Back in the early 2000s I worked for one of the large career life insurance companies that we all have heard of. This was and still is a great company that I was proud to represent. However, eventually I decided to leave to work with one of the carriers here in Des Moines that were first to the indexed annuity game and distributed all of their products through independent distributors like IMOs and independent financial professionals, like you. That was over 20 years ago, and I have been in independent distribution ever since.
The experience of being “captive” then later being exposed to independence was a very eye-opening experience for me in many ways. Thus, I would like to highlight three areas that I feel were the most significant differences at the time and still are.
The Product Spectrum is Wide and Optionality is Important
When I was a career agent—naïve in my early 20s—I believed that if I was with a fortune 500 company that had been around forever, then almost any product that we offered should be “decent” relative to almost any competitor out there. Afterall, how do you get much better than a mega A+ Fortune 500 company! Boy, was I brainwashed!
Thus, my first observation when I entered independent distribution, and still one of my strongest observations, is this: There is a huge spread between the “worst product” and the “best product” in the world of financial services, even among top rated carriers. Let’s use a simplified example.
Although there is much more to product than numbers/price, let’s take an example of term products and how wide the spectrum is when it comes to term prices. If I punch into my term quote engine that I am a 45-year-old male with a preferred health rating and looking for 10-year term prices on a $1 million death benefit, the worst price is 64 percent higher than what the best price is! That is significant. The ledger that I ran includes about 50 or so life insurance companies that my company offers to our agents. To put numbers to it, the company at the top of my term ledger costs $669 per year and the one at the bottom comes in at $1095 per year. Again, 64 percent difference between the lowest and highest. Am I glad that my agents and I are not stuck representing solely the product at the bottom? Absolutely.
Now the cheapest is not always the best, but in the previous scenario I believe that it is very close to the best. The lowest cost term product is fully convertible—for many years into the future—to a plethora of fabulous permanent products that are also top of their category (GUL for example). Plus, the cheapest term in my scenario is offered by an A+ company and that company will likely provide a great underwriting offer.
To be clear, a product being bad or good oftentimes has nothing to do with the quality of carrier that offers the products. Occasionally, product attractiveness with XYZ company has to do with whether the company even wants to be a player in that product line or not. Great companies may decide they don’t want the lowest term rates, or the highest paying MYGA rates for example. To that point, the company that has the worst pricing in my example above is a fabulous A+ rated carrier that has been around for over a century and is a household name. So again, a carrier having a good or lousy product is not necessarily a function of how good the carrier is. This goes against the belief I had in my 20s that “if I represent one company that is rock-solid then their annuities, life, long term care, mutual funds, etc. must also be of solid value to my clients.”
My point here is, whether it’s the price of term coverage, underwriting situations, guaranteed payouts on annuities, cash accumulation potential on IUL, etc., the spread between the worst and the best is huge. Make sure you have a wide peripheral view of the products that exist. I am very thankful that in independent distribution we have almost the entire world at our disposal.
Technology is Key
Speaking of term quote engines, my second observation is: Technology is key in independent distribution. When you have the entire world of products at your disposal, narrowing down the products based on quantitative items like price or GLWB payout levels on annuities is important. Conversely, if you had access to just one product, very little technology is required. You have what you have!
There are great term quote engines that your IMO can likely provide you with to help you narrow down the prices. There are also great annuity engines out there that let you filter down to the highest paying GLWB annuities, highest caps, highest participation rates, etc.
With optionality of products also comes complexity, at least unless you have good technology to sift through which carriers want to truly be a player in that product line and which carriers offer that product basically as a concession to their distributors.
Again, a good marketing organization/BGA can oftentimes provide these technological tools for you, or at least run the numbers for you.
Product Training and Knowledge
In the previous two sections I spoke largely about numbers, price, payout levels, etc. Naturally, there is much more to these products than just the numbers. Well, “qualitative” is just as valuable as “quantitative” when it comes to most financial products. There is more to it than just numbers. As I’ve said a million times, “Cost is an issue only in the absence of value.” Many times that value is in the various bells and whistles on a product.
In essence, the previous considerations can be utilized as a starting point to identify the pricing dynamics of the products, but then it is important to understand the other items that go beyond the ledgers and quote engines.
Examples of these items might be:
- Is the term convertible?
- Will the company give a good underwriting offer? Yes, carriers can differ significantly on various health conditions and the health rating offered.
- Does the IUL have relatively minimal moving parts? (Loan rates, caps, spreads, bonuses, etc.)
- Is the whole life policy direct recognition or non-direct recognition?
- Is the long term care policy indemnification or reimbursement?
- Does the annuity have any liquidity?
- Does the GLWB have a nursing home benefit?
- Although the GLWB payout is great, what is the accumulation potential/death benefit?
- What is the company’s history with renewal rates/caps/etc.?
These are just a handful of “qualitative” topics for various products that you and/or your IMO should be aware of. Because sometimes the best all-around product may be the cheapest, but sometimes the second or third product from a numbers standpoint is the best.
Awareness around each product’s qualitative components emphasizes how important your training and knowledge is—my third observation. The importance of associating with entities (carriers, IMOs, partners) that will offer you this training and knowledge is just as important as the products and the technology themselves.
Don’t have the time to study all of these features? Then partner with an IMO that is already an expert in these areas and can save you time by pointing you in the right product direction.
If you have the optionality of product, the technology, and the knowledge, you will never be “outproducted” in independent distribution. Although product is just one part of the equation in working with your clients, it is an important part of the equation.
If this article resonates with you, join us at our upcoming Lunch and Learns in Chicago (Nov. 15), Des Moines (Nov. 16), and Minneapolis (November 17). Even if it doesn’t resonate with you, join us anyway! Visit http://www.cgfinancialgroupllc.com/events for details!
The #1 Social Security Mistake I See
I think almost every financial professional should be somewhat astute with Social Security. After all, Social Security is one of the very few things that almost all of our prospects and clients will have in common from a financial standpoint. Almost every one of them will be filing for their Social Security benefits eventually, and therefore doesn’t it make sense for all of us to be able to field those questions if they come up?
I know there are some folks that believe that wealthy clients do not care about optimizing and maximizing their Social Security. That may be true for some of them, but I will say, when our agents and I conduct Social Security seminars, if we have 20 consumers in a room a few of them will be millionaires. So, although I do agree that the ultra-wealthy may view Social Security as a rounding error in their overall portfolios, I would adamantly say that there are plenty of affluent consumers that do care about optimizing their Social Security.
With that, I wanted to share with you the number one mistake that many consumers make or intend on making when it comes to filing for Social Security. This mistake is purely because of their misunderstanding of how Social Security works.
First off, let’s step back and talk about “Delayed Retirement Credits.” We all know that when you delay filing for Social Security retirement benefits past full retirement age, you get a .66 percent increase per month that you delay past that point. So, that comes out to be eight percent per year in delayed retirement credits. This means that if my full retirement age is 67, then by delaying until age 70—which is the latest I can delay while getting delayed retirement credits—then I will have a 24 percent increase on my Social Security benefit permanently! In a time where everybody is living longer, if you do the math over your expected lifespan, delaying often makes sense. (Note: Good Social Security software will calculate and compare the total amount of Social Security benefits you would get over various “lifespans” and different filing dates.)
So, where is the mistake that I see many consumers make or intend to make (until they speak with me)? It has to do with spousal benefits. What I just explained regarding delayed retirement credits is if a Social Security recipient is going to be taking Social Security based off of their own earnings record. However, if you are in a situation where you are taking spousal benefits based off of your spouse’s earnings record, delayed retirement credits do not apply.
Let’s take a 63-year-old couple who is trying to decide when they should file for Social Security. Because they were both born in 1960, we know that their “full retirement ages” are age 67 (per the Social Security tables). He has made a ton of money over his lifetime, and she has made very little. This hypothetical is not Charlie being a stereotypical pig but is actually very common in families—like mine. Oftentimes she has stayed at home with the kids and therefore has not earned much while her spouse continued to work to bring home the bacon! By the way, we all know who had the toughest job, and the most important job. Her! Well, the Social Security administration recognizes this dichotomy and therefore says that if 50 percent of one of the spouse’s full Social Security amount (Primary Insurance Amount) is more than her full retirement amount which is based on her own earnings record, then she can take her Social Security benefits based off of 50 percent of his full retirement amount. For instance, if his full retirement benefit is $3,000 per month based on his earnings record and hers is $1,000 per month, then you can bet that she will be looking to leverage the spousal benefit, which would come out to $1,500 per month. To be clear, I am saying “full retirement amount” to simplify the conversation. Technically, it is the “Primary Insurance Amount,” which is defined as the amount of Social Security benefits one would receive based on their earnings record at full retirement age.
So, for our 67-year-old couple it is a common strategy for him to delay filing until age 70 in order to get that 24 percent step up in his benefits. If his “Primary Insurance Amount” was $3,000 (at full retirement age) then by waiting until age 70, he would get $3,720 (not including COLAs) for the rest of his life. It may also be natural for her to also want to delay until age 70 so that she gets those 24 percent step ups on her spousal benefit. She might think that those eight percent delayed retirement credits would be on top of her $1,500 per month benefit. Wrong, Wrong, Wrong.
As I have told several consumers, spousal benefits do not get those delayed retirement credits like they do if it was otherwise based on her own earnings record! Hence, if she delays until age 70, effectively what she has done was left three years of benefits on the table. Again, this is because there is no reward for waiting until age 70 when it comes to spousal benefits. Her spousal benefit at age 70 would still be $1,500 (not including COLAs). Again, she left three years of benefits on the table. Wouldn’t that be a shock to her once she turned age 70 and saw that she only got $1,500?
More than likely, the ideal strategy would be that she files at her full retirement age (67) so that she does not leave those three years (ages 67-70) of Social Security benefits on the table. However, remember that, unless her spouse has filed for his benefits, she does not get the spousal benefit at least until the time comes that her spouse files.
So, because our hypothetical guy won’t file until age 70 in my example, then what benefit will she get between the ages of 67 and 70? The benefit is based on her own earnings record, $1,000 per month (not including COLAs). Then, when he files at age 70, her benefit will bump up at that time to reflect the spousal benefit.
What have you done by alerting this couple that spousal benefits do not get delayed retirement credits? You have allowed her to not leave $36,000 ($1,000/month times 36 months) on the table!
(Note: We will be displaying some great Social Security software that agents can utilize at our Chicago, Des Moines, and Minneapolis Lunch and Learns in November. If this interests you, inquire with us about registering at info@cgfinancialgroupllc.com.)