Nigel Bowen speaks to an adviser to find out how he reminds clients of how important insurance is.
Gordon Schauer, the founder of Financial Planners Inner West in Sydney, has provided financial advice for almost three decades. He knows that come end of financial year, he’ll be finding himself trying to talk clients out of abandoning their insurance policies.
“Clients fall into two broad groups,” Schauer observes. “Those in their 30s and 40s who are trying to pay off huge mortgages and cope with the costs involved with raising children. The issue for them is to keep finding the money for cover given other pressing demands.
“The other group is those in their 50s and 60s. They’ve raised the kids, paid off the mortgage and wonder if it’s worth maintaining their cover, especially if their premiums keep heading upwards.”
No second chances
Schauer is very aware he’ll only have one chance to keep his clients covered. “Once somebody has discontinued their cover they almost never come back and say, ‘Hey, I got a raise and have the money to get insured again’,” he observes.
“Even if they did, they’d either then have a health condition or be at higher risk of developing one, so they would see the premium as prohibitively expensive. So, financial advisers need to do everything possible to talk people out of throwing away the cover they do have.”
“Though younger clients are under greater financial stress, they are usually more amenable to maintaining cover,” Schauer says. “They don’t want to leave their partner and children in a difficult situation in a worst-case scenario.
“It’s harder to talk around older clients. I point out they are still earning an income – often a significant one if they’ve reached the top of their field – and are proceeding on the assumption they will have that income for another decade or more. If that money is no longer available, it may mean they or their partner need to keep working for a lot longer than they wanted to. Or that plans to travel, or help the kids out financially, have to be abandoned.”
When clients are determined to reduce insurance costs, Schauer aims to minimise the damage.
“Cutting costs inevitably has consequences ranging from less tax deductibility to less comprehensive coverage,” he says. “But premiums can be reduced through strategies such as increasing waiting periods or putting the cover under super. You can also juggle the different levels of insurance. For example, if a client in their mid-50s has resolved to drop their stepped income-protection policy, you can persuade them to use some of the money they’re now saving to pump up their total and permanent disability cover.”
Jack and Diane: a cautionary tale
This is a story that Schauer sometime shares with his older clients who are questioning the worth of their cover.
“A few years ago, I was advising a couple I’ll call Jack and Diane,” he says. “They were in their early 50s and comfortable. Jack earned $100,000 a year in a logistics role, Dianne earned $200,000 in a marketing position. They had largely paid off the family home and bought a few investment properties in mining towns during the mining boom.
“Jack developed a leaky valve in his heart that required surgery and was off work for months. Soon afterwards, Diane was diagnosed with breast cancer and also had to take several months off. Bad things happen in threes, and in the middle of all this, Jack’s father died and there was a legal battle over the estate.
“If they had been uninsured, Jack and Diane wouldn’t have ended up on the street: the mining boom had busted, so they may have had to sell their investment properties for a big loss, they might have also felt pressured into agreeing to an unfair settlement on the estate rather than paying for a solicitor. They would have had to significantly reduce their outgoings while they were out of work and perhaps adjust their retirement plans.
“But because they had trauma insurance, Jack received $100,000 and Diane $220,000. Aside from their heath conditions, which they recovered from, their lives weren’t thrown into chaos. It’s situations like that where you’re thankful you put the time and energy into energy into convincing clients to take out and maintain solid cover.”