What is the “Right Amount” of Life Insurance?
October 10, 2016 by Christopher P. Hill
For centuries there has been a great debate over the right amount of life insurance. In fact, if you do a little bit of research on this topic, what you will find a wide variety of professional opinions, books, studies, classes, and theories – all of which claim they have the answer to the million dollar question:
“How do you explain the ‘right amount’ of life insurance to an individual and/or family?”
My Industry Experience
For over twenty years, I have been very fortunate to work with several of the largest insurance carriers, as well as work directly with some of the industry’s most experienced and successful insurance agents. I have also spent a great deal of time to study, analyze, and learn as much as I can possibly can about the in key details surrounding this very complicated and all-important family protection.
This great experience, training, and dedication provided me the opportunity to become a Member of the Million Dollar Round Table for seven consecutive years, including Court of the Table, Presidents Club, and Top of the Table (top 1% in the world).
My Top Priority
Am I boasting about my personal achievements? Absolutely not. I am simply trying to point out the fact that the large majority of my success in the insurance industry can be attributed to learning one key lesson:When discussing life insurance, your top priority should be to focusing on owning the right amount of life insurance – rather than the right kind of life insurance.
What is the “Right Amount”?
Another great lesson I have learned is how to solve this great mystery. Simply put, the right amount of life insurance is as much as you can get.
Now of course, this does not mean you can simply buy as much life insurance as you want. Usually a client can own 20, 15, or 10 times their income, depending upon their age.
I have yet to have one single person dispute – or provide any valid argument – which contradicts this statement regarding the right amount of life insurance. The reason why is because the following example speaks volumes.
A Deadly Car Accident
Let’s assume you are talking with a husband and a wife about life insurance. During this discussion, you ask the wife the following question:
“Mrs. Client, let’s hypothetically assume that your husband was killed by a drunk driver one evening while driving home from work. Would you sue this person for the emotional and financial damages of losing your husband?”
Invariably, almost every spouse is going to answer; “Yes”.
The next question you ask the wife is; “How much would you sue for? My strong suggestion is that you remain silent until an answer is provided.
Regardless of a spouse’s answer, you can add a statement such as: “Any lawyer would likely discuss the fact that you and your family have now lost approximately twenty years of future income (which could be more or less, depending on their age). Also, other key factors a lawyer will consider are; lost salary increases and/or job promotions, lost retirement and college planning, pain and suffering, inflation, attorney’s fees, and much more.”
The next question to ask is; “So would it be fair to say that you would sue for as much as you can get Mrs. Client?”
Invariably, almost every spouse is going to answer; “Yes”.
You know why the answer should be “yes”? It’s because that is the right answer. That is what she deserves based on the loss of all of these aforementioned economic contributions to her family. Therefore, in this situation, the surviving spouse has every right to be made whole for this terrible tragedy. This just makes sense, doesn’t it?
You Never Know What Life Brings
Now, let’s continue this same hypothetical dialogue with the wife above.
The next important question you ask is;
“Mrs. Client, let’s change the circumstances. Let’s hypothetically assume that – rather than your husband dying in an unexpected car accident – your husband goes to sleep one night and unfortunately never wakes up. He died of an unexpected heart attack in his sleep.”
You then ask;
“Mrs. Client, when your husband was killed in the previous car accident, we both agreed that you would sue for as much as you can get, right? However, in this case, he died in his sleep of an unexpected heart attack. So in this situation – as compared to the car accident – how much life insurance would you want?
1. The same
2. More
3. Less?
Invariably the spouse is going to say “The Same” or “More”.
NO Sales Gimmick
What I am not talking about here is some sort of “sales gimmick”. Rather, I am trying to help you, your practice, and your clients/prospects recognize:
1. The invaluable role life insurance plays in a family’s life
2. The importance of owning the right amount of life insurance
“> The Key Message
Whether your client dies in an unexpected car accident, or dies from any other unforeseen event, the harsh reality is that you can’t go back in time and buy life insurance. In other words, it is critically important that you plan your client’s financial affairs before the fact – in the way they would want them to be after the fact.
Rest assured that should that dreaded day ever occur, and you clients own as much life insurance as they could get, you will never regret hand-delivering that check. You can also rest assured knowing your clients will never regret the advice and protection you were able to deliver them – particularly at the time they needed it most.
