M8: IDENTIFYING CLIENT NEEDS
Ø Childhood: two basic needs for parents are
o Secure their children’s financial position, if they themselves die prematurely; and
o Provide for their children’s future expenses such as for higher education, marriage and living expenses.
Ø Young unmarried: young unmarried with no-dependents-
o Low protection need as there are no dependents.
o Ned to invest any surplus income and earn high returns gains priority.
Ø Young unmarried: young unmarried with dependents-
o The family will be adversely affected if the young person dies prematurely.
o Needs to protect their income.
Ø Young married: double income family-
o Financial dependency on one person is reduced.
o Such couples are also commonly known as double income no kids (dink) couples
o Loss of income due to the death of any partner needs to be compensated.
o An individual term life insurance plan for both partners is suitable at this stage.
Ø Young married: single income family-
o Savings are likely to be lower than for the double income family-
o Income protection assumes priority over other needs.
Ø Young married: young married with children: double income family-
o Effect of the loss of income due to the premature death of one of the partners will be less. Protection of income is important.
o Investments towards their children’s future can be a high priority.
Ø Children education planning:
o The insurance agent should take into consideration the cost of the education course selected by the prospect for his child.
o The agent should assume an education inflation rate and based on the date when the prospect’s child will enrol for higher education, work out the amount that will be required at that time.
o Assuming a reasonable rate of return , the agent should arrive at the monthly amount to be invested to accumulate the education fund.
o The propect should start making regular investments towards the child’s education fund in a child insurance plan.
Ø Children education planning married with older children:
o Financial responsibility is towards their children’s higher education and marriage.
Ø Entire focus is shifted towards the retirement funds and health protection as other needs are mostly taken care of.
o Income of an individual/couple is limited to the returns on investments that they made in the earlier stages of their stages of their working life.
o Review the health cover for themselves and their spouse to see if it is adequate to meet the couple’s healthcare requirements.
o Self-employed professionals and businessmen, there is no defined retirement age.
Ø Factors that affect the life stages
Age
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Martial status and dependants
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Employment
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Health issues
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Individual
‘s income and expenditure
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Individual’s assets and liabilities
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Divorce, separation and bereavement.
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Ø Age
o The younger the age the lower will be the liabilities
o As a person grows older their protection need increases due to the new responsibilities such as marriage & a family
Ø Marital status and dependents:
I. When an individual gets married, their responsibilities increase
II. Buying a home, a car & taking annual vacations, etc. Results in increased financial liabilities
III. Protection needs become very important due to increased liability
Ø Employments:
I. An individual’s employment status can influence their financial planning needs & investment capacity
Ø Public sector employee:
o Need for life insurance, pension plans & other medical related plans will no be high.
o Employer contributes towards provident funds, pension funds & gratuities under retirement benefit schemes for its employees.
o Other benefits such as life insurance for the individual & health insurance for their family are provided.
Ø Private sector employee:
o Need for a pension plan, life insurance, health insurance, etc. Is greater.
o Some companies provide benefits such as a gratuity & provident fund. Many of them do not provide any pension benefits.
o Some companies provides life insurance for the individual & health insurance for their family & some give the option to the employee to contribute towards the premium
o However, other companies do not provide any of these benefit s & the employee needs to make their own arrangements.
Ø Self employed: in this case two important factors need to be considered:
o Self-employed individuals may have fluctuating income
o They may be the sole income provider for their families.
Ø People with short career:
o Need to protect their income from premature death or disability during thei peak earning years.
o Due to unemployment financial plans can be severely affected as their priority will shift.
o Ned of disability insurance & building emergency fund will cover their expenses in the short-term.
Ø D. Health issues:
o Health risks tend to increase as an individual gets older & chances of obtaining health protection will be reduced
o A person may suffer from continued bad health, irrespective of their age
o If insurance companies accept the risk, may modify the conditions of acceptance and/or charge a higher premium.
Ø Individual income and expenditure:
o Expenditure includes all outgoings i.e. amount spent on food clothing, housing &
o Leisure activities * liabilities like repayments of a home loan, car loan, etc.
o It is essential that an individual has surplus income after meeting all of their expenses
o If expenditure exceeds income then this will result in debt & the individual’s capacity to make investments will be nil.
Ø Individual assets and liabilities:
o Assets are what an individual owns & liabilities are what they owe
o Assets can be acquired through saving, inheritance or business activity.
o If assets are more than their liabilities, surplus money would be available for investment.
o If liabilities exceed their assets, then they need to ensure that all due payment are met on time.
o Any assets which are no longer suitable or are earning fewer returns than expected should be reviewed & cashed-in for investment into other assets.
o Similarly an individual’s liabilities, such as a home loan or a car loan, should be covered by adequate life insurance so that in the event of the income earner’s premature death. The family can pay off the debts & avoid financial troubles with lenders.
Ø Divorce, separation and bereavements
o In the case of divorce or separation, the financial objectives of individuals will change & their investment capacity will decrease (if both the spouses are working). As a result, existing investments should be reviewed.
o In the case of divorce & separation, financial planning for women (housewives) becomes extremely important as a woman may not have any financial arrangements other than those of her husband. So protection and retirement needs assume even greater importance.
o A widowed woman will become the custodian of her husband’s assets & she will have the r3sponsibility of providing for her dependent children. Her main concern will be to manage the assets & enhance or preserve their investment value to provide for her dependent children.
Ø Client needs –real need & perceived needs
o Real needs
§ The actual needs of a client which should take priority over others.
§ Determined by the use of financial planning techniques & analysis
Ø Perceived needs
o Imagined or thought to be important by the client.
o These needs can be understood by analyzing an individual’s thoughts & desires.
Ø The job of an insurance agent is to help clients in identifying real needs. The process is as follows:
o Identification of real needs: this can be done by educating them about the importance of insurance.
o Identification of current and future needs.
o Quantification and prioritisation of needs: once needs are identified, they must be quantified in terms of monetary value and prioritized.
o Financial planning review: the client should meet up with the agent regularly to review if their financial planning need have changed over time, if yes, then new investments should be made to suit the changed circumstances.
Ø Communication, questioning and listening skills
o An agent is very often the first contact point with their prospective clients.
o Agents may have to ‘read between the lines’ as clients may be unfamiliar with insurance terms & jargon & this may hinder their understanding of their needs.
o There are 3 essential skills that every insurance agent must have – communication skills, questioning skills and listening skills.
Ø Communication skills: good communication skills include:
o A good command of the client’s local l language and dialect;
o A friendly approach towards clients and a genuine interest in them.
o Agents should be able to encourage clients to speak about their concerns relating to their future and present needs; and
o Whenever a client asks a question, or makes a point, the agent should answer the question honestly and continue to engage the client in a two-way dialogue.
o This will encourage the client to participate in the financial planning process.
questions
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Linked to earlier
questions asked
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Personalised according to the client.
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Put in simple terms that a client will easily understand
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Ø Questioning skills: questions can be classified by: structure or purpose.
Ø Classification by structure: in this classification, questions can be of two types: open-ended and closed-ended. Both types of questions have different objectives and effects and you should make sure that you can use them correctly.
Ø Open ended questions encourages the client to talk freely & highlight issues which are most important to them. Some examples of open-ended questions are:
o Why do you think that?
o Where do you see yourself 10 years from now?
o How do you feel about that?
Ø Closed-ended questions are structured so that the client has to provide short specific answers. The client’s response is restricted to yes, ‘no’, ‘a specific amount’. Some examples of closed-ended questions are:
o Are you currently employed?
o How many children do you have?
o Do you have any current investments?
Ø Classification by purpose: in this classification questions can be either open or closed and include questions that:
o Seek information;
o Explore and collect additional information;
o Confirm points already agreed; and/or
o Commit the client to action.
o (3) phrasing of questions needs to be:
o Linked to earlier questions asked
o Put in simple terms that a client will easily understand
o Personalized according to the client.
Ø Listening skills
o Good listening skills are also important for an insurance agent so that they can interpret the client’s answers correctly.
o The agent should record the client’s answers and their body language should also be studied by the agent, as this will help in determining their level of interest in financial planning.
Ø Listening skills : it requires good communication & listening skills, as well as asking appropriate questions are tools that can be extremely useful.
Ø Some common objections include:
o The product doesn’t meet my needs(s).
o A competitor’s products are offering additional benefits
o I don’t have funds for investment.
Ø Gathering client information including family informations:
o As part of the planning process, the insurance agent needs to gather personal (including family) data, professional data and information related to the client’s finances using a form called as fact-find.
o It includes:
§ Personal –details client’s name, age, address, contact details and marital status.
§ Family details-number of members in the family and their name, age and
§ Occupation.
§ Family physician-address of doctor & some close friends etc.
§ Professional details- employed, self –employed to run a business.
§ Financial details – cash flows and their existing investments
o Confirming assumptions and agreeing objectives:
o Need analysis should be done after agreeing objectives with the client.
o During need analysis the assumptions made should be confirmed with the client.
o Importance of reviewing financial plans:
§ In spite of all the financial planning techniques available, the exact amount of funds needed in the future cannot be precisely determined.
§ Amount is subject to various assumptions.
§ Insurance agents will derive only an estimated amount and not the exact amount.
§ Financial plan needs to be reviewed once every 12 months or so to see if there are any changes in the client’s needs and whether the investments are doing as expected.
§ Review of financial planning is also a good way for an agent to kep in regular contact with the client to shown that he is concerned about the client’s ongoing financial welfare.
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