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Life Insurance Needs for the Mass Affluent

Written By: George Wapler and Catherine McBreen

While most of us don’t like to contemplate what will happen to our assets when we are no longer around, we all know that proper planning is necessary if we want to protect our children and our spouses.  But what are the factors that influence individuals to realistically start planning and what is the opportunity to assist with this planning for advisors in the insurance community?

There are over 30 million U.S. households that fall within the “mass affluent” population.  These are households that have between $100,000 and $1,000,000 of assets to invest. (This does not include the value of their primary residence.)  It is very likely that many of these households will continue to grow their assets in the future and many will face potential challenges with estate tax.  This could be even more likely depending on the outcome of the upcoming elections.

Today approximately 75% of these households own some type of life insurance. It is more interesting, however, that only 59% of them have a financial plan.  It is likely that for many of these households the purchase of life insurance was a haphazard event.  The largest proportion own term insurance. Only a small proportion (21%) owns a variable annuity product and only 24% own a fixed annuity product.  Thus, even for those with insurance products, it is not clear that a formal planning process has been completed or updated.  And as far as including life insurance as part of a broader estate plan, only 16% hold any assets in trust.  Clearly there are opportunities for advisors to assist these households with greater planning opportunities.

So how can you effectively assist the mass affluent with their estate planning needs? There are several factors to keep in mind.

* Many individuals put little faith in a financial plan because it is presented simply in a manner that leads to insurance sales.  It is critical for an advisor to establish a holistic relationship that factors in other investment and financial needs to gain their confidence and acceptance of the plan.

* One of the biggest fears of the mass affluent is outliving their assets.  Any planning should include discussion of these concerns and how to protect against them.

* Make sure that your discussions are not just a product push.  This is a major turn off for investors.

* These individuals are well educated and increasingly comfortable using the internet to gain information.  An advisor must be just as knowledgeable about the markets and various options as they are.  Be ready to answer their questions regarding multiple subjects.  Although no one can be the expert on every topic, have access to various experts in the estate planning and investment fields.  Be ready to refer them to a local attorney or even an investment manager (if that is not your own expertise.)  Be sure to work together effectively with these experts in the future on behalf of the client.

* Proactively reach out to them with information, not just product sales.  Sending a client a copy of an article that he or she might find interesting shows that you have an ongoing interest in them.

* Finally make sure that your clients have a strong understanding of the various tax implications and related benefits of any products that you present to them.  Taxes in general are becoming a larger concern for these households.

The most effective advisors will be able to position themselves as an advocate for these 30 million mass affluent investors and not just a “sales guy” .  There is an enormous opportunity to assist these investors with a thoughtful well-informed approach.

Catherine S. McBreen and George H. Walper, Jr. are the owners and principals of Spectrem Group, a consulting and research firm specializing in the attitudes and needs of investors of various wealth segments as well the needs of retirement plan participants and sponsors.

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