The trouble with term insurance

Term insurance is a favourite of both insurance advisors and the buying public. It’s simple and reasonably inexpensive. Advisors like to sell it because it’s easy to explain and the affordable price tag makes it an easier sale. Plus, renewals are often guaranteed.

But here’s the downside.

Insurance companies aren’t contractually obligated to send annual statements, conversion notices, renewal notices, or lapse notices. While these practices used to be the norm, companies are eliminating such practices in light of technological advances and the increasing cost of postage.

Read: How to explain insurance rate increases

While several insurers still routinely send the types of notices mentioned, more are directly communicating electronically with their contracted advisors and posting messages for advisors on their websites.

If computers crash, servers go down, notices get directed to spam or advisors forget to check, clients will miss significant opportunities like conversion expiry dates.

Read: Permanent insurance creates flexibility

An advisor recently told me he missed the convertible-to-age-65 date. He’d moved residences, changed firms, relocated files — and plain forgot.

To make matters worse, he had become uninsurable due to surgery for prostate cancer. When his policy came up for renewal, his premium went from about $300 per month to more than $2,100 per month — a 630% increase!

To avoid this happening to you or your clients:

• Call all your term-insurance clients and arrange a policy and beneficiary review meeting for 8 months before their next birthdays
• Ask them, “What’s the most significant health challenge you have faced in the last five years?”
• Re-educate yourself on the benefits of both Permanent Par and Non Par solutions with term riders
• While doing the policy review, ask your client to think about all of the details of what their situations will be in 10 years’ time. Explore insurance needs and solutions for those scenarios if they’re still insurable
• If you take care of your family’s insurance, ask a trusted colleague to become your servicing advisor. Ask her to complete a Change of Advisor Request Form at minimum. That way, if you pass away before your spouse, your family has someone else they can lean on.

Read: Is costlier insurance cost-effective?

An insurance company’s vice-president once told me, “It is the client’s job to know what is in the policy; it’s not our job to remind him.” I disagree.

The policyowner has some responsibility to take appropriate action, but as a life-licensed advisor, you have a duty of care to be your client’s interpreter and subject-matter expert.

Helena Smeenk Pritchard has over 36 years of experience in the insurance industry and is the Principal of Helena Smeenk Pritchard & Associates, a leader in “Insurance Know-How” training. Helena publishes a weekly free ‘Did You Know’ newsletter on her site.