Show the cost of waiting to clients postponing their insurance purchase!
As the saying goes "It's cheaper to buy life insurance 10 years early than one minute too late." However, I'm sure you have all dealt with a client or prospect who perpetually delays their decision (likely on more than one occasion).
I'm not ashamed to say I've even been that client (sorry Chad) and I know the value of the products! A lot of people (myself included) make the assumption that we will wake up tomorrow and the next day and not need the insurance, however we must realize that if we have a liability it's likely more economical to fund that liability with an insured product than to pay it out of pocket (that is the whole idea after all).
What we're really doing is gambling. We're hoping that the premium we save today because we are not paying the insurance premium is going to net us more money overall. However, there is another saying that comes to mind, "The house always wins". If we keep gambling we're bound to go bust.
One of the best ways to motivate a "gambler" or someone who is cash sensitive to take action now rather than wait, is to show the cost associated with not buying today but at a later date. Show them how much money they are leaving on the table so to speak. Even gamblers know that life insurance is when product, not an if product.
What is Cost Of Waiting
Cost of waiting is the financial cost to wait to purchase insurance because of the increased price associated with age. At LDA we like to call this the Cost Of Waiting (COW for short). The COW can work on any type of product, Term, Ul, Whole Life, CI, DI you name it. It often requires two assumptions to calculate so it's important to disclose them upfront.
Assumption 1: We know what future product pricing will be. We can use current rates to make a well-educated guess but there is really no way to know where insurance pricing is heading. It could become dramatically cheaper due to advances in science and technology or it could become way more expensive due to claims experience or market conditions that we could not even anticipate today.
Assumption 2: You will be healthy enough to purchase insurance. This is not always an assumption, for example, a person may have the right to convert a policy regardless of health. However, in many cases, the person assumes they will be healthy enough in the future to get an offer from an insurance carrier.
So let's work on a few ways we can illustrate this and pin a number down to show how much the delay is costing them. I'm going to be using Life Design Analysis to make this comparison easy and effective however you could make your own COW in Excel
Let's work with these assumptions, we have a 40-year-old male non-smoker in good health, we'll call him Frank. Frank needs $1,000,000.00 of Life Insurance.
Scenario 1: COW Universal Life
Today if Frank were to buy Univeral Life today he would be looking at a premium of $8,429.00 / Annually
Results provided by LifeGuide 12/Feb/2018 (subscribers of LifeGuide receive a 50% discount on LDA)
We're going to add it to the case
If we want to do a really basic COW we can simply use the "age override" function in LDA and increase the age by the number of years this client would wait. In my example, I'm going to use 1 Year of delay making Frank 41. You could use this to easily show a client the cost of an age nearest change that might represent the cost of waiting even for a few months.
As you can see the increased cost would be $8,827.00 / Annually, I will click add to case
Results provided by LifeGuide 12/Feb/2018 (subscribers of LifeGuide receive a 50% discount on LDA)
I have also edited the names to make it easier for my Frank to grasp the options.
Now all that is left is to generate your report...
As you can see from our interactive LDA report the premium is only $398.00 a year more, however carried to life expectancy that few months of delay cost almost $20,000.00 an enormous cost for not taking action (potentially only a few months).
Scenario 2: COW Whole Life
In this scenario we're going to get more advanced. We will assume Frank has an existing Term 10 policy that he got when he was 35 (meaning it is 5 years old and 5 years from its first renewal). Frank figures the annual payment of $520.00 is so low he would be better off to wait till he is 45 and convert the policy then.
For this I am going to start by adding the baseline Whole Life Plan as if it was bought today by importing a spreadsheet into LDA. (for help with this check our help centre)
Now I want to add the future whole life plan this time as if Frank waits 5 years to convert but continues paying his term premiums.
Like the previous example, I want to highlight the increase in premium but I also want to highlight the delay in cash value buildup. I think this is an important area to focus on as it may be part of a retirement plan. I also want to calculate the impact to the IRR as we are dealing with time value of money.
To do this I am going to select a +Manual and select "Whole Life" I will change the name to make it easy to understand and Hit "paste spreadsheet data" to input plan data for the existing term and whole life.
+Manual allows us to input any kind of data. For the first 5 years, I will enter the term premium that Frank will continue to pay ($520.00 annually) giving him a flat $1,000,000.00 of insurance coverage and no cash value.
Then I am going to create a whole life quote at age 45 to simulate to my best ability what the product would cost to wait and paste the values below the term plan to simulate the term conversion.
Click Upload and Generate your report
You will have to look at our full analysis to truly see how much starting early benefits Frank
- Frank saves $75,800.00 by starting now rather than waiting till the end of his existing term policy.
- Frank has $269,746.00 more cash value at age 70 by starting now rather than waititng to convert.
- Frank has $597,370.00 additional total insurance benefit at age 85 by taking action today vs waiting.
- Frank has a greater IRR by converting now rather than wait, proving that frank will save more money by making a move now rather than wait a second longer
The Cliffs notes:
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Need to see the concept in action? Watch the video below!
Want to book a training session with Jon or Nik from our support staff to see how you can use this concept. (just click on their names!)
