Identifying client needs in Life Insurane

Who is your client?

Prospective clients

As we have seen, an insurance agent’s main task is to understand their client’s needs and then recommend suitable products. Any individual that an insurance agent comes across and who has any financial need is a prospective client. Prospective clients may have various needs which they themselves may not be aware of. In such a case it is the duty of the insurance agent to make the prospective client realise their needs and recommend suitable insurance protection and/or investment products to meet them. As we have established in the previous three chapters, life insurance companies and other financial institutions offer a range of products which cater for the different needs of an individual. To remind you, some of the most important of those needs are as follows:

The need to:

• Provide sufficient funds for dependants in case of the premature death of the family income provider;
• Build a contingency fund to take care of any emergencies that may arise;
• Save funds for the children’s education, marriage etc;

• Provide protection for family members against home loan and other debts in the absence of the family income provider;

• Save funds for retirement; and

• Address any other requirements that may arise from time to time.

Any individual who has at least one of the above needs is a prospective client for the insurance agent.

Client needs

In this section we will draw together all that has already been said in previous chapters about identifying and satisfying client needs. We will discuss the overall process and so consolidate your understanding of how you should go about the process in order to provide a professional service to your clients.

As we have established, it is the responsibility of the insurance agent to determine the legitimate needs of their clients, prioritise them and then to recommend suitable insurance or savings products. The process

involves the following steps:

Identifying needs- Quantifying needs- Prioritizing needs

1. Identifying needs: an insurance agent needs to collect and analyse the following information:

• details of the client in terms of their financial assets and liabilities;
• marital status;
• future financial goals of the client for themselves and their children;
• number and age of dependants;
• employment status, i.e. their existing grade and scope of promotion within their company;
• income – which includes salary, business income and income from other sources and investments (if any);
• details of health status and heredity medical conditions; and
• existing protection, savings and retirement provision (if any).

2. Quantifying needs: in the financial planning process an insurance agent needs to quantify each of the needs in monetary-terms and then calculate suitable amounts that an individual needs to save and invest for the future.

3. Prioritising needs: the amount available for investment is the client’s income less their living and other expenses, i.e. the monthly surplus available. The client’s needs must be prioritised, as their investment capacity may be limited and the total amount to be spent may be more than the surplus funds available. The insurance agent should suggest the best product mix, where limited funds can be allocated to fulfill the maximum needs of the client. Prioritising these needs helps the client to determine which investment(s) can be deferred, and so the needs which are given highest priority in the ranking are the ones for which investment should be made first.

The typical life stages of a client

Childhood

Children are very unlikely to have protection needs. Children normally do not have any income of their own and are almost entirely dependent upon their parents/guardians.

At this stage there are two basic needs for parents/guardians:

• To secure their children’s financial position, if they themselves die prematurely; and

• To provide for their children’s future expenses, such as primary and higher education, marriage and other living expenses.

Young unmarried

This stage of the lifecycle can be divided into two categories:

• Young unmarried with no dependants – in this case, the individual’s protection need is low as there are no dependants. Instead, the need to invest any surplus income and earn high returns gains priority. So suitable investment plans such as ULIPs – which allow participation in the growth of capital markets along with tax benefits – should be recommended. The ability to change these when other priorities arise (for example marriage and dependants) should be considered. The individual may also look forward to saving money for their marriage, payment toward purchasing a house, providing health insurance for parents (if not already taken out or the parents are unable to fund it themselves).

• Young unmarried with dependants – if an individual is one of the income providers for a family (along with the parents), then the family will be adversely affected if the young person dies prematurely. Hence the individual needs to protect their income. The individual should be recommended to take out a suitable life insurance plan and the sum insured should be sufficient to take care of the family’s financial needs after their death. The remaining money can be invested for long-term wealth accumulation.

Young married

At this life stage the individual gets married. Their financial needs change, as they now start thinking about purchasing a house, starting a family etc. These individuals can be further categorised into two types:

• Double income family – when both the partners work then financial dependency on one person is reduced. Such couples are also commonly known as Double Income No Kids (DINK) couples. In the event of one of the partner’s premature death, the effect on the family’s finances will be considerably lower than compared to a single income family. An individual term life insurance plan for both partners is suitable at this stage so that the loss of income due to the death of one partner can be compensated for to some extent. The couple may also look to invest in products that can offer them high returns and help them with wealth accumulation for the future. Investment in unit-linked insurance plans (ULIPs) is recommended for such couples as ULIPs have the potential to deliver high returns through participation in the capital markets along with insurance protection.

• Single income family – if only one partner is earning and the other partner manages the home then savings are likely to be lower than for the double income family. For such couples the need for income protection assumes priority over other needs. The income earner should buy a term insurance plan so that in the event of their premature death, the surviving spouse will receive a sufficient sum from the insurance company to replace the income provider’s loss of income.

Young married with children

At this stage the responsibility of an individual increases when children are born. This stage can be further classified into two types:

• Double income family – here both the parents are earning, meaning that the effect of the loss of income due to the premature death of one of the partners will be less. Protection of income is important. A suitable individual term life insurance plan for both partners should be recommended so that in the event of the death of one partner an adequate sum is received by the family to replace the loss of income.As both the partners are earning, the investment capacity of such families will also be higher. Investments towards their children’s future can be a high priority for these families. A suitable child investment plan should be recommended after the income protection need has been taken care of. A family floater health insurance plan covering the couple and their children is advisable at this stage. The couple should also start making small contributions towards a retirement plan, which can be stepped up later.

• Single income family – for these families, income protection is very important. A suitable-term life insurance plan should be recommended as the loss of income of the earning member of the family could lead to serious financial problems. In the event of the earning parent’s death, an adequate sum insured will help the family to maintain a decent lifestyle, and the children’s education also will not be affected. Once the income protection need is taken care of, a child investment plan should be given priority. A family floater health insurance plan covering the couple and children is advisable at this stage.

Married with older children

This is the stage where the financial responsibility of the couple towards their children will be in respect of their higher education and marriage. The income of the couple is likely to be higher than previously as they will have gained considerable experience and made progress in their working lives. At this stage the need to protect children against the premature death of their parents is low compared to previous years as the parents will have already made significant investments towards the children’s future needs. However, the couple should review their investments to ensure that there will be sufficient funds to cover the cost of higher education and the marriages of their children.

The need to focus investments towards their retirement fund also gains importance at this stage and as the couple has already made significant investments towards their children’s education and marriage, they can now step up investments towards their retirement fund. As their age increases, the couple will be more vulnerable to sickness and disease and should therefore also look at enhancing their health cover.

Pre-retirement

This is the stage when the children will have completed their higher education, be married and will have become financially independant. The income of the individual/couple will still be high as they will be at the peak of their careers. At this stage the entire focus is shifted towards the retirement fund and health protection as other needs are mostly taken care of. After retirement, the major area of concern for a couple would be meeting day to day financial expenses, regular health checkup expenses, hospitalisation and other medical expenses. The individual will see how the investments already made towards the retirement fund are faring and will consult with his insurance agent on whether there is a need to make any changes. The couple should also review the health cover and see if it is adequate.

Retirement

This is the stage where the income of an individual/couple is limited to the returns on investments that they made in the earlier stages of their working life. In the case of salaried employees, their regular monthly income will have stopped. If the returns from their investments are not sufficient to meet their financial liabilities little can now be done. The individual can use their accumulated retirement fund and their employee benefits amount from provident fund, gratuity, leave encashment etc. to buy an annuity plan from an insurance company. This will provide a regular monthly income to take care of living expenses for the rest of their lives. This is also the age when individuals are most prone to illness and disease. The individual should review the health cover for themself and their spouse to see if it is adequate to meet the couple’s healthcare requirements.

In the case of self-employed professionals and businessmen, there is no defined retirement age. If they and their insurance agent feel that they have accumulated enough money in their retirement fund to take care of their expenses for their remaining lifespan then they can retire. With the retirement fund they can buy an annuity plan from an insurance company which will give them enough regular income to meet their expenses.

But if the individual and their insurance agent feel that the retirement fund is insufficient to sustain the post-retirement years, then the businessman must continue to work and the self-employed professional continue with his profession until sufficient money is accumulated. The retirement fund proceeds can then be used to buy an annuity plan from an insurance company for regular annuity payments to meet retirement expenses. At this stage the individual should also review the health cover for self and spouse to see if it is adequate to meet their healthcare requirements.

Anand Khemka
+91-9910936925
+91-8287041341