Tips on interviewing life insurance advisers

By Martin Valentic

Readers frequently request guidance on how to evaluate advisory firms. This series of articles presents information on how to interview and compare advisers in a variety of disciplines. 

The life of a business owner can be a constant stream of decisions — on a varied array of matters such as newsuppliers, employee benefits and potential acquisitions. As a former business owner myself, I can certainly relate. One of the most important decisions you might be faced with is the hiring of a life insurance adviser/firm.

Do your homework
Based on my experience, most business owners ask for referrals from members of their professional network, often other business owners, before reaching out to an insurance adviser about potentially setting up a plan. Questions to ask these professional connections about potential advisers include:

• Are they supported by a team, or is it a solo practice?
• How much experience does the person have in the field?
• Do they have a good reputation?
• Are they compensated up front for putting a plan together?

Of these questions, the first is most important, because I believe the life insurance industry has become far too complex for a solo practitioner to capably manage all of the relevant aspects. So it’s fundamental for a business owner to be supported by a team of diverse experts.

Once you’ve decided to interview prospective advisers, I recommend gathering any personal financial statements or business agreements, including buy/sell and partnership agreements, personal and corporate tax returns, and any estate planning documents, even if they’re incomplete.

Understand the business models
I also suggest becoming familiar with the two main types of business models for insurance firms: mutual and stock. Mutual companies are owned by policyholders, while stock companies are owned by shareholders and must serve the interests of stockholders as well as policyholders.

At mutual insurance companies, policyholders elect the board. In contrast, stock companies have no policyholder representation on the board.

Today there are more stock companies than mutual companies. While mutual companies’ income is generated from policy premiums, stock insurers have more opportunities to raise capital.

It’s also worth noting that some insurance firms might focus on certain niches and markets, such as underwriting only very large cases or focusing on clients under age 50.

Life insurance premiums are determined primarily by the age and health of the client. Other considerations affecting premium rates include the amount of coverage needed and the purpose of the insurance. For example, rates might be impacted by whether the insurance is intended to pay an estate tax, supplement income to employees, or function as deferred compensation or an executive bonus.

I would also caution business owners to be aware of the products being offered and presented. Some products are developed to take advantage of market trends and could place more risk on the policyholder if market conditions or interest-rate environments don’t meet the initial estimates. Trendy products come and go, but people buy life insurance based on the idea that it will be there when they really need it, years down the road.

Questions to ask
When you’re ready to hire an insurance firm and work with an agent or adviser, there are three main questions to consider:

1. What do you offer that my current insurance adviser/firm might not? If a business owner is looking to make a change rather than hire an insurance firm for the first time, this tends to be the top question on their mind. One of the chief differentiators among firms is coordination of efforts. If a business owner is considering a change, they typically already have an investment adviser, insurance adviser, accountant and attorney, but they’re getting fragmented advice because those people hardly ever sit down in the same room together. An approach that encourages them to coordinate with each other will almost always benefit the client.

2. What is your process? For example, does a confidential gathering of client and business information occur? How about significant conversations focused on what’s most important to the business owner’s company and family? I also recommend finding out how much time the adviser/firm devotes to collaboration with legal and financial team members, as well as whether they provide a service model that addresses business changes and the ever-evolving landscape of estate and tax law.

3. How long will it take? In my experience, this answer depends on how engaged the business owner is and how much work needs to be done. For instance, if the person’s only need is for a life insurance plan, that process can be relatively quick. But if buy/sell agreements must also be redone or tax planning assistance is required, the time frame could certainly be longer. Generally, planning cases can take anywhere from a month to a year, followed by ongoing service related to legal changes or new business developments.

There’s one final piece of advice I’d like to offer: Trust your network for appropriate referrals and references and find an adviser who truly has your best interest at heart and will put it ahead of their own. The points mentioned above are all helpful, but try to get a feel for the adviser as a person, too, because that relationship aspect goes beyond fees, processes and plan details. 

Martin Valentic is a financial professional and chief marketing officer with Penn Mutual’s Pittsburgh-area agency, 21st Century Financial.

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact                                                                 

Article categories: 
July/August 2020

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