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A recent article in the financial planning press got us thinking…

The article was straight from the text book. A classic case study of a middle age couple, employed by small businesses, with kids, school fees, a mortgage and ageing parents to worry about.

Mr and Mrs Average, with average incomes: about $100,000 before tax between them. Stuck in their peak cost years, and not a penny to spare.

The author set out a product based strategy, straight from the text book. Life, TPD, income protection and trauma insurance. He even said insure the kids. The sums insured were straight from the text book too. Sky high. With high and ever-rising premiums of more than $15,000 a year.

The pity is, in many ways, the real client risks are not even mentioned.

As Maslow may have said, if all you have is a hammer everything looks like a nail. It’s the over-reliance on the familiar. A refusal to look from a different angle, to peer through a different prism. To really think about the client’s problem and how it can be solved.

The author was presenting a reactive and single faceted (i.e. just a product) solution. Bet the risk event will happen, and bet big.

The author was not presenting a proactive and multiple-faceted solution, that includes a measured use of products but emphasises reducing the risk, rather than just big bets that the risk event will happen.

Really good advice, that is really in the client’s best interests, would:

1. recommend better health management. It’s easy. It’s a short trip to a GP to create a health management plan covering regular age appropriate testing, diet and nutrition, exercise and weight management. Mental health management should get a mention too. If you reduce the risk of the insured event occurring you reduce the need for the insurance. And you get lower premiums: Watch your weight – MLC offers discounts for healthy customers.
2. look at employment prospects, and suggest ways of maintaining or improving the size and security of employment income. Further experience and training to ensure they remain in demand and are not thrown on the scrap heap in a few year’s time. If mum’s income increases and becomes more secure, and long-lasting, the need for Dad to have risk insurances falls. Identify Plan B, and even Plan C, for the family income.
3. consider their family position, and ways of reducing living costs, and hence the need for insurances, across the generations.
4. search for ways to make the premium more affordable, step the premium, choose indemnity value sums insured, pay the premiums out of super, compromise on the sum insured (and recognise that the client is underinsured). Whatever it takes to get the premiums down to a level an average client can afford and is prepared to pay. (Hint: it’s much less than $15,000 a year).