Използване на илюстрации на застрахователни продукти

From Planipedia

Thanks to PlanPlus and WEA for sharing their material for this Best Practices Guide.

Contents 1 Choosing the Right Product for the Client’s Needs 2 Choosing the Right Illustration Type 3 Ensure your Client Understands Your Assumptions 4 Product Implementation – A Key Aspect of the Planning Process

Choosing the Right Product for the Client’s Needs

The first step in the creation of a product illustration for your client’s life insurance needs is to identify the type of coverage that is suitable, given your client’s needs. This might be temporary Term coverage, Whole Life, Universal Life or Term to 100 to name a few. Once the appropriate product type has been identified, it then becomes a matter of identifying the company and specific product that will be used.

Some product illustrations, such as renewable term products are very basic because very few assumptions are required. However, when it comes to other products, such as Universal Life, it’s a whole different situation. Given the nature of this type of product, it’s necessary to make a number of assumptions that will be used to project the future behaviour of the contract. Some companies dictate the acceptable ranges of assumptions that can be used and often will also illustrate the future values within the contract using both the chosen assumptions as well as some “more favourable” and “less favourable” assumptions that will help the client understand the impact that the assumptions have on the policy. For example, these typically will illustrate results using a rate of return assumption that is 1 or 2% higher and 1 or 2% lower than the assumed rate that the advisor has chosen.

Choosing the Right Illustration Type

In recent years, many companies have introduced very complex and sophisticated software programs to illustrate all different types of product concepts. The comprehensiveness of the illustration will depend on the primary purpose of the insurance coverage and the key objectives of your client.

With many insurance companies, for example, you have the choice of doing a very high level conceptual illustration that highlights the benefits of tax sheltering investment income inside a universal life insurance policy. This concept illustration is typically about 4 pages in length. For the exact same policy, you also have the ability to product a very comprehensive illustration that can run upwards of 25 pages. The options are virtually endless. So how do you decide what to use and how to use it?

Concept Illustrations – These types of illustrations can help the client understand the primary benefits that are available from a specific product and how they fit with their needs and situation. While the same product and assumptions can be used in several concept illustrations, each will typically focus on only one aspect of the contract’s benefits, as opposed to displaying all of the features and benefits. A good example of this is a tax-sheltered, universal life concept illustration. It will primarily compare the benefits of maximum funding a universal life contact vs. the alternative of investing in a non-tax sheltered environment. The other aspects of the policy are not always highlighted to the same degree, if at all.

Comprehensive Product Illustrations – These types of illustrations do a much more thorough job of explaining all of the features, guarantees, assumptions and benefits inherent in the product. They will also often present information on the financial strength of the issuing company and their overall stability and history.

These comprehensive illustrations are frequently required to accompany the application and often must be signed-off by the client, acknowledging that they understand the assumptions and other features, benefits, guarantees and limitations within the policy. This sign-off process often necessitates that the advisor educate the client on the product. While some clients will find the content of these comprehensive illustrations overwhelming, it’s the advisor’s responsibility to help them fully understand by focusing on the key product features, options, limitations and assumptions. Performing this aspect of the implementation process properly will go a long way towards ensuring that your client comprehends what they are doing and why. This will, in turn, position periodic reviews of the product you’ve implemented because the assumptions may require adjustment from time to time. If the client understands the original assumptions used in the illustration, they will be properly educated on the need for periodic policy adjustments.

Ensure your Client Understands Your Assumptions

Given that by their nature, product illustrations require some assumptions to be made, it’s important that you help your client to understand these assumptions and their impact. Here’s an overview of some of the assumptions that should be understood. We are using Universal Life because these contracts typically require the highest number of assumptions being made.

The list illustrates the responsibility of the advisor to adequately educate their client relative to the product recommendations they are making and the impact and purpose for various assumptions used in the illustration.

Product Implementation – A Key Aspect of the Planning Process

No matter what your method of compensation is, implementation remains a key aspect of the planning process. Having an unimplemented plan sitting on the shelf gathering dust is of little value. As a skilled and dedicated financial professional, it’s incumbent on you to ensure that you provide implementation services that are ethical and appropriate to your client’s needs and situation. This is the case whether you are a fee-only planner who utilizes other financial professionals for implementation or if you are a planner who is licensed to provide a full range of implementation services for your client. As a financial advisor, your primary reason for being or “Mission” is to help your clients get where they want to go financially. Without implementation your mission can never be accomplished.