers can use these scenarios as talking points to initiate a discussion around life insurance.
Using the points above, and turning them around presents a number of reasons to hold life insurance, and a number of ways to initiate a discussion with clients who may be thinking of ‘going it alone’.
You should have life insurance because you:
- Have debts such as a mortgage, credit cards or personal loans secured against assets to third parties
- Have dependants where expenses and debts can be quite large over a number of years. These costs include everyday living expenses and future promises of education or a start in life
- Are healthy and now is the best time to get non-cancellable contracts for full cover at standard rates. Waiting could mean exclusions, loadings or outright refusal because of health issues
- Are the homemaker, especially if you have children. It costs a lot more than the average weekly wage to employ someone to do the all the work and running around you do out of love
- Are in a relationship and both in paid work. If you need two incomes to support your debt and lifestyle you need to cover that capital cost
- Have children from a previous relationship. Blended families and extra responsibilities create a greater need for protection for those whom you love who may no longer reside with you
- Have aged parents or dependant relatives. Caring for those older or not as fortunate is a big responsibility that takes love, time and money, especially if you are not around
- Have financial responsibilities that need to be taken care of such as burial costs, private loans, income tax, rates or credit card debts
- Are in a business partnership that has debt, liquidity or equity positions to fulfil should death, disability or long-term injury occur for any of the partners
- Have a favourite charity, club or cause you want to continue supporting. Many people can create immortality for themselves and longevity for their passion in life by gifting pre-ordained funds after they pass away
- Want to make bequests and final gifts to loved ones. A cash fund can be created to give loved, respected, loyal and lifelong friends a simple thank you after you have passed on
- Want to inject liquidity into your estate for succession equality. Some estates are high in non-cashable assets such as farms, land, businesses and trusts. Life cover provides an excellent method of liquidity injection
Serious accidents and unexpected health problems happen every day. No one is bullet proof, but that does not mean the public purse will come to the rescue in a time of need.
Putting the right amount of money in the right hands in the quickest time is an economic necessity, and no debt should last longer than the person who created it.
This article is reprinted with permission from Jim Prigg CEO and founder of Knowledgemaster Pty Ltd. Knowledgemaster is an online resources company that delivers practical communications, interaction, sales and soft skills tips, tactics, techniques. Learn more about winning business programs and courses by contacting Jim.
Chris Unwin ‘Chrisims’
Chris Unwin shares some fantastic Trauma Insurance insights and tips, as he reveals both his lightbulb moment on the question of stepped versus level trauma premiums and also the true value of child trauma cover, based on the real-life experience of another adviser…
Stepped vs Level Premium Trauma Cover
For 15 years until 2007 I, like most advisers, was recommending stepped premiums to my clients for their Trauma Cover. After all, it was hard enough already to get clients to take out another product on top of their existing IP, Term & TPD cover without raising the bar even higher by increasing the upfront cost.
Then one day in 2007 I attended a two-day Living Insurance Conference put on by The Risk Store out at Homebush in Sydney, and one of the sessions on the first morning was to make a huge difference to myself, my consultancy, and my clients in the most positive way possible.
The presenter of the session Nick Kirwan*, who was the head of the ABI (Association of British Insurers), and he was talking about Trauma Cover in the UK.
He casually stated that in the UK 25% of the working population owned Trauma Cover. This completely blew me away as only approximately 2.5% of the working population owned Trauma Cover at that time in Australia. I thought maybe he’s got the decimal point in the wrong place, so I thought I’d better check it out.
I caught up with Nick at the morning break and said: “That stat that you gave of 25% of the working population owning Trauma Cover in the UK – that’s pretty amazing given it’s only about 2.5% here in Australia. What is the status of stepped vs level premiums when it comes to Trauma Cover in the UK?”
Nick looked at me as if I was from another planet and said: “What’s a stepped premium?
It turned out that they didn’t have stepped premiums in the UK – in fact they didn’t even have level premiums as we know them. They only had guaranteed premiums i.e. once you had the cover in place, the premium was guaranteed not to increase for the life of the policy. That was a lightbulb moment for me.
I immediately thought to myself: “Well, of course 25% of the working population in the UK own Trauma Cover, because everyone who bought it in their 30s and 40s have still got it in their 50s and 60s as they are still paying the same amount of money for it.”
I realised that from that moment on I would have to be recommending level premiums as the preferred mode of premium payment to all of my future clients irrespective of age, and furthermore, I had to go back to all of my existing clients who were paying stepped premiums for their Trauma Cover and recommend that they switch to level premiums.
As far as the clients I took on after that 2007 lightbulb moment are concerned, the large majority of them own some or all their Trauma Cover on a sustainable basis, i.e. level premium. I am proud to say that all of my existing clients at that time converted at least some (if not all) of their Trauma Cover to level premiums, and how much they converted was only ever a matter of affordability, with many clients opting for a smaller sum assured that was sustainable to age 65 or 70 rather than a larger sum assured that they would have to give away in the short term due to its un-affordability.
Child Trauma Cover – An Absolute Must
I have had a quite a number of advisers who have told me that they don’t always make sure that eligible children are added to one of their parent’s adult trauma policies, and the reason they often cite is that the parents don’t really want to have that conversation because they don’t even want to contemplate something bad happening to their children.
My message to you loud and clear in that case is: “Don’t have that conversation.”
That is to say – don’t present Child Trauma Cover as an optional extra; present it as an automatic inclusion that is a benefit and cheap as chips. This way, all eligible children will be covered.
Why is Child Trauma Cover so important?
When it first became available, I thought it would be a good idea because, in the event of claim, the money could be helpful to cover medical costs in the event of a child’s serious illness or accident – and indeed this could well be the case.
But it was only sometime later, as a result of the real-life experience of another adviser, that I realised what the most important benefit of Child Trauma Cover typically is.
If you ask any doctor they will tell you that, in the event of a child suffering a major illness or injury, then by far and away the biggest facilitator and accelerator of the child’s recovery will be their ability to spend time with both parents, and the payment of a lump sum would therefore allow the breadwinner to take time off work as unpaid leave in order to spend that time with their child.
This becomes especially important when “compassionate leave” would probably be a long lunch. Of course, the lump sum could also be necessary to cover medical expenses.
This potential benefit becomes obvious when you consider the cost of say $100,000 of Child Trauma Cover is around $120-a-year.
In addition to this, Child Trauma Cover is convertible to Adult Trauma Cover when the child turns 18 years of age. This can be done with no underwriting, which therefore creates an easy transition.
So why not make the Child Trauma Cover $200,000 for less than $5 a week?
Hopefully you can now see why Child Trauma Cover should be an automatic inclusion on the parent’s adult policy, but consider also the benefit to you of pursuing this practice.
If you were to write two average personal protection packages a week with two eligible children per package, then you would have 100 guaranteed new clients a year coming on board any time between two and 16 years, thereby creating a guaranteed new client pipeline simply as a result of doing the right thing by your clients.
Chris Unwin is a former financial adviser with 37 years standing and was a specialist risk adviser for 22 years. His training and consulting business has operated for 16 years and it specialises in helping advisers across the full spectrum of experience with their client engagement skills, both in the risk advice specific space as well as in the more generic soft skills space.
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For financial advisers, debunking the myth of the social security lifeline can help clients:CorrectIncorrect
People who believe the government will meet all their needs in a crisis:CorrectIncorrect
The percentage of people with Trauma Cover in Australia is approximately:CorrectIncorrect
Child Trauma Cover is convertible to Adult Trauma Cover when the child is aged:CorrectIncorrect
Child Trauma Cover can be converted to adult cover with no underwriting:CorrectIncorrect