Let’s have the grown-up in charge

Life insurance is complex, you are the "grown-up" and clients need your expertise when they invite you to give them advice, says Russell Hutchinson.

Friday, May 8th 2020, 8:00AM

by Russell Hutchinson

Russell Hutchinson

Quoting from a book about parenting: "When you have a two-year old and a parent in a room, remember that when it comes down to it, the parent should be in charge."

Some of us are great at many things but need help with other areas of our lives. I see a doctor, and normally, I don’t do my own haircuts.

To make changes to the house I get an architect to make the plans, an engineer checks them, a builder does the work, and finally an inspector certifies it.

Life insurance isn’t quite that complicated, but it can have equivalent financial consequences.

I’m interested, as the owner, in how much changes to the house cost and how they will work out for me.

I have goals and a budget: my opinion on those matters a great deal. But they don’t even ask me about building codes.

Sometimes they explain limitations to me – the span of that doorway can be that large, but if it is we need a big steel beam across the top and some decent pillars to hold it all up.

I don’t get to argue with them about that. No negotiation on those requirements.

If people took as much care to ensure they don’t lose their home through poor insurance planning as they take to ensure they don’t lose it to fire, or shoddy building, outcomes would be happier.

Personally I don’t much like an insurance sales process where it is all left up to the client. Just asking people what they want and how much is okay I suppose, if the client knows what they are doing.

If they don’t, and most don’t, then they need advice.

The kind where they are taken through a reasonable diagnostic process to the point where the adviser now has sufficient information to express a professional opinion on what is required to meet the objectives the client has for this engagement.

There are innumerable problems with just asking the client what they want. Most clients do not understand the relative importance of different types of risk and therefore cover.

Most clients have limited ability in maths so struggle to understand the relative impact of replacing income, say, and repaying debt. Some lack even a rudimentary understanding of the products we are discussing.

I have heard one adviser relate how a client earnestly explained that they didn’t want any life insurance … they just wanted a simple payment to their family if they die.

When it comes to reconciling the options when you hit the budget limitations, simply asking what they would prefer means we are letting the person with the least knowledge and experience in the room decide.

Without your help they stand virtually no chance of making insurance decisions that make sense. If they were good at this, they wouldn’t need you.

Because they let you sit there and talk with them that means they have invited you to give advice. I like to think that most advisers don’t want to disappoint them, and so will show real leadership in the conversation.

Tags: insurance Opinion Russell Hutchinson