Independent insurance agents are continually frustrated by the oversimplification of important insurance issues—particularly when it comes to personal lines. It wasn't enough that one well-known carrier could save a consumer 15% in just 15 minutes. Not to be outdone, another carrier compressed that timeframe to 7½ minutes—and still another now claims it can facilitate a quote in just five.
Independent agents are quick to point out that without adequate time to learn about a client's needs, it's hard to provide the most appropriate coverage. A prime example of the importance of spending time with a client before making a recommendation: Earlier this week, the Supreme Court ruled unanimously that inherited individual retirement accounts are not protected from creditors in bankruptcy.
The Supreme Court held that IRAs inherited by someone other than a spouse cannot be considered retirement funds, because beneficiaries cannot invest additional money or delay distributions until retirement.
Currently, seven states exempt inherited IRA assets from creditors during bankruptcy proceedings. But parents who have children with financial problems could encounter a situation in which the child’s creditors seize the assets in an inherited IRA. For example: A parent has a large IRA balance and a daughter whose husband's construction company is facing serious financial problems. The parent must now consider using a trust and sophisticated planning to avoid the fallout.
Scenarios like these are exactly why it’s so important to consult a professional rather than taking a do-it-yourself approach to insurance. Someone unaware of the Supreme Court's ruling might roll over his or her 401(k) balance to an IRA and unknowingly expose themselves to this problem.
In an increasing complex world, encouraging consumers to “know what they don't know" is a huge challenge for financial professionals. It’s even more daunting when companies use advertising to suggest that intangible products and services are a commodity. Of course, when it comes to insurance, agents well know the significant differences among policies and riders.
So what typically happens is consumers discover what they don't know when it's too late. DIY policyholders often experience buyer’s remorse when they file a claim. Independent agents need to combat the five-minute approach to purchasing insurance and instead educate consumers that investing some time to share their personal situations and objectives can help them avoid a potentially catastrophic financial situation down the road.
Nobody should purchase insurance on a drive-through basis.
Dave Evans is a certified financial planner and an IA contributor.