When we utilize life insurance in more advanced market scenarios, we find that the financial planning capabilities provided by brokerage general agencies (BGAs) are somewhat limited. Software solutions commonly used by financial planners, such as MoneyGuide Pro, EasyMoney, and NaviPlan, for instance, offer only minimal support for integrating life insurance into their planning processes. This highlights a significant disparity in the tools available to life insurance agents compared to those provided by BGAs. Below are two examples of closing the gap.
Market Technology
I reached out to Ian Ryan, brokerage director at BackNine Insurance and Financial Services who explained how their digital platform solutions for agents is not just for selling simplified term insurance products. BackNine’s strategic expansion into partnerships with like-minded companies dedicated to automation and technology in the advanced life insurance markets marks a significant milestone in the industry’s evolution. Their Advance Markets department now supports premium-financed life insurance designs on automated quoting and submission platforms while ensuring that these solutions adhere to conservative constraints and meet the due diligence standards upheld by financial services firms nationwide.
In the realm of financial services, the concept of premium financing has long been a cornerstone of strategic planning, primarily adopted by individuals entrenched in the life insurance industry. With a focus on nationwide marketing and life insurance products, these professionals understand the nuances of ensuring a secure financial future. Financed life insurance plans are divided into two sub-categories: Traditional and bank leveraged arrangements, each deserving recognition for their unique attributes. Both options have their merits, catering to diverse preferences and needs, offering policyholders distinct advantages.
Traditional premium-financed plans are renowned for their intricacy, requiring ongoing management and a policy owner with financial sophistication. Therefore, BackNine restricts these services to agents whose clients possess a minimum net worth of $15 million and a suitable profile for long term planning. Beyond suitability screening and case design, they partner their agents with established lending brokers, handling substantial premium loans, to provide clients with a reliable path forward.
The premium lenders they recommend go beyond the conventional role of a bank, by harnessing a rich pool of resources, tapping into multiple capital avenues, and crafting solutions exclusively designed for the life insurance sector. This involves leveraging not just banking resources but also integrating proprietary capital markets to serve the distinctive financial demands of affluent individuals. These institutions work to facilitate financing solutions not just for newly minted life policies but also for existing ones, ensuring a broad spectrum of clients can benefit from their expertise.
In the world of premium financing, bank-leveraged planning stands out for its ability to reduce risk in premium financing arrangements. This reduction encompasses several key elements: No loan underwriting, no financial credit checks, no loan documents, no interest payments, and no personal guarantees.
While traditional premium financing typically caters to the affluent and high-net-worth, Back Nine’s program takes a more inclusive approach. They achieve this by leveraging a streamlined process, powered by the same seamless technology featured in their Quote & Apply™ software, to reach individuals earning annual incomes of $200,000 or more across all 50 U.S. states. This effort underscores BackNine’s commitment to make premium-financed life insurance accessible to a broader audience and empowering more life insurance agents to better serve their clients.
For agents that find themselves with clients in the upper echelons of income earners making $200,000 and up, those clients’ lives might seem more comfortable than for most. However, this higher income often comes with its own set of challenges, particularly when it comes to saving for a secure retirement. Depending on who you ask, 40 to 60 percent of working Americans have not saved enough for their future retirement. Most financial planners are suggesting clients put aside 10 to 20 percent of their pre-tax income to achieve a comfortable retirement. BackNine recognizes these challenges and offers tailored solutions, including leveraged life insurance planning, that have the potential to significantly enhance supplemental retirement planning for licensed life insurance agents.
One often overlooked advantage of premium-financed life insurance is its capacity to empower you as an advisor to educate your clients on using pre-tax dollars (via premium loans) to further enhance their supplemental retirement planning. These plans undergo meticulous design and rigorous stress testing, all with the anticipation that those pre-tax dollar premium loans will be repaid from the policy cash values. As a result, your clients may have the potential to access 60 to 100 times more in living and death benefits. This balanced approach emphasizes both growth and protection, ensuring that clients have a spectrum of options at their disposal. This not only provides financial security but also the flexibility to customize their supplemental retirement plan to align with their unique needs.
For agencies and agents seeking a streamlined and tech-savvy approach to life insurance marketing, BackNine Insurance & Financial Services, Inc., offers a comprehensive suite of tools and services tailored to the modern digital landscape. For more information on these solutions or to learn more about BackNine and how to get started, visit https://www.back9ins.com.
Testing IUL and VUL Policy Illustrations
IUL and VUL policy illustrations have a credibility problem—but these illustrations have been the only “tool” available for agents to demonstrate the expected future performance.
IUL policy illustrations are calculated using an AG49B specified maximum crediting rate—and it’s used as a constant for many decades in the future. However, the “market” underlying the Index will fluctuate every year—and in the real world—will produce a range of policy credits subject to the non-guaranteed cap and participation rates and the floor rates!
Similarly, VUL policy illustrations allow a specified (gross) crediting rate as high as 12 percent—and again, use that rate as a constant for the entire duration of the illustration. Here the market isn’t constrained—the S&P500™, for example, has been as high as +34 percent (1995) and as low as -38 percent (2008)!
There hasn’t been a reliable way to test illustrations subject to these kinds of volatility and non-guaranteed elements—until now. Agents and policy owners can gain important insights from a newly introduced service, called Life Insurance Sustainability Analytics (LISA), which provides a more realistic view of the long term life insurance policy’s performance.
The answer for agents: How “sensitive” is the policy performance to premium and living benefit amounts and changes to the non-guaranteed parameters, in the context of underlying volatility, is a question that can now be answered. This is a critical component of the sales process and agents can use these insights to adjust illustration designs, making the sale with more confidence and less risk to the client and to their practice.
The answer for clients: Clients form their expectations around policy illustrations, but the illustrations cannot provide a realistic view of what is likely to happen. That’s true when you calculate a premium based on the assumed crediting rate, as well as for the projected retirement cash flow of an illustration attempting to show, “How much can I take out of the policy for retirement?”
Let’s say you’ve run a death benefit-oriented IUL policy illustration using a calculated premium based on the maximum AG49B crediting rate of the chosen index—is it a problem if the volatility assessment comes up with only a 62 percent likelihood the policy will sustain to at least age 100? If that’s an issue you can use LISA to re-design the premium to meet the client’s probability objective. It is an excellent way to reinforce that you provide solutions in your client’s best interest.
If the sale involves a retirement income oriented IUL policy illustration, using the maximum non-MEC premium, and solved for the largest policy loans (income) based on the maximum AG49B crediting rate of the chosen index—is it a problem if the volatility assessment comes up with only a 55 percent likelihood the policy will sustain to at least age 100? If that’s an issue—you can recalculate the future retirement income to meet the client’s probability objective.
These are simple solutions that demonstrate to your clients that you are dedicated to their long term success. You can uncover and fix these problems and avoid disappointed clients! Test the illustration to find the likelihood of success—while modifying premium amounts and/or policy withdrawal/loans—that fits the client’s risk tolerance.
If you would like to see a demo of Life Insurance Sustainability Analytics (LISA) and also get a free trial then visit https://lifeinsuranceanalytics.com.
Image by Gerd Altmann from Pixabay
