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The Four Levels of Life Insurance Planning

Planning

I’m very excited about the current revolution I’m seeing in the world of insurance advice. In the last few years, no-commission life insurance options have become more widely available, and that trend looks to be accelerating. Fee-only advisors have been able to provide independent insurance advice for years, but the actual implementation was almost always done with a “traditional” life insurance salesperson. Because that salesperson collected their normal commission, the client ended up with better advice but without any cost savings – not ideal.

Only recently has “Level 4 insurance advice” become a reality.  

Here is how I see the four levels of insurance planning:

Level 1 – No Insurance Plan

Many clients walk in the door without a plan for their insurance. They may be making payments for unnecessary insurance “because they already had it for so long.” They may also be underinsured, leaving their dependents with a financial mess if the worst were to happen. Perhaps they have not reviewed their permanent life insurance policies to make sure the they will provide protection as long as originally planned. We all hate making insurance payments, however, this is too important an area to not have a plan.

Level 2 – Insurance Salesperson

An insurance salesperson is thrilled to be able to provide a life insurance needs analysis. This gives them the opportunity to tell you how much and what type of life insurance they think you should purchase. The amount of commission they earn can vary widely depending on what is purchased, so it’s difficult to tell if the life insurance salesperson is providing solid advice or advice that simply pads their pockets. My favorite quote here is: “Don’t ask your barber if you need a haircut.”

Level 3 – Independent Life Insurance Advice with Insurance Salesman

Some fee-only financial advisors provide independent insurance advice. This will range from “buy term and invest the difference” to a well-thought-out calculation for the type/amount of insurance. (If your advisor is offering to place your commission-based insurance themselves, you are not working with a “fee-only advisor” and you are back to Level 2 advice.) Insurance is a complicated and ever-changing industry, and many advisors (including those with the CFP® designation) have little/no insurance training. Because of the complexity, most fee-only advisors work with commission-based life insurance brokers that can help with evaluation and recommendations. Although these are reputable brokers, since they only work with commission-based products, they may not always offer the very best option available.

Level 4 – Independent Life Insurance Advice with Commission and No-Commission Insurance Options

“Level 3” advice was the preferred practice until recently. As more and more commission-free insurance has hit the market, an additional approach has appeared that is even better – working with both commission-free and traditional life insurance brokers. Oddly, taking the commission out of the equation does not always result in a better result for the client. Products that have a long time-frame and lower commission range, like term life insurance and immediate annuities, are currently priced very similarly with or without a commission. For other insurance products, like “permanent” life insurance, commission-free insurance shines. Combining the best of both of these worlds is the way to go.

In addition to the traditional life insurance companies I work with, I’m excited to be working with a commission-free insurance advisory firm, DPL Financial Partners. DPL’s founder helped create some of the most consumer-friendly annuity products available and the firm continues to consult with life insurance companies on the benefits of adding additional commission-free options. DPL is currently working with eight life insurance companies and they are expecting their list of companies/products to grow substantially from there. This means that we might see commission-free disability and long-term care insurance policies in the near future.

I pay an annual fee to DPL to have access to their skills, advice, and expertise.  DPL is my unbiased insurance team who are available to review policies, find solutions, source products, and keep me updated on latest insurance developments. They consult for me, not sell to you. This means that MILE Wealth clients have access to a much wider range of insurance options, with more transparency, all with similar or lower costs.


What level do you fit in?