The Insurance Calculator Isn’t Necessarily Your Friend

Last September, I was interviewed as part of a Wall Street Journal article that dealt with advisors working with younger clients. During my conversation with the reporter, I was reminded of a comment made by a friend of mine after I described to her what I did for a living. Essentially, she wondered why anyone needed the services of a financial planner when, “…all that stuff is available for free on the Internet.”

Needless to say, I was a bit taken aback. Ever since then, I’ve kept my eyes open for all that “free advice” on the Internet that turned out to be worth exactly what it cost. I also took to heart a phrase I first read in a book by advisers Alan Parisse and David Richman: Information is not advice.

I recently came across a good example of the “free advice” phenomenon when I stumbled upon an online calculator located on the public website of a less well-known but highly regarded insurance company. The goal of the calculator was to advise you how much liability coverage you needed on your home and auto policies, based on just a few demographics about your household, your salary and the level of your assets.

Figuring out the appropriate level of liability coverage can be a little tricky, particularly when you need to take into account how much a client can afford, so I was excited to see the calculator’s output. I entered some information for a high income, high net worth fictitious client, and based on my input the calculator determined that the client needed the highest (and most expensive) levels of coverage.

Those coverages made sense for that client. But the interesting thing happened when I made the client less and less wealthy, and lower and lower income: the recommended high levels of insurance (and the associated higher costs) never changed! Regardless of the level of income or amount of assets I entered, or whether or not the client owned or rented a house, the calculator always decided that the client needed the highest level of liability coverage that the company offered.

Now you can make a good case that people should have the highest amount of liability coverage they can afford. You can also make a good case that most people are underinsured in terms of their liability protection. But neither of those points was even mentioned on the website. Even worse, the calculator was posing as a customized solution. What good is a “customized” calculator that always gives the same answer?

Insurance, estate planning, retirement planning, investments…there aren’t always cookie-cutter answers to these problems. Mass appeal websites have a long way to go before they can replicate the value of an independent, objective financial adviser who helps clients arrive at a customized solution for their specific needs. Remember to steer clear of information posing as advice.

About Ben Birken

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