Reduce Sum Assured

The 68-year-old man had owned successful commercial real-estate business that was leveled by the financial crisis of 2008.
 

He used what was left of his resources to start a new venture after the recession. But four years later the new company was still struggling to find investors and the man’s liquid assets were running low.

Despite cutting his household expenses, he needed more cash on hand to run the business. So he set his sights on another potential cut: Dropping the $500,000 life-insurance policy he shared with his wife. Ceasing premium payments could save another $700 a month to put toward his business.

He raised the idea with his adviser, Jeff Motske, president of Trilogy Financial in Huntington Beach, Calif. The firm has 11 branches and manages $2 billion for 50,000 clients.

Mr. Motske had worked with the client for years and knew about his recent struggles. He also knew that dropping his life insurance was a bad idea. “He was in a very tough spot,” Mr. Motske says. “But despite that desperation, I needed to help him understand that this wasn’t the right move.”

Mr. Motske emphasized the policy’s value, not its cost. The man had originally purchased the insurance for estate-planning purposes. With the majority of the couple’s wealth tied up in property, the death benefit could provide their estate with some liquidity. Since that time, though, the couple’s situation had changed considerably. Not only had the client’s business foundered, his wife had developed a debilitating illness that left her legally blind.

“The client still thought of this policy as a somewhat expendable estate-planning tool,” Mr. Motske says. “But given his wife’s condition and future medical needs, it had become a far more critical safety measure.” In light of their recent financial troubles, the adviser explained, the benefit would provide an important income stream for the client’s wife in his absence. What’s more, Mr. Motske reminded the client that the policy had a provision that allowed either of them to draw on the death benefit during their lifetimes if they needed long-term care. That would take considerable pressure off his wife should he become incapacitated.

“There was a noticeable mental shift in him,” the adviser says. “Once he recognized the role this policy played in the future security of his family, he didn’t take much more convincing.”

The client agreed that he needed to find another solution. Mr. Motske cautioned the man not to look at crucial pieces of his financial safety net, like his investment accounts.

Instead, he reminded his client that he needed only a few hundred more dollars a month in cash, and encouraged the man to take an even harder look at what was really expendable. Ultimately, the client saw that he could cut costs by forgoing a few rounds of golf each week and leasing a less expensive company car--expenses the man had believed were critical to his business image.

“Now that he understood how important the insurance was to his family, the client was more than willing to make those other sacrifices,” Mr. Motske says.

Sadly, the decision paid off sooner than the client or Mr. Motske had anticipated. The man died of a heart attack six months later. A portion of the death benefit paid off his business’ debt and tax liability, and the rest went to his widow--who was grateful to Mr. Motske for convincing her husband to retain the policy.

“The best advice for a client isn’t necessarily what they want to hear,” Mr. Motske says. “But when you can present a solution with the conviction that it’s truly the best for them and their family, the decision to do what’s right becomes much easier.”