How to incorporate insurance lending into your clients’ annual financial checkups

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Annual financial checkups touch on a wide range of client goals and needs, each of which can lead to multiple strategies. When reviewing client priorities, it can be helpful to add an insurance lending dimension to many of the discussions.

This form of lending comes into play when a client has a permanent life insurance policy – and if they don’t, that could warrant a discussion during review time too.

There are two main types of life insurance. Advisors know this, but clients sometimes need a primer. Here’s a simple way to explain it to them.

Term insurance lasts for a set period and is more affordable (though premiums rise upon renewal). Your clients may have purchased term insurance to provide certain protection (like covering the mortgage) for a specific timespan. In contrast, permanent insurance costs more but lasts for life, and the premiums remain the same. Moreover, the built-up cash surrender value (CSV) in the policy can serve as collateral for a line of credit.

Different stages of life can trigger conversations around insurance. That’s always important to probe. Ensuring the right protection is first and foremost. With that in place, permanent insurance brings many other advantages which can pertain to topics that come up during a financial review.

In general, you should be asking clients if they’ll need access to borrowed funds at some point in the future. You can then present them with the various insurance lending options, keeping in mind their ability to pay the premiums of any insurance policy put in place. This will give your clients peace of mind that funds will be readily available if needed, without having to go through a complicated or time-consuming loan approval process.

Be alert for needs where borrowing makes sense

If you have insurance lending on your radar, it makes it easy to discuss as one possible tool when specific needs emerge in a review meeting.

For example, you may be talking about whether an investment strategy is on track. That’s a good place to bring up an Access Line of Credit (ALOC), where people can access funds to invest and further grow their portfolios. The client may also be able to write off the interest.

An ALOC can also be used to access cash for any number of purposes that come up during a review, from home renovations, to covering expenses due to a job loss, to investing in a business improvement.

Discussions relating to retirement, cash flow and tax efficiencies – all paramount during a financial review – can also have an insurance lending component.

The Insured Retirement Program (IRP), for instance, is a great vehicle to supplement retirement income without tapping into other investments by lending against the CSV in a permanent insurance policy. For clients who are 50 and over, that’s worth thinking about.

Another useful tool is an Immediate Financing Arrangement (IFA), especially for high-net-worth clients. The IFA strategy can work for high-net-worth clients who can pay sizeable premiums. They can borrow an amount equivalent to 100% of CSV. By providing additional security, they have the option to borrow an amount equivalent to the entire premium. This may help with cash flow, tax planning and estate planning.

Other routine questions posed during a financial review can reveal lending opportunities. In discussing longer-term plans, a client might talk about wanting to buy a vacation or retirement property at some point, or gifting to children or grandchildren for a real estate purchase. Insurance lending can provide access to these funds whenever clients are ready to make that move.

Get clients thinking

In advance of or during a review, you should also ask your clients to consider some key questions, so that you can better understand how to position insurance lending:

• How comfortable are you with borrowing money?
• How do you feel about a long-term lending strategy?
• What is your risk tolerance?
• What keeps you up at night when you look at your overall financial picture?

Insurance lending can be part of a more holistic look at a client’s financial needs and can fill many roles. Use their annual review to discuss these solutions and how they can meet both short-term and long-term goals.

To learn more about the benefits of Manulife Bank’s insurance lending solutions, visit the Manulife Bank Advisor Portal.