Show clients how to wield financial axe – Liberty

Miss aimed blows with the ‘financial axe’ can cost the consumer dearly while severely denting intermediary income – which is why our industry’s help is crucial as cash-strapped families start looking around for economies.

Without guidance, there is great likelihood of self-inflicted financial wounds, warns Jay Naidoo (pictured), divisional director of learning at Liberty Life.

She’s concerned that many consumers are influenced by misconceptions and make decisions in isolation without engaging in a comprehensive overview of real needs.

One mistaken idea is that in a financial crunch a family doesn’t really need long-term insurance and that short-term cover should be retained instead.

“It’s not an either-or decision,” says Naidoo. “The either-or contest should be between wants and needs rather than short- and long-term cover.

“I’m staggered by anecdotal feedback that families are weighing up which set of policies to lapse; especially as this happens without first engaging in a proper household budgeting exercise.

“To help clients avoid costly mistakes and retain business, it is vital that intermediaries become proactive and give well-informed, knowledgeable guidance on the fundamentals of budgeting and financial planning.”

In cases of real financial distress, a wide-ranging budgeting exercise is essential, she notes. The prudent response is for families to make a list of wants and needs, with insurance solidly in the ‘needs’ category.

When looking for economies, the distressed consumer should consider items in the ‘wants’ column – things like cigarettes, alcohol, luxuries, the boys’ or the girls’ night out.

Naidoo adds: “That’s where the cuts should be made; not into risk and life covers that tend to be even more important in tough economic times.”

When times are stressful, accidents tend to happen and illness can set in.

“Many health conditions are related to anxiety,” says Naidoo. “Often the reaction to financial pressure is to work longer hours. Fatigue is a problem in itself, but as a cause of workplace accidents and collisions on the road, it can have devastating consequences for families.

“As a general rule, the tougher the times the greater need a breadwinner has for dread disease, disability and life cover.”

It may also be a mistake to cash in an investment-based product on the assumption that today’s pressures take priority over tomorrow’s nest-egg.

“In some cases, the impact of fees and penalties for early termination might be limited, but lost time always has major consequences for the investor,” says Naidoo.

“Those with a healthy lifestyle might live into their 90s – which gives the client a long time to regret a lapse. Having a much longer lifespan than your savings is not a happy prospect for our industry’s customers.”

She believes the proactive professional has to communicate simple advice that can be acted upon.

“We should be telling our customers ‘Don’t lapse into false economy. Redefine priorities. Cut back on luxuries. Join a car-pool; give yourself car-free days; eat more staples; cut out little treats and indulgences … but don’t imagine that long-term insurance means that life cover, dread disease and disability can wait. There is no time span to this need. It will always be a necessity.”