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Every insurance conversation with clients has some nuance. Needs and goals differ, as do products. Advisors can help their clients by opening up discussions about how some insurance products can provide additional value, over and above being an end-of-life death benefit.
While term insurance can be popular due to its straightforward benefits and lower premiums, permanent life insurance has its own unique features. It appeals to clients who prefer a policy that doesn’t constantly expire, offers a fixed and long-term premium, and works for estate planning.
There’s another often-overlooked advantage.
Permanent life insurance, on top of a death benefit, offers a growing cash surrender value (CSV). Clients can use it as collateral to obtain a line of credit. That turns permanent life insurance into an active asset with many uses.
The added dimension of a growing CSV is worth exploring right from the outset of an insurance discussion. While clients often use a policy loan in emergencies, a line of credit secured by the policy’s CSV can be a better option.
A CSV line of credit can be drawn on over time, with interest charged only on the amount used. The client has no obligation to use it but has the comfort of knowing they have access to cash when a need or opportunity arises. The permanent life insurance policy’s CSV is also left untouched and growing. In a low interest rate environment, policyholders could potentially pay less interest than they’re earning.
This is a proactive solution, and raising it shows that you anticipate your clients’ requirements. Over time, clients won’t have to pursue more costly lending solutions. Or they won’t have to address cash flow issues in a way that’s perhaps not advisable. Instead, they can fall back on a line of credit secured by their permanent life insurance policy.
How to position insurance lending
An essential part of any financial plan is to have access to cash to cover unexpected expenses. A line of credit can be an excellent first line of defense.
That’s from a lifestyle perspective. From an investment perspective, insurance lending also means that clients can allow their investments to grow without having to liquidate them at a time of need. At the same time, clients can use the line of credit to further add to their investment portfolio.
There are retirement planning advantages too. Clients who are over 50 can supplement their income with the Insured Retirement Program. This is a line of credit offering tax-free cash through lump sum or scheduled withdrawals.
For the short term, building cash value in permanent life insurance gives clients a range of lending solutions. Longer-term benefits include having significant growth of the cash value within the policy which is paid out tax-free upon the death of the insured.
All these points should be part of a conversation with clients. Together, they make a compelling case for what can be an insurance, lending and cash flow solution.
Raise the topic early and often
When should advisors talk to clients about this option? Early in the sale of a policy, as part of their annual financial review with the client and whenever the need arises.
Just probing clients’ goals and plans can reveal an opportunity. For instance, a client might talk about wanting to buy an additional property at a certain point. Based on the cash value in the policy, insurance lending might fill that potential need.
It’s common to illustrate how cash value grows in permanent life insurance over time. Discussing what permanent life insurance can offer through lending solutions is a natural extension of that conversation.
By talking about these solutions, you can reinforce the value of your clients’ permanent life insurance and add to your own value as an advisor.
Learn more about Manulife Bank’s insurance lending solutions.