This quote has been attributed to Will Rogers and to John Maynard Keynes, but both were actually quoting Mark Twain, who said it first in 1835. I reference the quote and its attribution not to give you an edge should you ever decide to compete on Jeopardy, as cool as that would be, but rather to illustrate that truth is often said in jest. Mark Twain was a humorist of the first order, but his words, said tongue-in-cheek almost 200 years ago, have never been more true than they are today. For many of our older clients, those who are retired or approaching retirement, the top priorities for their savings or emergency funds are safety, access and control. How do we know this? Because they keep those funds in CDs, savings accounts, money market accounts, etc., earning next to nothing. They know this, yet they keep the funds there because they know that they will be there and that they will be accessible. Every other priority is a distant third at best.
So what can we do to help these clients? The answer may lie in a very simple question: What is the purpose for this money? For some clients the purpose may be to help subsidize their income; a fund to help in case the roof starts to leak or their property taxes increase unexpectedly. For others the answer may be that these funds are for the kids or grandkids, unless… And that unless is almost always some combination of “…unless I have a medical emergency, unless I fall and need someone to help me at home, or unless I need to go into a nursing home.” This is what is called the client’s “safe money.” For the clients who fall into the former category, it’s probably best to let it be. For the clients who fall into the latter group, there may be a better option, one that provides the safety and control that they desire while also giving them benefits that a financial institution vehicle does not.
Before we begin to discuss solutions, let’s look a little closer at our client profile. As we said earlier, we are talking to people who are approaching retirement or who have already retired because they are the people most likely to have accumulated and identified money that they may not need for current expenses. This is very important. If the client anticipates that he or she will need the money to pay bills or buy gas or groceries, etc., then this is not the right solution. Similarly, a younger client may not have accumulated these funds yet, or may not yet be confident that they won’t be needed. The easiest way to determine whether or not they fit is to ask: What is the purpose for these funds? Clients will not be shy. If they think they need the funds, they’ll say something. If they are using it as a safety net, they’ll say something. If they intend to leave it to their kids, they’ll say something.
There are other indicators as well. In some cases the client may have multiple accounts and joint owners on those accounts, usually a son or daughter. These accounts will be designated “transfer on death” or “payable on death” and are intended to do exactly what the designation suggests. It allows the client to ensure that his or her money goes to a son or daughter without having to go through probate. For us, this should be a flashing red sign that says “I have money that I don’t think I’ll need.” These are the clients with whom we want to speak.
So we have identified that the client has money that he or she probably won’t need for current expenses. Their priorities for that money are safety, access and control, with the rate of return on the money further down their list. They’ve said that they would like to leave the money to their kids or grandkids, unless… Which tells us why they have the money sitting in the bank—it’s safe, it’s liquid and it’s easy to access. Are there other options? They may have already said no to an annuity because of the surrender charges. They won’t look at a brokerage account because of the risk. While it sounds funny now, their parents may have considered burying it in the yard or stuffing it in a mattress. Removing these as options leaves us with a solution that they have probably never considered: participating whole life insurance.
Let’s look at a female client, age 65 and in decent health, so we will give her a standard non-tobacco rate class. She has $100,000 in four CDs at her local bank. She has a pension and Social Security, which provides enough income for her monthly expenses and a little extra that she either saves or uses for occasional weekend trips with friends or family. She doesn’t anticipate needing the CD money, so she has her son and daughter as joint owner on two CDs each. Assuming the scenario that we outlined above, why would she look at participating whole life when she has rejected other options? In a word, “guarantees.” Participating whole life insurance gives her a guaranteed death benefit, guaranteed cash value, guaranteed increases in cash value and guaranteed access to her money. For example, if we were to take $50,000 of the money that she has in her jointly-owned CDs and purchase a participating whole life insurance policy, her initial guaranteed death benefit could be $106,102.* Given that she has already acknowledged that this money will most likely go to her children, we have immediately more than doubled the amount that she can leave them.
What about access? At the end of the first year, her guaranteed cash value is $47,920, and by the end of the third year her cash value has increased to $50,989, all of which is available to her at any time, for any reason. The cash value continues to grow, guaranteed, each and every year. What about the “unless…”? You’ll recall that in many cases the money in these CDs may be the client’s safety net in the event they need extended at-home care or nursing home care. Many life insurance products give the client the ability to access death benefits, income tax-free, should either event occur. In our example, the client would have access to the better part of $106,102, rather than the $50,000 she had in her CD. So this client has guaranteed protection and access, the ability to leave a larger legacy for her kids, and protection for that legacy should she experience the “unless…”
This is an effective solution for a client who looks like the example we have given here. However, it is not the right solution for everyone. Safe money only works if the client truly does not need the money for current expenses, so thoroughly profiling clients is a must. Also, no solution should be or can be all or nothing. In our example above, the client is very sure that she does not need these funds for current expenses, but she does not have a crystal ball. That’s why we only used $50,000 of the $100,000 that she had in CDs. In an emergency she still has $50,000 in the bank, in addition to the cash value and death benefit in the policy. If she decides at some point that she would like to use some of that remaining $50,000 in her safe money solution, there are options. We can structure the existing policy to accept future premiums or we can purchase another policy, provided that she is still relatively healthy. By taking a conservative approach, we can ensure that the client always has options.
Properly applied, safe money is an excellent solution for clients with money that they would like to leave to their kids, unless… The problem is that the overwhelming majority of those clients have no idea that this solution exists. That’s where you come in. Look at your book, your desk and your calendar. Do you have clients with money in CDs that they haven’t touched? Under “purpose of funds” on their annuity application did they indicate “leave to heirs”? Do they have bank accounts that are jointly owned by their children? Have they come into money from an inheritance or a sale of their home and don’t know what to do or where to put it? Here’s a good one: Do you have clients with parents who fit any of these scenarios? If you answered yes to any of these questions, then you may have clients or potential clients who need your help. Pick up the phone, call them and ask, “What’s the purpose for these funds?” Then call your participating whole life carrier and ask for their safe money solution. Mark Twain would be proud.
Good selling!
*Amounts determined from illustration run on Mutual Trust Life’s Century II illustration software, version 4.73.
