Allianz Life Insurance Company of North America

    Positioning Life Insurance As Your Client’s Financial Engine

    As we embark upon a new year, it’s fair to say that there is a good deal of uncertainty facing the financial services industry.

    This is especially true when considering how we can help clients achieve a more secure financial future. Although markets reached record highs in 2016, volatility is still top of mind for many Americans, and it’s difficult to predict how markets will truly react when the new administration takes over in January. In addition, this administration will likely bring policy and regulation changes affecting tax laws, thereby creating a very different environment for savers in 2017. At the very least, these potential changes may drive people to question several aspects of their current financial strategy, so financial professionals should be prepared to address a wide variety of concerns in the coming months. 

    But as we wring our hands trying to determine the most effective ways to help our clients deal with all of this uncertainty, it’s important to remember that some things within the world of financial planning never change–namely, the need for protection–both to and through retirement.

    Protection (risk management/insurance) has always been an important concept within financial planning but one that may get less attention than the other core planning topics, including investments, tax strategy, retirement, estate planning and employee benefits and/or business planning. Although “guarding against uncertainty” is actually the base of the traditional financial planning pyramid, there tends to be less written about the value of insurance and risk management as the cornerstone of a sound financial strategy. 

    What if a protection strategy could offer more than insurance against future challenges and serve as a true financial engine for your client’s portfolio? For clients that need death benefit protection and are looking to diversify their financial portfolio, cash value life insurance–such as fixed index universal life (FIUL) insurance and the additional advantages it offers–has made this a possibility, and one that financial professionals should consider for clients looking for an appropriate solution.

    Protection with Flexibility
    You’ve likely already worked with your clients to save for future needs through common financial vehicles such as their company-sponsored qualified plan and tax-advantaged plans such as IRAs, as well as saving accounts and so forth. However, it’s important to remind clients that any successful financial strategy needs a mix of various assets and financial vehicles to help support and protect their long-term financial goals.

    Typically, each asset or financial vehicle reflects different levels of risk, which over the long term may help your client reduce their overall financial risk. The more diversified their financial options, the more likely your client will be able to weather the ups and downs of uncertain markets by providing some opportunity for accumulation while still protecting a portion of their assets.

    When considering diversification as you help them plan for their long-term financial goals, it’s also important to ask, “How protected are your assets?” If your client is not there to properly fund these financial vehicles, will those vehicles continue to be funded by surviving family members as they had intended them to?

    This is where the flexibility of FIUL comes into play, because it provides the primary need for protection through the generally income-tax-free death benefit that can help beneficiaries maintain their lifestyle, offering reassurance should something happen to the insured–but it can also supplement other financial challenges through additional advantages, helping to bridge the gap between your client’s retirement savings and retirement income goals.

    Given that the average American man can expect to live to age 84–and woman to age 86–outliving retirement assets could be a real possibility.1  Only 13 percent of Americans are very confident (38 percent are somewhat confident) that they will have enough money to live comfortably in retirement.2 In fact, two in three pre-retirees don’t expect their income from Social Security and pensions to be enough to support their basic living expenses after retiring.3

    With FIUL, clients can help supplement their retirement income by accessing any available cash value through income-tax-free policy loans and withdrawals (loans may be subject to interest charges)4 to supplement other sources of retirement income including Social Security, pensions, qualified plans such as a 401(k), tax-advantaged plans such as IRAs, and other nonqualified vehicles such as annuities, savings accounts, CDs, and investments.

    Importance of Tax Diversification
    As previously noted, our current view of the future tax environment is cloudy at best, so now may be a good time to reevaluate your client’s tax strategy. Taxes can have a significant impact on how much of your client’s savings they can access in the future and the amount they can pass on to their beneficiaries. That’s why it is so important to also consider tax diversification as part of their retirement strategy. Tax diversification involves placing assets in a variety of financial vehicles that have different taxation structures. 

    Although current speculation is that the new administration will bring a more favorable tax treatment for the majority of Americans, the uncertainty surrounding potential changes underscores the need to diversify by allocating to vehicles that offer different tax treatments in order to mitigate exposure to any adverse tax impacts. FIUL can help achieve this goal through a combination of three distinct tax advantages: tax-deferred cash value accumulation, income-tax-free loans and withdrawals,4 and the typically income-tax-free death benefit. 

    It’s important for clients to understand that life insurance does not have the same restrictions as other financial vehicles, making it a powerful asset as clients look to build their retirement security. Life insurance has no penalties for accessing cash value prior to age 59 ½, assuming the policy is not a modified endowment contract. Accessing any available cash value through policy loans and withdrawals currently does not have an effect on your client’s Social Security income. And last but not least, there are no required minimum distributions at age 70 ½.5

    Between qualified plans/traditional IRAs, Roth IRAs/Roth 401(k)s, individually owned mutual funds, municipal bonds and nonqualified deferred annuities, there are many tax advantages to consider with the various financial vehicles available to help Americans build and maintain their financial assets–but life insurance should also be a part of this discussion to effectively ensure your client is managing how much and when they are being taxed.

    Opportunity for a New Approach
    According to LIMRA’s 2016 Trends in Life Insurance Ownership study, there are nearly 5 million more U.S. households that have life insurance coverage compared to 2010.6  This is positive news for the life insurance industry; however, the growth in households with life insurance coverage reflects an increase in population rather than an increase in market penetration.  The study found 30 percent of households remain uninsured, equal to the record low set in 2010. 

    This means that more than 37 million American families are completely uninsured and at financial risk if their primary wage earner dies unexpectedly. What’s more, LIMRA estimates that 48 percent of households (60 million) have an average life insurance coverage gap of $200,000, which amounts to more than $12 trillion in total market need.

    Why are so many Americans still reluctant about purchasing life insurance? More than 7 in 10 American households say a reason they have not bought more life insurance is because they have other financial priorities right now, such as paying off debt or saving for retirement. Nearly two thirds say they cannot afford it.

    Clearly, there is still a significant need for people to build more financial reassurance into their portfolios by adding life insurance, but there is a gap in their understanding of how they may be able to achieve multiple goals through today’s innovative insurance products. That’s why it’s so important for financial professionals to realize the possibilities available via products like FIUL, which can help their clients get the protection they need along with the potential to address other financial issues that may be more “top of mind.”

    If you haven’t already, now is the time to consider how FIUL might fit into the products and solutions you are currently providing to your clients. Although life insurance may not be thought of as the key component of a solid financial foundation, it can truly be the engine that helps drive your client’s strategy–providing both the protection and the flexibility necessary to help navigate an uncertain financial future. [JW]

    1. Social Security Administration Life Expectancy Calculator, October 28, 2014.
    2. 2013 Retirement Confidence Survey: Perceived Savings Needs Outpace Reality for Many, Employee Benefit Research Institute, March 2013.
    3. “Facts about Life 2013,” Life Insurance Awareness Month, LIMRA, September 2013.
    4. Policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Withdrawals in excess of premiums paid will be subject to ordinary income tax. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. If a policy is a modified endowment contract (MEC), policy loans and withdrawals will be taxable as ordinary income to the extent there are earnings in the policy. If any of these features are exercised prior to age 59½ on a MEC, a 10 percent federal additional tax may be imposed. Tax laws are subject to change and you should consult a tax professional.
    5. Life insurance does not provide a stream of income in retirement. Any potential supplemental income is available through policy loans and withdrawals.
    6. Life Insurance Ownership in Focus, LIMRA, September 28, 2016:

    Jason Wellmann is senior vice president of life insurance sales for Allianz Life Insurance Company of North America (Allianz Life). In this role, Wellmann is responsible for leading Allianz Life’s life insurance strategy through all distribution channels.

    Wellmann joined Allianz Life in 2010 as vice president of branch office development, working closely with Questar Capital, a division of Allianz Life, and its branch office managers at each Allianz Distribution Group (wholly-owned) field marketing office (FMO) to maximize recruiting and sales development efforts. He also worked closely with each FMO to help maximize its life insurance sales.

    Wellmann attended Minnesota State University, where he majored in speech communications and minored in business administration. He has his Series 6, 7, 24 and 63 registrations and is involved with many industry organizations, including GAMA, AALU and NAIFA.

    Wellman can be reached at Allianz Life, 5701 Golden Hills Dr., Minneapolis, MN 55416. Telephone: 763-765-7212. Email: