Is your life insurance agent worth their premium?

Life insurance has become more and more mainstream over the past several decades, and I'd guess more so than at any other point in history. Even with its well documented benefits, there is still a degree of hesitancy and resistance by many people in obtaining even the most basic form of life insurance.


You see most people do not want to get life insurance. I think if we are all being honest with ourselves most of us would rather not have any insurance at all so long as we could guarantee nothing bad or unexpected would happen to us. Many agents incorrectly identify this hesitancy as a product of it being too expensive; so, they make their products cheaper. They'll shorten the term, or maybe reduce the death benefit, or, in some instances, both. However, because they've identified "price"​ as the main obstacle to them closing a deal they have inadvertently done a tremendous disservice to their clients (of whom you might be one). The real objection has very little to do with the statement,


I can't afford it.


If we want something badly enough in life, we find a way to afford it. Plain and simple. This means what they are really asking are,


Is it worth it? and/or Do I trust this person enough to listen to them?


Identifying this makes a world of difference because it takes them from selling the cheapest version of their product to actually solving your problem! That is, if something happened to you tomorrow, how would your family live and survive? This is really where life insurance adds value, but any good agent knows (or should know that they can't solve this problem on their own, I'll explain more why later).


Now this isn't a glaring endorsement of all life insurance programs, but at its core life insurance:

  • Can protect your family;

  • Can support your kid's education;

  • Can create generational wealth, and the list can go on and on . . .

The operative word in all these goals is can. These outcomes are not guaranteed simply by purchasing life insurance. The determining factor is whether your agent has the knowledge and ability to deliver these benefits. Life insurance can provide a wide array of solutions to solving life's unexpected, unanticipated, and, if I may be so bold, unwelcome tragedies. However, whether your agent will capture these solutions depends on their skill, and their willingness and to go beyond their job description to make sure these goals happen for you.


Many people think they are paying for the results, when they are only paying for possibilities.


Was there enough insurance? Is it actually going to be paid out? Will it be paid out before the mortgage is due? These are all questions you should have asked yourself (or your agent), but are rarely discussed . . . with the possible exception of the first one. Many people think they are paying for the results, when they are only paying for possibilities.


So how do you know if your agent is any good? How can we measure whether your agent is living up to the promises that they made, and that they are actually going to deliver? And most importantly, how can you do this before before you're dead? There are a number of ways, but the ones that I will mention in this article require a simple exercise . . .


Review your beneficiary designations!


Your beneficiary designations give a lot of insight about the quality of your agent! So grab your beneficiary designation and look for these two common errors:


First, the most common mistake in life insurance policies is when you list minor children as beneficiaries!


Now most of you may be thinking, "well, what is the problem with that? After my spouse, I would want it to go to my children."​ Well . . . the answer is quite simple.


Minor children cannot take possession of the proceeds of the policy until they are 18 years old.


(*Disclaimer* I am only licensed to practice law in the State of California, so if you do not reside here please consult and refer to the laws of your home).


I expect that is not something your agent, if they committed this crime (and I use this term only to dramatize the sincerely held belief that this should be avoided at all costs), did not disclose or go into much detail about!


So . . . why are kids still routinely listed as beneficiaries? You see, by encouraging you to correctly solve this problem it actually jeopardizes their sale. By the time the agent gets to the point of selecting beneficiaries, your purchase is imminent. The sale has been made and their commission is almost certainly guaranteed. They have had to overcome a number of different objections. They've had to beat out their competitors, negotiate with price shoppers, and (if you are anything like me) had to display near superhuman abilities in following up because you were more comfortable avoiding their call and this topic in general, and only by sheer determination and will power did they finally get you to agree.


They had to do all of this even though you already knew, deep down inside, that you should do this for your family.


The very last thing that your agent wants to say when they finally get to this point is, "Hey! I know you're doing this to protect your family, but I can't meet all your goals. Life insurance alone isn't enough to protect your minor kids. You really need to speak with an estate planning attorney."​ If you heard this, would you had still moved forward? Or would you have reconsidered all of your life choices until this point because they're voluntarily wanting you to contact an attorney?


There are ways to ensure all these goals, but it requires life insurance agents and estate planning attorneys working together.


Second, in this author's humble opinion, there is only one sin, that stands above listing a minor as a beneficiary and that is . . . designating a friend or family member with an "informal"​ understanding that they will safeguard the money for your children.


Now, I am not talking about a formal written and legally enforceable agreement, such as a trust. I am talking about the informal, handshake deal or telephone call to Aunt Sally or Uncle Joe asking them to take care of the kids.


To those informal arrangements I have the following to say:

No.

Never.

Never ever.

Absolutely not! Ever.


I sincerely hope I was clear. These arrangements are the absolute worst, and if your agent is counseling you to do this, then they are aware of cardinal sin number one and gave you bad advice to solve it.


In the eyes of the law, whomever is listed on the beneficiary designation will become the legal owner of the property on your death. That means Aunt Barb, Uncle Drew, or whoever else you may have listed to "safeguard this money for your kids" can take that money and do whatever they want with it. Yes, whatever they want. This would include not giving a penny to your kids. Let that sink in.


So, in reviewing your policy, if you notice that minor children are listed as beneficiaries, then you have a problem! The great thing is that after reading this article you are aware of it and can now fix it. The best place to start would be to reach out to an estate planning attorney whose practice emphasizes on planning for families with minor children, and if you're located here in California, I'd be happy to help you! Just contact our office.

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