As insurance agents, we all know the importance of life insurance and how it eases the hardship that comes with the passing of a loved one. And we all recognize that if you don’t believe in insurance, it can mean financial ruin. And as agents, we all have tragic stories that come back to “If only they had listened to me.”
The reality is yes, people are naïve and don’t want to think about their own mortality – especially those in their 20s and 30s, who think they are invincible. But the other reality when it comes to life insurance is that there is too much misinformation out there and most people don’t know what to believe. If you ask 10 different people on the street why they don’t have life insurance, you are likely to get 10 different excuses, ranging from “I’m too young” and “It’s too expensive” to “I’d rather invest the money.”
If we expect our prospects to make the right decision about whether to purchase life insurance, it’s our job as good advisors to debunk the myths and misconceptions people have. This isn’t always easy, and obviously the level of resistance varies from one prospect to another.
Arming yourself with the knowledge to respond to your prospects’ most common misconceptions about life insurance will help ensure they have the right amount of coverage for their situations.
Myth No.1: I don’t trust insurance companies.
How is it possible for a company to pay $500,000 in death benefits when I’m paying them only $50 a month?
It’s a fair question and one that many prospects will ask: How can I pay so little and expect to receive so much? Approach the skeptic with this question: Why would a bank buy a $500,000 property for you and require very little money down to protect its purchase? Banks underwrite a home loan in much the same way as an insurance company underwrites a new policy. A bank looks at your income and employment, your down payment and assets, your credit score, and your debt-to-income ratio.
This is now your opportunity to educate your prospect about how insurance companies look at different factors when determining costs.
Mortality: Insurance companies have a formula that comes up with the monthly cost of insurance based on a questionnaire they collect from the customer. This formula considers such information as health, age, height/weight ratio, medical history, occupation, hobbies, tobacco use, alcohol consumption and a few more variables, depending on the size of the policy.
Interest: Insurance companies take the premium you pay and invest it. The interest they earn on their investment could determine the cost to the prospect.
Expenses: High expenses due to salaries, agent compensation, rent, legal fees and high-rise buildings in prime markets can play a role in determining the cost.
Customer discipline: If all policyholders kept their policies, life insurance companies would be in trouble. But what you can share with your prospect is that insurance companies study customer habits. They know most customers typically cancel their policies every seven to 10 years due to the life cycle of a crisis taking place in their lives. All the premiums paid during that period are kept by the insurance company if it was a term policy, and everything but the surrender value is kept if it was a permanent policy.
Myth No.2: I’m young and don’t need life insurance.
Regardless of your prospect’s age, remind him that he will have created some sort of debt when he dies. None of us can escape the cost of final expenses, unpaid debts and medical bills. The only question is which part of that cost are you willing to protect and pay for? One of the smartest moves a young person can make is buying himself a life insurance policy while he’s young. Most people eventually get married. If you’re smart enough to buy it when you’re young and single with a low monthly cost, you’ll benefit in the long run.
Myth No.3: Life insurance is more expensive today because of inflation.
Many of your prospects will be under the assumption that life insurance is more expensive today because of inflation, but tell them that the normal rules of economics don’t apply. A large factor that determines the cost of life insurance is based on the average life expectancy of a man or a woman. Average life expectancy has changed in the last 40 years (see infographic).
Men have added roughly nine years to their life expectancy, while women have added six. These numbers help make the cost of insurance cheaper than it used to be.
Myth No.4: Only breadwinners need coverage.
One of the more popular myths your prospects will believe is that only the breadwinner needs coverage. According to an article in The Washington Post, the average value of a homemaker’s yearly work is roughly $96,261. Although that number may seem a bit high, their analysis was based on what it costs to hire a personal chef, child caretaker, housecleaner, driver, laundry service and lawn maintenance. For argument’s sake, let’s knock that number down to $50,000 a year for a homemaker. If you take that number and multiply it times the amount of years your kids will be under your financial support, it will determine how much insurance the homemaker needs.
Myth No.5: It is better to invest your money than to purchase life insurance.
Your prospects will tell you they would rather invest their money and see it grow. One of the main reasons to purchase life insurance, however, is to protect any investments. With estate planning laws changing, the need for life insurance coverage is more important than ever. In many cases, families who are left behind are forced to liquidate their investments because of a lack of life insurance coverage. It is critical for your prospects to understand that even if they can’t afford a permanent policy, the least they should do is protect their families and their investments with a 30-year term.
Myth No.6: I’m not going to die any time soon. I’ll get it later.
An extensive study of roughly 113 billion people shows that 100 percent of them die. The only problem with that study is we don’t know when they will die. Once the cure for aging has been invented, then and only then is it appropriate to seriously consider this myth.
I mentioned earlier how every agent has that one story he will never forget. I met with a 38-year-old restaurant manager who had three kids under age 10 and a wife who didn’t speak much English. He used that exact line on me, and six weeks later he went to sleep and never woke up. It was very tough on me as a rookie agent, because I personally witnessed what happens when you think you’ll be living a long time. His wife was left behind with three kids, no job and a mountain of debt.
Myth No.7: My employer’s life insurance policy provides plenty of coverage.
Your prospects will likely tell you they receive life insurance through their employer’s benefit package, and it offers sufficient coverage in the event something should happen to them. Putting aside the fact that it’s usually not enough, it is important to remind your prospects that employment nowadays is anything but a sure thing. It is not only annoying but dangerous to get laid off from the company you’ve been with for 17 years and find yourself in your 40s with no coverage, a mortgage and no way to protect your family. Having your own policy outside of work protects you regardless of what your company decides to do.