Inflation and not buying enough life insurance

[xosephchu]

There are a few appproaches agents can use to help their customers decide protection amount.

The simpler approach is to use straight line calculation, where the agent asks the prospect how much monthly income he wants his family to receive in the event he is no longer in the picture.

Assuming he answers $5000 a month. In other words, he wants his family to receive $60,000 a year.

Then the next question the agent asks is how many years he wishes his family to receive $60,000 a year. He may say 20 years since by then his children would have grown up and become financially independent.

Therefore, the customer needs $1.2 mil to ensure his family will receive $5000 every month in the next 20 years.

Straight line approach does not take inflation and interest into considerations. The advantage of straight line approach is that it is easy for majority of the customers understand teh basis how to derive at the protection amount. Besides the protection amount derived is not too overwhelming.

The drawback of straight line approach the agent may have to do periodic review to ensure the protection amount is adjusted from time to time hedge against inflation.

 

[bobson]

The drawback of straight line approach the agent may have to do periodic review to ensure the protection amount is adjusted from time to time hedge against inflation.

I don't think that is a drawback at all. Periodic reviews are GREAT!!!

 

[Mark]

Younger clients are not thinking about inflation and buying enough life insurance.

I want to talk about Inflation for a minute. Then I will tell you how it can help you increase your Life Insurance numbers.

What is Inflation? It has to do with the value of a dollar and how it decreases in value. Let me tell you this story to help you understand. 50 years ago, you could buy a coca cola for a nickel or less. Every couple of years, the price of a coke would go up. It just seems like yesterday that you could buy a can of coke for 50 cent. I bought a coke from a vending machine for $1 today in a can. Why does the price of coke keep going up? It is inflation and the value of a dollar.

Let me tell you one more story. I was talking with a client about life insurance the other day. She was 74 years old. She already had life insurance. But the problem was she didn't' have enough life insurance. When she bought the insurance it was more then plenty. She had bought her policy about 40 something years ago. She bought a $15,000 policy. When she bought it she could have bought a new home for under $15,000. A new car was under $5,000 at the time she bought this policy. Before you start blaming her agent for not selling her enough life insurance, I want to stop and ask you are you doing the same thing he did? Are you selling your clients enough insurance? The agent truly believed at the time he sold this to her, that this would be enough coverage for her. Let me give you an example in today's time. Let's say you have a 30 year old male that wants to buy $50,000 or $100,000 worth of coverage. The average agent would not stop for a second to think about inflation on this young man. I bet he has another 50 years of life left in him. In 50 years will even $100,000 be enough? Will $100,000 be like $50,000 in 50 years? Just 10 years ago $100,000 would buy you a mansion of a house here in Georgia. But today, a $100,000 house is a shack. We are losing the value of the dollar every day that goes by.

Now I'm not sure what the % is that you calculate to figure out what you should add to a life insurance premium to count for inflation. I think someone told me 4% a year or something like that. The younger the client, the more of problem inflation will become. Some would even say that you should add 25% coverage to whatever you think you need if the client is younger then 50 years old. I just don't want to see any client, get old one day and all of the sudden the protection that they think they have, is not enough.

Why not just at least bring this up to your younger clients when they are purchasing life insurance from you. It may increase your sale by 25% or whatever you determine the inflation amount will be.

Besides talking about inflation, I'm still seeing clients' everyday that has not bought enough life insurance and think that they have enough insurance. Their agents didn't take the time to do some kind of a planner with them to determine how much they need. But don't allow me to get off the subject of inflation and how we need to talk to our younger clients about it.

I"m bumping this one too.