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4 Types of Insurance to Discuss with Clients During Financial Planning Meetings


In your ongoing financial planning discussions with clients, insurance they own or may be considering purchasing should be part of the conversation for many reasons. Bryce Sanders reviews four types of insurance you should be bringing up in your meetings.

Jul 6th 2020
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Most people glaze over when talking about insurance. In your ongoing financial planning discussions with clients, insurance they own or may be considering purchasing should be part of the conversation for many reasons.

Business Insurance

There is often a legal requirement for businesses to have certain kinds of insurance. As one example, if the client owns a factory and the building is mortgaged, the bank usually requires the business to carry commercial insurance in case the building is destroyed. They want to protect their investment.

Other forms of business insurance aren’t as obvious. Many Americans have home-based businesses. Assets of the business aren’t covered under homeowner’s insurance. Using your personal automobile for business is another example. You may have been driving to meet a client or mailing your eBay shipments from the post office. If you are involved in an accident, you were “on business.” The company providing your personal auto insurance will distance themselves from you.

Most business owners have an ongoing relationship with a commercial insurance agency. They need to meet and determine if they meet both the legal and practical requirements for coverage.

Life Insurance

Some people don’t view insurance products as an investment for a lot of reasons, including built-in upfront fees, long surrender charge periods and low internal rates of return. Life insurance isn’t primarily designed as an investment. Its main purpose is protection.

The main benefit life insurance brings to the table is the death benefit. If your client dies suddenly, their future earning capacity comes to an end. They may be leaving a family behind. The death benefit provides a lump sum to plug the gap.

Many people consider term life insurance a cheaper alternative to whole life. Term insurance buys them a death benefit with no gradual buildup of cash value. Term insurance runs for a defined number of years, which is why it’s called term. Your client needs to buy another policy for another term, much like they return a leased car when the term is finished and enter another contract when leasing their next car. The successive policies will be higher in price because the client will be older.

Many companies provide life insurance as an employee benefit. Your client might feel they don’t need term or whole life insurance because they are covered through their policy at work. That coverage ends when the leave the company, voluntarily or otherwise. At that stage of their life, clients need to shop around and buy coverage themselves.

Whole life insurance builds cash value. This qualifies it as one of your client’s assets. In most cases, it can be borrowed against. Annual withdrawals against the cash value, often 10 percent, are also allowed in most cases. Unlike a loan, withdrawals are taxed under the LIFO rule. This ability to access funds is important in times like the recent pandemic if a client loses their main income, yet bills still need to be paid.

The bottom line is, your client needs adequate insurance coverage. There are pros and cons to workplace-provided, whole life and term insurance. They need to make the choice themselves.


The financial world has a love/hate relationship with annuities. Internal fees are high. Their life cycle consists of two phases, accumulation and distribution. Principal protection is a major selling point, especially when the stock market is volatile. When interest rates are low, the internal rate of interest isn’t very exciting. Variable annuities allow clients to invest in the stock market through products like mutual funds, yet they give up principal protection.

Guaranteed lifetime income is the major benefit annuities provide. This is also known as the distribution phase. When you flip the switch between phases, the client is told the dollar amount they will receive every month for the rest of their lives. At that moment, the underlying money is no longer theirs.

If you consider the dollar amount paid out annually as a rate of return, it’s higher than the client would receive in the Treasury or investment grade corporate bond market. It beats the return on CDs. Why? Because the client is receiving a blended payment of interest earned on the balance plus a portion of their principal. Many clients balk at losing control of their money. This is similar to how Social Security works. Clients pay in, and they can choose when they start receiving income in retirement. They can never access the lump sum, the principal.

Unlike Social Security, annuity payments aren’t revised annually to reflect inflation. Rather, they are fixed. Annuity payout options come in several varieties. If the client dies, their spouse or heir could continue collecting income for a certain number of years. All these options carry costs.

Life insurance comes back into the picture. If they buy whole life insurance, the cash value of the policy will grow substantially, ultimately equaling or exceeding the death benefit. Fortunately, your client is still alive. Now they need income. Fortunately, 1035 exchanges allow for a life insurance policy to be rolled over into an annuity without triggering tax consequences.

The bottom line is, some clients want a guaranteed lifetime income in retirement. That’s what annuities deliver. It’s also why they are sometimes called personal pensions. There are costs and other considerations involved, but they meet a specific need.

Personal Insurance

Life insurance and annuities count as assets. In the financial planning process, their cash value places them on the asset side of the ledger. Annuities are part of the client’s retirement plan.  Insurance fits into their estate plan. But there are other forms of insurance as well.

Your client should carry homeowner’s, automobile, personal liability, and health insurance. There are competitive markets for each product. Unfortunately, many people buy a policy once and forget about it. Homeowner’s insurance is a good example. They keep sending in checks as costs rise year after year. As part of the financial planning process, you should encourage your client to shop around. A good insurance agent representing multiple lines will often do this for you, but not everyone is that lucky. Your client may be able to reduce their current expenses by doing some legwork.

When engaging in financial planning conversations with your clients, don't let them forget about insurance! Together, you can find ways they can save money now and be protected in the event of a crisis in the future.

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