Have you been trying to sell life insurance to a HNI? Don’t.
Death Benefit is not what HNIs want to buy
HNIs are not inclined to buy life insurance. A successful person does not want to hear of death. He or she wants to hear something more positive. A person who is not a HNI may fear the financial consequences that death will have on his or her family. A HNI has no such fear. He or she has sufficient wealth to take care of the fear. Purchasing life insurance is the last thing on their minds.
Don’t sell on fear of death, sell on pride of financial wealth
This is exactly what the HNI is trying to convey to you when he says: I have enough property, gold, financial investments, I do need life insurance. Please look through the smoke screen. It is not life insurance that HNI does not want. The HNI does not want to talk of the financial consequences to his or her family on his or her death. After all the HNI is very proud that he or she has provided for this consequence.
Selling life insurance as death benefit will only create more objections
The disinterest towards life insurance is not because they do not need it, but because of the manner in which it is canvassed. Typically an agent visits a HNI and straight away launches into the features of the product he or she is selling. The HNI, through this sales pitch sees life insurance products as those required by the less fortunate people who have not built adequate economic wealth in life, especially if something unfortunate happens to the person. The HNIs see themselves as above all such thinking and are therefore not keen to buy life insurance.
Selling life insurance as a high return product creates even more objections
Life insurance products are universally seen as low return products. In case you want to get your customer away from that perception, there is a lot of work to do. A lot of data has to be presented, analysed and the customer has to be convinced about it. And you must know the subject of risk and return. In life insurance we should stick to our strengths. Our strength is risk management. We therefore talk of risks, not returns. Only those selling life insurance can sell risks – all other financial product agents sell returns.
The Need for Life Insurance for HNIs Exists
But HNIs need life insurance. There can be no two opinions on that. HNIs need life insurance for two reasons:
- To financially protect their families from a loss of their FUTURE income due to an early death
- To financially protect their investments made in risky investments
Only life insurance provides both types of protection in one product. No other financial product does this.
Protecting Future Income Not Past Assets
WE have got so used to selling life insurance for its death benefit or its savings value, that most of us have forgotten that the whole purpose of life insurance is to protect the future income of an individual. In the event of an unfortunate death during the working life of the individual, the family stays financially protected, if adequate life insurance is purchased. The future income (minus self-expenses) of the income earner is Human Life Value (HLV). HLV is a future financial asset, based on future income not an asset acquired in the past on past income. Selling sum assured equal to HLV is adequate insurance.
HNIs too have a future income
The HNI will feel proud to calculate how much he or she will be earning in future. Your role is to help the HNI calculate and subsequently convince the HNI to give the full benefit of his or her future income to his or her family, whether alive or not. When a HNI buys life insurance, the family gets the full value of the financial benefit the family would have received had the income earner been alive.
Sell the concept of HLV to HNIs
So what are we supposed to sell? We should sell the concept of HLV to the HNI. Not only will the HNI welcome it, he or she will feel proud looking at his or her HLV. And rightly so. Any person who has built a sizable financial wealth and sees the prospect of building much more will justifiably feel proud. A feel good factor enters the meeting.
Prepare your tools to sell to HNIs
You need to equip yourself with a format (preferably excel spreadsheet format) where you enter the details of the future income the prospect is likely to earn and show it to the customer in black and white. Would there be a customer who says that he or she does not want to protect that value of future income so that his or her family gets benefit of it? Learn how to conduct this conversation. Practice it and use it. You will close HNI cases more easily and of greater sum assured.
Protecting Investments in an Investment Portfolio
Typically, a HNI would have investments in land, real estate, gold, mutual funds, shares, debentures, etc.; all of which are risky investments. In risky investments, markets tend to fluctuate. This is called market volatility. One of the problems of volatility is that volatility kills returns in the long run. While a HNI may feel satisfied that he or she has many flats, lots of gold, and a high level of investments in mutual funds; the fact is that every few years the prices go down so much that it is very difficult for the HNI to recover his or her investment. Read And The Tortoise Wins for a detailed explanation of this point.
Life insurance endowment protects the investment portfolio
In an investment portfolio, investments in low risk investments, such as life insurance, to some degree, protect the investor from investment losses. Traditional life insurance endowment is a low risk investment which can play a very important role in protecting the customer’s money in volatile financial markets. This is the reason that all prudent HNIs, invest a substantial portion of their money in low risk investments. In most cases it ranges from 50 % to 70 % of the financial investments. In the language of financial management it is called downside risk management. That is, when the markets are falling, it is the low risk investments that protect overall portfolio.
Why HLV calculation is necessary but not important to those earning lower incomes?
Those working in the gig economy, those with uncertain incomes, those working as farm workers, rural artisans, rural craftsmen, rural business owners, construction workers, small business owners, taxi drivers, contract workers in factories and offices, food delivery boys, airline staff, ship workers, housemaids, dhobis, bakers, plumbers, masons, electricians, paan shop owners, mobile store owners, small restaurants, vehicle mechanics, and everybody else (other than the 10 % workforce in the organised sector); are earning low and uncertain income. The income varies from day-to-day, from month-to-month and from year-to-year. The volatility of income produces volatility in HLV. For most of their work life their perception of their future income is bleak. They too have a HLV, but what they see as the financial loss to their family in the event of their death, is low.
The owners and the workers in these establishments therefore purchase low sum assured. Their understanding is that their HLV is low. This view is determined by the variations they face in their income.The uncertainty in the quantum of their income they will earn in future years does not allow them to place a very big HLV on themselves. So, while a mason does understand that to retire he will need, say, a pension of Rs. 25,000 a month at the minimum, he believes that he will have to work all his life, extending his productive life much beyond 60 and may be depend on his son for further living. So while his HLV may be Rs. 25 lakhs, he is quite content to purchase a life insurance policy of Rs, 100,000 or Rs. 200,000.
The inherent contradiction in life insurance markets
The low income earners and high income earners both have HLV, and both need life insurance. But the low income earners are not seemingly concerned with HLV but are open to buying life insurance. On the other hand, high income earners are seemingly not concerned with life insurance but are keen to know their HLV.
Sell HLV to HNIs
HNI customers want you to calculate and tell them exactly what they are worth for the rest of their lives. Life insurance has a wonderful tool in the form of HLV to meet this need of the HNI. HLV is an intangible financial asset and ONLY life insurance can monetize the asset. No other financial product can. Learn to use HLV with confidence.
If we sell risks and not returns we will learn to use HLV faster. Because risks are certain, returns are uncertain.