Q&A: Why Christmas is a great time to discuss change

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Q&A: Why Christmas is a great time to discuss change

Death, divorce and critical illness are not natural topics of conversation when you're pouring the gravy over the chicken or hiding the over-boiled sprouts in your napkin.

But for Wade Seward, head of distribution strategy at Haven Life, having the family all in one place at this time of year is a great opportunity to discuss important matters that might affect one's financial and physical health.

He explains to FTAdviser In Focus why it is important that all the family are brought into the conversation about the financial implications of the unexpected, and why professional financial advisers are so crucial to facilitating these kinds of discussions.

FTAdviser: Why do people seem to get ‘surprised’ by big life changes such as divorce or ill health? 

Wade Seward: While many people look forward to major life changes like buying a house or having a child, most don’t prepare for some of life’s not so nice surprises.

For many, thinking about things like divorce or ill health can be stressful or anxiety inducing. In turn, it makes sense that when a diagnosis is made or a couple separates, that many are left unprepared to contend with the financial implications. 

FTA: If we have to expect the unexpected all the time, does this mean our plans have to change all the time?

WS: Preparing for the unexpected is one of the primary reasons people should proactively think about their long-term financial plans. The good news is that, with a solid long-term financial plan in place, individuals can rest assured that they are largely financially protected against the unexpected.

The holidays can be a great time to have long-term planning financial conversations.

Consider the case of term life insurance. Term life insurance is designed to provide peace of mind to policyholders should they unexpectedly pass during the policy’s term.

Should the policyholder pass away during the term’s policy, their lump-sum, tax-free death benefit can help their beneficiaries cover mortgage costs, tuition fees, or pretty much any other expense. 

FTA: Do people have to keep getting advisers to help change their plans to cope with unexpected events?

WS: Major life events such as a divorce, death of a loved one or birth of a child might prompt an individual to tinker around the edges of their term life policy, including possibly changing the designated beneficiary.

But individuals don’t have to change their foundational plans for every curveball life throws their way.

Of course, the option to do so always exists if the policyholder wants to. In other words, it is a “can do,” not a “must do".

FTA: What sort of golden rules of thumb should advisers and their clients consider when setting out on a financial plan?

When it comes to life insurance, financial advisers often suggest having coverage of five to 10 times the policyholder’s annual salary. 

This means that many individuals might be surprised to learn that the life insurance coverage provided by their employer, if it is provided at all, is not sufficient.

Generally speaking, most employers only provide coverage equal to one or two times an employee’s salary.

In fact, a recent study by Haven Life found that the plurality of employees (25 per cent) only receive coverage equal to their annual salary from their employer. Some Twenty per cent received two times their salary, and 14 per cent received no coverage at all. 

FTA: What sort of financial considerations should individuals take into account?

WS: While there are a number of online resources that can help individuals calculate exactly how much coverage they need, considerations to account for include:

  • Your annual after-tax income 
  • Any debts that need to be paid off, including mortgage payments and student loans
  • Childcare costs (until your kids are adults)
  • College tuition 
  • Health care expenses for your family
  • Funeral costs and any other final expenses
  • Social security income (if eligible).

FTA: What sort of planning could people put in place to avoid the financial impact of such surprises?

WS: One of the best steps someone can take to avoid the financial impact of life’s surprises is to ensure they have the appropriate safeguards in place. This includes making sure they have both the right insurance policies in-force, as well as sufficient levels of coverage. 

One of those policy types is term life insurance. Fortunately, buying a term life insurance policy is easier than ever. Many policies can now be purchased online in minutes, and can often be done without requiring a medical exam.

If someone purchases an individual policy directly (meaning not through an employer), such policies are also portable, meaning they stay with you if you move jobs. Finally, term life policies are also often highly affordable.

Review what benefits and coverage individuals already have in place, if any, through their employer.

There’s also another type of term life insurance that many people are less familiar with, but can help avoid the financial impact of life’s surprises. This is called an income replacement decreasing term product.

With a traditional term life policy, you purchase a term length and a coverage amount, potentially up to several million pounds. With a decreasing term policy, you purchase coverage to match an ongoing monthly expense, like a mortgage, or to replace your monthly income.

The key difference between a traditional term and decreasing term product?

The former requires you to estimate how much coverage you might need in the future and loved ones receive a one-time lump sum payment if a policyholder passes away.

The latter allows you to insure against a specific cost and loved ones receive a fixed monthly payout for up to 30 years in the event of a policyholder death.

FTA: How often should people review their financial plans or policies? Every year or every time something changes (i.e. another child or a divorce or a bereavement)?

WS: When it comes to reviewing term life insurance needs, there are a few key life triggers that standout. Traditional triggers include getting married, buying a house or having kids, but it can also be when someone gets a big raise at work or if signing (or guaranteeing) private student loans.

That said, as pricing for term life insurance is in part based on age and health status, it might make sense for some in their 20s or 30s to consider purchasing a term life insurance policy sooner rather than later, even if they don’t have a traditional need in place.  

FTA: Why is it important to get financial advice from the outset?

WS: While it is easier than ever to purchase a term life insurance policy directly, talking to a qualified financial professional can help individuals identify how all of their individual policies and financial protections work together and where there are any gaps.

They can then provide guidance and advice on how to close those gaps, in order to prevent being financially unprepared for any of life’s surprises. 

Additionally, some types of insurance, like an income replacement term life insurance policy, might only be available for purchase via qualified financial professions, whether a bank or insurance broker.

It is only by talking to a financial professional that someone would be able to close this gap in their coverage needs. 

FTA: How can advisers (and families) start these ‘difficult’ questions about end-of-life planning?

WS: Actually, the holidays can be a great time to have long-term planning financial conversations.

According to a recent survey by Haven Life, individuals said the holidays were a good time for these tough conversations because they are often better had face-to-face (59 per cent); can be done without being rushed (42 per cent) and can benefit from others - including friends and family members - providing support (27 per cent). 

FTA: Have you got any top tips for these discussions?

WS: As these conversations unfold, there are a number of simple ways to help individuals act on the discussions. Some tips include:

  • Set aside one hour to review options, especially as many life insurance policies can now be purchased in minutes and without the need for a medical exam.
  • Review what benefits and coverage individuals already have in place, if any, through their employer. That can help determine how much additional coverage they might need. 
  • Think about what related services they could benefit from now, including trust and will creation, end-of-life planning or secure digital document storage. Some life insurance agencies will provide these types of services via partnerships to policyholders at no additional charge.  
  • Consider who they want as their beneficiary and, once purchased, give them the gift of financial security as a (belated) holiday present.
  • According to the survey, individuals said the most popular terms they would use to describe receiving the gift of life insurance from a loved one would be “surprising” (33 per cent), but also “well-intentioned” (33 per cent) and “thoughtful” (26 per cent).

simoney.kyriakou@ft.com