How life insurance and annuity products & services are essential to the solution.
We all hear the daily reports of the perilous and insecure state of the financial affairs of most American families. Many are experiencing high levels of financial stress from the impacts of:
- The Great Recession
- Higher living expenses driven by healthcare costs
- Technological innovation and the related impact on job growth
- Increasing automation replacing many jobs
- Low wage growth
- Consistently record low interest rates (lower forever versus lower for longer) and
- The pressures of the rising cost of educating their children.
Overall, the financial condition of the average American family is experiencing a regular series of vicious hits and challenges. We see reports that most households have little emergency savings and almost nothing saved for their retirement.
How can we help these families to recover?
How can we prepare them to protect their incomes, plan for increasing life expectancies, wade through health insurance reform and deal with the impact of their college-educated kids living back in their childhood bedrooms?
It is time to get back to the financial basics we know and understand.
We need to educate and tell the story of what a strong financial foundation does for a family and how by using the benefits of life insurance and annuity products this foundation can be built to last.
Based on my over 25-year career in financial services, I’ve compiled seven key principles that I think we should be teaching our clients.
- Save on a systematic basis.
As older Americans can attest, they have seen the importance of systematic savings plans. It is amazing what can be accumulated with a small amount put away each pay period or by using money received from special occasions. Individuals need to start their financial foundations by using available annuities, life insurance, 401(k)s, IRAs or other tax qualified plans as basic building blocks. A little put away today can grow to a reasonable sum as retirement nears.
- Use time to your advantage.
The time value of money and the power of compounding are concepts that are based on putting money to work over an extended time horizon. Your clients normally can’t save for 30 years of retirement in three years. Individuals need to create a plan and have discipline to fund retirement over the years despite setbacks and unexpected life events. Life insurance and annuity products are designed to make this principle a reality.
- Protect against the loss of employment income and premature death.
A basic concept in financial planning is to protect your downside risks. For most people these risks are the loss of their income and/or life. Protections for these risks can be purchased today at the most affordable rates in decades with life insurance and disability products.
- Feed your retirement savings.
Life expectancies continue to increase. When the scientific community discovers the cure to cancer we will all have the chance to live past age 100. Can your clients save enough during their working lives to have assets that last that long? To fund a retirement of over 30 years, savings need to be fed often and on an ongoing basis. Adopting a private retirement savings plan, as early in life as possible, is a must. The U.S. government will likely not have the resources to be the medical and longevity insurer of last resort for all of us. We are seeing these stresses today in the financial difficulties that the almost two trillion dollar Medicaid, Medicare and Social Security programs are acknowledging.
- Invest in your health and wellness.
Having basic health insurance coverage and maintaining physical and mental self-care are essential to a strong financial foundation. Only over a third of Americans have basic dental insurance coverage in this day and age. It is astounding to me.
- Live below your means.
This is the hardest principle for most people. Distinguishing between what we need and what we want is one of the keys to building a strong financial foundation. Controlling spending to get just what is needed takes discipline but will pay major dividends over a lifetime.
- Use debt carefully.
In your client’s lifetime they will likely need to use debt for a mortgage, car loan or to obtain an education. Using debt wisely is essential, but to have mandatory repayment amounts that require borrowing of next week’s pay to cover this week’s bills is self-destructive. Families should only incur the debt they can comfortably afford to service.
Our industry has often forgotten to present the key benefits of its products along with the explanation of how they can provide the building blocks necessary to create a strong and lasting financial foundation. The key benefits to emphasize are:
- The advantage of tax deferral or legal tax exemption. By established public policy almost all life industry products have the either the benefit of tax deferral on accumulation or full or partial tax exemption on benefit payments. These advantages are powerful and provide significant consumer benefit. When was the last time you highlighted the tax-free or exempt nature of life insurance death benefits?
- The power of guarantees. Our industry offers guaranteed minimum interest rates, death benefits and income payments that cannot be outlived. Where else in the financial services landscape can your clients go to get these benefits in a financial product?
- The backing of government regulation. The life insurance industry is regulated based on a tested state-based system backed by key national standards. In addition, the industry’s products are backstopped by a system of state based guaranty funds to further support the guarantees within products sold.
- The quality of advice. We have an estimated 500,000 active licensed financial professionals available to provide advice, counsel and knowledge to help families build their foundations. The overwhelming majority of these professionals provide excellent quality advice and counsel to their clients.
- Product flexibility. The industry has introduced new and innovative products to meet evolving client financial and lifestyle needs. From indexed annuities and life insurance to combination life and annuity products to the newest generation of immediate and deferred annuities, products have been developed to be as flexible as possible to meet the changing needs of Americans. These innovative solutions, when properly explained and sold, are the bricks to building long-term stability and income that clients need.
We are sitting with the greatest selection of product solutions we have ever had as an industry at a time when American families need our advice and counsel more than ever. It’s time to redouble our efforts and focus on consumer education and sharing our knowledge and insight. The impact on our country could be incredibly significant. We can solidify the financial foundations of America’s households and put them on a track to long-term prosperity.
Get back to the financial basics you know and understand.
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