Lewis W. Merrow

As a financial services advisor, you integrate the benefits of life insurance’s death benefit protection into a plan for your clients and help provide financial peace of mind to families and businesses. A life insurance policy is truly a unique product, providing guaranteed death benefits at a difficult time. When you use a permanent life insurance policy that accumulates cash value, you also can provide living benefits to your clients by guaranteeing them liquidity—use and control of these values in the event of an emergency, opportunity or retirement. 

Recent studies show that nearly half of all Americans (48 percent) admit they aren’t confident in their knowledge of investment and financial products and that they want help with retirement planning.* For four in 10 Americans, household finances are the cause of substantial stress, and one in five admit it’s a source of daily worry.* This is understandable since 60 percent of households say they would have to borrow money to pay a $500 car repair bill** and 40 percent of Americans admit they have no retirement savings.* 

Features vs. Benefits
When I first entered the life insurance industry as an agent, my general manager (who also happened to be my Dad!) pointed out to me that I was an expert on the “features” of life insurance products, but that I needed a better understanding of the “benefits” they could provide. It was a distinction that helped shape my focus, approach and understanding about the true value of life insurance to individuals, families and businesses.

Yes–it’s important to know about the details of the products you sell. However, over the years I’ve had the opportunity to work with the best producers in the business and have learned that a common value they share is that they really embrace (and know how to effectively communicate to potential clients) the true value of life insurance by understanding the benefits too.

For the purpose of this discussion I will focus on participating whole life. Over the years when I’ve been asked, “What’s the best policy?” I always respond that it’s the one that’s in force when your client or beneficiary needs it. So if you’re recommending one of the other array of products, that’s great too—because you’re serving your clients. 

The key features of participating whole life insurance are guaranteed premiums, guaranteed cash value, guaranteed death benefit, guaranteed nonforfeiture provisions, and a choice of dividend options. The benefits are that, because of these guarantees, clients have certainty, peace of mind and flexibility throughout life. 

One of the misconceptions I often hear about whole life insurance is that it’s not flexible. This is a conversation I always enjoy having, because I’m convinced that whole life insurance is very flexible and has contractual provisions that guarantee its flexibility. For example, while dividends are not guaranteed, once an insurance carrier declares and pays them these dividends are guaranteed. So let’s look at some features and benefits about dividends:

• Feature: Dividends increase cash value.
  Benefit: Your clients have more money for an emergency, opportunity or as a supplement to retirement income.
• Feature: Dividends buy paid-up additions, which increase the death benefit.
  Benefit: The increase can result in more funds being available for chronic and terminal illness (if an accelerated death benefit rider for chronic and terminal illness is available on the policy). This can help with the impact of inflation.  

Another feature of most participating whole life products is the contractual nonforfeiture provisions they provide. One provision that can help benefit your clients if and when their needs change is a reduced paid-up (RPU) option. By exercising the option to put their policy on a reduced paid-up status, policyowners could stop paying premiums on their policy but still enjoy:

• A lifetime guaranteed death benefit;
• Acceleration of the death benefit for chronic or terminal illness (if the policy provides an accelerated death benefit rider for chronic or terminal illness);
• Increased cash flow because the policyowner no longer has to pay premiums; and,
• Access to available cash value through policy loans.

The benefits of these guaranteed cash values are, well, a big deal! In fact, they can provide life-impacting benefits to your clients as their needs change because they provide them liquidity, use and control of their money and–in essence–their lives! 

Your clients will have ready access to cash in the event of an emergency or opportunity, or for college planning, or to supplement retirement income. The benefits are as limitless as the needs of your clients. 

When policyowners borrow against their whole life policy, they aren’t subject to a credit check, they usually get their money in a few days, and there’s no fixed repayment schedule. Loan repayment is highly recommended, though, to ensure cash values continue to grow at the guaranteed rate and are available again for future use. Participating whole life insurance offers all these guaranteed benefits and financial liquidity! 

Building a Bridge to Retirement
One area of concern for many people today is planning for retirement. Typical questions include:

• Will I have enough money to retire?
• How much will I have to spend for health care?
• Can I leave a legacy to my children, grandchildren or a charity?

This is where you can design benefits using the features of whole life insurance. 

Most agents I work with advise clients that if they can afford to wait to take Social Security benefits, they should defer taking them until age 70. By deferring benefits until age 70, their monthly retirement income will be approximately 76 percent higher than taking benefits at age 62. By waiting, not only will your clients get more income, but their spouses will also get a proportionately higher survivor benefit. So it’s logical that if they can afford to wait, they should wait. Whole life insurance can help you build a bridge to help your clients defer taking Social Security.

Most whole life products are designed to fulfill specific client needs. For example, some products may build death benefit quickly while others emphasize the fast buildup of cash value. Assume you have a male client in his mid-forties who buys a participating whole life policy designed to produce a fast-growing death benefit. If he selects the dividend option of paid-up additions, the benefits to him are that he has immediately created a legacy for his loved ones and/or charities of his choice and is building death benefit and cash value. 

If your client pays the premium on his policy until age 65, and then decides to retire early due to job or health situations, he could reduce pay-up (RPU) the policy and change his dividend option to cash. This would increase his cash flow by the amount of the premium. He also could take an income from the policy in the form of withdrawals at ages 65, 66, 67, 68 and 69. And then, at age 70, he could stop the withdrawals and start taking his social security benefits. In this example, his whole life policy could act as a bridge, or in other words his “permission slip,” to defer taking Social Security until age 70 so he could receive the maximum Social Security payouts for himself and his spouse. These withdrawals also could be used to help offset medical care costs, and the policy’s face amount could still provide a legacy. If the policy has an accelerated death benefit rider for chronic and/or terminal illness, it will also provide benefits for him should he need them.

In fact, it’s never too early to start planning for retirement. Imagine you have a client in his twenties or thirties. If he buys a participating whole life policy designed to provide early, fast-growing guaranteed cash value, in addition to the peace of mind the guaranteed death benefit will provide him and his loved ones, throughout his life he can enjoy access to the cash value in his policy through policy loans. 

Other benefits may include:

• The right to put his policy on RPU and change his dividend option to cash at age 65.
• If he RPUs at age 65, he might be able to create new disposable income in the form of the annual dividend earned and the premium saved.
• Over the years, his disposable income may continue to grow as the dividends in his policy grow.

In the book, Words Can Change Your Brain, by Andrew Newberg, M.D., and Mark Robert Waldman, they pose the question, “What do clients want?” Their answer? Clients “want to be listened to and to be heard…with the greatest accuracy and in a manner that generates mutual respect and trust.” Listen to your clients and they will help guide you on how best to advise them.

Understanding the “benefits” of what a life insurance policy can accomplish will help you address the “why” questions potential clients often ask. It could also help you increase your sales and better serve your community. 

References:
*LIMRA, MarketFacts Quarterly, No. 3, 2017.
**Hebeler, Henry K., “6 Reasons Why Young People Must
Save Much More,” MarketWatch, 2 Dec. 2016.

I followed my father, who had followed his father, into the life insurance business. One of my favorite pictures is of my grandfather, who was an agency manager, speaking to a group of agents in 1950. He was standing by an easel with a large pad of paper (no PowerPoints back then!) pointing to these words:

Die too soon

Live too long

Get sick or hurt

While most things seem to have changed since that day in 1950 when my granddad was training agents, I’m convinced that some things haven’t. No matter how we present, package, design or promote life insurance—the fundamentals remain unchanged. Our job is to help remove the uncertainty by protecting families and businesses, and I believe that today we are better positioned to do this because of the variety of living benefits that can help us truly design solutions that serve our clients with a more holistic approach.

I’m often asked by agents and consumers “What’s the best type of policy to own?” My answer is always, “The one that’s in force when you die.” In this article, I will focus on a permanent participating whole life product as a frame of reference.  Before looking at the riders that can help your clients, it may be helpful to take a moment and remember the inherent advantages of a permanent life insurance policy. A recent report by LIMRA¹ shows that whole life is now 34 percent of market share and seems to have been “rediscovered”.  A reason for this success revolves around the word “guaranteed”:  your clients can be assured of guaranteed premiums, guaranteed cash values, guaranteed death benefits and guaranteed nonforfeiture provisions.

In our whipsaw economy, people derive a lot of comfort from hearing that they can have a big part of their financial lives “guaranteed”.  However, their initial reaction might be, “What does a permanent life insurance policy have to do with living benefits?” If we stop and think about it, there is no other financial product that can help with all of the lifelong events that happen to individuals, families and businesses.  

One of the first “living benefits” of whole life is the guaranteed cash values of the policy—the ability for your clients to have liquidity, use and control of their money in the event of an emergency, opportunity or as a retirement income supplement. Cash values, which accumulate on a tax-deferred basis, can be utilized through policy loans and are available without credit checks or delays, so your clients can access them for their living needs: buying cars, paying for college, taking advantage of business opportunities, etc. In essence, your clients have the comfort of knowing that the money is there for them. And while dividends are not guaranteed nor required by law, if you use participating whole life as the funding solution, then the potential benefit to your clients of receiving dividends is increased.

I could go on for pages about the many potential “living benefits” that are available with a permanent life insurance policy. Examples include nonforfeiture contractual provisions, which can help down the road so insureds don’t have to give up their death benefits; dividend options, which allow flexibility of cash accumulation; and tax benefits (accumulation tax-deferred, income-tax-free death benefits, and distributions can be arranged tax-free).

College planning is an important concern for many families, and using whole life insurance can help solve this very real and financially draining situation.  To receive financial assistance, the student must complete the FAFSA (Free Application for Federal Student Aid) form, and while money in stocks, CDs, bank accounts and 529 plans are a part of the formula—permanent life insurance is not—making it another valuable “living benefit” for your clients.

I also consider whole life’s death benefit as a “living benefit” too. It guarantees that money will be available to beneficiaries income-tax-free (if structured appropriately) when needed most. I could elaborate at length about the ways the death benefit is really a “living benefit” too, from freeing beneficiaries of the worry of debt, mortgages and income, to being used as a way to perhaps make retirement election decisions that result in more income.      

In addition to the policy’s guarantees, the innovative and flexible riders and benefits available today can help us broaden the scope of the “die too soon/live too long/get sick or hurt” discussions. Let’s look at some of the key living benefit options available for you in plan design.

A recent innovative living benefit is a chronic/terminal illness rider. A demographic reality is that the population is aging—we’re living longer, which is great news. A downside is that it is estimated that nearly 50 percent of the U.S. population suffers from at least one chronic illness and that one in four adults has two or more chronic health conditions.² Therefore, when chronic/terminal illness riders are added (often at no premium cost) to a life insurance policy, the rider can strengthen long-term financial objectives for your clients. It also helps with the “get sick or hurt” and the “live too long” needs, since the longer we live, the greater our chances become of developing chronic or terminal illnesses. 

If you include a waiver of premium rider, the policy can be further enhanced and help with the “get sick or hurt” situation. Should the insured suffer a qualifying disability, then he or she, or his or her family or business (if a business owner), can be assured that these cash values and dividends will continue so the insured can focus on getting better. 

Your clients face a daily barrage of financial misinformation, including the advice of self-recognized “experts”, and they often have to deal with financial minefields throughout their lives. Therefore, they truly need your guidance. When you couple the array of living benefits with the core characteristics of a permanent policy, you can put your clients in the driver’s seat to clearly design a customized solution for their many lifelong financial needs.

A recent LIMRA study asked consumers about their thoughts on life insurance. The results showed that while most people recognize the value of it, 75 percent said that they were not likely or were only slightly likely to buy any within the next year. The main reason they gave was that the benefits don’t warrant the expense. What a great opportunity to show your prospects that by adding some of the many “living benefit” riders (while reminding them of the “living benefits” that are a guaranteed part of a permanent policy), the long-term benefits of whole life insurance really do outweigh the short-term expense.

Footnotes:
1. LIMRA’s U.S. Retail individual Life Insurance Sales Report, Third Quarter 2015.
2. Centers for Disease Control and Prevention, 2012 update.