{"id":56468,"date":"2021-07-01T09:56:53","date_gmt":"2021-06-30T23:56:53","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=56468"},"modified":"2024-10-30T08:44:47","modified_gmt":"2024-10-29T22:44:47","slug":"are-you-at-risk-if-you-dont-regularly-review-your-clients-life-insurance","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2021\/07\/01\/are-you-at-risk-if-you-dont-regularly-review-your-clients-life-insurance\/","title":{"rendered":"Are You at Risk if You Don\u2019t Regularly Review Your Clients’ Life Insurance?"},"content":{"rendered":"\n
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The Astute Wheel’s<\/a> Hans Egger reflects on when and how often advisers need to review their clients’ life insurance needs – especially when their circumstances haven’t changed to any significant degree – and how to manage the process as efficiently as possible…<\/h3>\n<\/div>\n<\/div>\n

<\/p>\n

It\u2019s generally accepted that you should review your client\u2019s life insurance whenever there is a significant change in the client\u2019s circumstances that warrants a review. But what if there are no significant changes? What is a reasonable amount of time that you can leave your client\u2019s insurance in place without a review?<\/p>\n

First, let\u2019s agree that a review involves a complete needs analysis of the client\u2019s insurance requirements and not simply a confirmation of the insurance levels and premiums being charged.<\/p>\n

The modern adviser now has access to sophisticated needs analysis calculators that can determine a client\u2019s annual cashflow requirements and caters for expected changes in income and one-off expenses to understand the client\u2019s life insurance needs.<\/p>\n

Let\u2019s say, for simplicity, that your clients are both 50 years of age and both earn $100,000pa. Last year you conducted a thorough needs analysis and for each client implemented $2M in death cover, $1.5M TPD, income protection of $6,250pcm and trauma of $300K. Is a review worthwhile a year or two later?<\/p>\n

Perhaps not for income protection and trauma insurance, however there\u2019s a strong argument for death and TPD insurance to be reviewed more regularly even if no significant changes have occurred.<\/p>\n

…as each year progresses there are some expense items in the insurance analysis that will automatically drop off even if no significant change has occurred<\/p><\/blockquote>\n

The table below shows that as each year progresses there are some expense items in the insurance analysis that will automatically drop off even if no significant change has occurred. We would also expect the mortgage to reduce and superannuation investments to increase annually. The table below shows the impact of these changes each year over a three-year period.<\/p>\n\n\n\n\n\n\n\n\n
Adjustments in annual costs<\/strong><\/td>\nYear 1<\/strong><\/td>\nYear 2<\/strong><\/td>\nYear 3<\/strong><\/td>\n<\/tr>\n
Annual family living costs \u2013 no longer required<\/td>\n$80,000<\/td>\n$160,000<\/td>\n$240,000<\/td>\n<\/tr>\n
Annual children\u2019s education costs \u2013 no longer required<\/td>\n$15,000<\/td>\n$30,000<\/td>\n$45,000<\/td>\n<\/tr>\n
Annual increase in superannuation funds*<\/td>\n$28,150<\/td>\n$56,300<\/td>\n$84,450<\/td>\n<\/tr>\n
Annual decrease in home mortgage**<\/td>\n$33,000<\/td>\n$66,000<\/td>\n$99,000<\/td>\n<\/tr>\n
Total possible reduction in Death & TPD<\/strong><\/td>\n$156,150<\/strong><\/td>\n$312,300<\/strong><\/td>\n$468,450<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

* Employer Contributions of $9,500 (net $8,075) each and 6% (net) growth on $100,000 fund balance each (non-compounding for simplicity) <\/em>**$500k debt P&I at 3% interest 20yr loan term<\/em><\/p>\n

The following table shows the reduction in death and TPD and the subsequent savings in premiums that could be achieved for this couple if we applied the reduction in regular insurance reviews.<\/p>\n\n\n\n\n\n\n\n
Insurance type<\/strong><\/td>\nCurrent<\/strong><\/td>\nYear 1<\/strong><\/td>\nYear 2<\/strong><\/td>\nYear 3<\/strong><\/td>\n<\/tr>\n
Death cover<\/td>\n$2,000,000<\/td>\n$1,843,850<\/td>\n$1,687,700<\/td>\n$1,531,550<\/td>\n<\/tr>\n
TPD cover<\/td>\n$1,500,000<\/td>\n$1,343,850<\/td>\n$1,187,700<\/td>\n$1,031,550<\/td>\n<\/tr>\n
Combined Annual Premiums*<\/td>\n$8,271<\/td>\n$7,596<\/td>\n$6,803<\/td>\n$6,069<\/td>\n<\/tr>\n
Combined Savings<\/strong><\/td>\n<\/td>\n$675<\/strong><\/td>\n$1,468<\/strong><\/td>\n$2,202<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

*Premiums determined from Omnilife quoting and from the top 8 insurers taking the mid-range insurer in terms of cost. Clients were both business managers on a salary of $100,000 and the premiums (non-super) represent combined husband and wife.<\/em><\/p>\n

From the table above the combined savings in premiums for this couple: could justify an annual insurance review, is definitely worthwhile every two years, and if not done at least every three years may result in the client being significantly over-insured and paying too much in premiums.<\/p>\n

The problem for most advisers is that a recommendation to reduce a client\u2019s insurance needs to be well documented (just in case something happens to trigger a claim) and the insurance needs analysis process is time consuming.<\/p>\n

In an environment of \u2018client\u2019s best interests\u2019 and \u2018fee for service\u2019 however, this is exactly what is expected of the modern adviser.<\/p>\n

Letting technology take control of the risk review process<\/strong><\/p>\n

The key to making the risk review process efficient and cost-effective is to use software that automates that process as much as possible. The software should allow clients to update their own information using an electronic reverse fact find. This will save you 20-30 minutes per review meeting.<\/p>\n

The changed data should automatically update the fact find database and then flow into the risk needs analysis calculator. For greater client engagement, the needs analysis should be conducted via visual, interactive, client-facing software in a face-to-face meeting using a big screen TV in the office, or virtually, using a video meeting platform such as Zoom. This approach will mean the needs analysis process can be completed within 20-30 minutes.<\/p>\n

The software should also allow file notes containing all the calculations and decisions to be automatically generated. This creates an audit trail. It should also be capable of automatically generating the strategy paper and a succinct (around 12 pages), plain English statement of advice (SOA) within minutes. Customising\/editing the SOA should only take a further 15 or so minutes.<\/p>\n

This kind of approach will help you to not only provide high quality life insurance reviews in a cost effective and compliant way, it will also help you demonstrate the value of your advice to your clients and justify a fee-based approach.<\/p>\n

The more efficient and thorough your review process is, the more clients you will be able to service and the more those clients will value your advice.<\/p>\n

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\"\"<\/a>Hans Egger is Managing Director of AstuteWheel<\/a>. AstuteWheel has developed a next generation technology-based solution that allows information to flow seamlessly along a workflow path from beginning to end.<\/em><\/p>\n<\/div>\n

 <\/p>\n

Back to Adviser Focus Main Page…\u00a0<\/a><\/p>\n\n","protected":false},"excerpt":{"rendered":"

The Astute Wheel’s Hans Egger reflects on when and how often advisers need to review their clients’ life insurance needs – especially when their circumstances haven’t changed to any significant degree – and how to manage the process as efficiently as possible…<\/p>\n","protected":false},"author":3,"featured_media":56475,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6868,4474,7],"tags":[],"class_list":["post-56468","post","type-post","status-publish","format-standard","has-post-thumbnail","category-adviserfocus","category-practice-management","category-technology"],"_links":{"self":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/56468","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/comments?post=56468"}],"version-history":[{"count":0,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/56468\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media\/56475"}],"wp:attachment":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media?parent=56468"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/categories?post=56468"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/tags?post=56468"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}