In tough economic times, consumers try to tighten their belts, but they have to be informed that, what they see as brilliant short-term savings, often turn out to be very costly in the long term.
It’s a predictable scenario: interest rates rise, stock markets plunge and clients look for ways to find extra cash. Insurance is always one of the first things to be circled in red ink for a cutback, with a switch away from an existing provider to a more tempting low-cost alternative. But changes like this, made under financial pressure, can often be very costly in the long term. The task of a broker or financial adviser is to ensure that the client not only looks before leaping, but also understands fully what’s waiting in the more distant future.
In the current economic climate, replacement policies are very topical, and people will always be looking for better or cheaper deals; that’s perfectly understandable. Insurance companies are also constantly refining and improving their products. Thus, one of the advisor’s tasks is to help the client review his or her policy portfolio in the light of new developments.
Advisors need to remember that they are required both morally and by law – the FAIS Act – to act in the best interest of the client. ‘Best interest’ means long-term as well as short-term, and it’s critical that advisors guide clients through this difficult process. A quick short-term gain may be highly detrimental in the long-term and brokers are, nowadays, liable to legal action for damages if a client can demonstrate that the advisor has given poor or ill-considered advice.
Consumers will attempt to cut back on both short-term and life insurance, but the latter is especially fraught with difficulty because of its complexity. It is almost never a good time to cut back on a life policy; accrued benefits will be lost, additional costs may be incurred by cancelling one’s policy and then again by taking out another. When assisting a client in making such a decision, it’s also critical that the advisor is certain that the comparison is ‘apples-with-apples’ and not ‘apples-with-something very different’. To draw those distinctions across a 20- or 30-year timeline requires a high level of professional skill and knowledge.
Finally, the advisor ought to remind the client that not all insurance companies have the same level of understanding when it comes to the needs of the individual. When dealing with graduate professionals, the advisor needs to have applicable skills and understanding of the client. The same goes for dealing with business people or where professional people become entrepreneurs. As an advisor, you need to look at your product provider, where its core market is and what expertise it has to operate in that market. This will empower you to provide your client with the most appropriate products and service.