Thursday, March 28, 2024

Auld Lang Syne: A New Years’ Resolution

Happy New Year! It is now 2024, and it promises to be a tumultuous year in our country, as well as the world, as presidential politics, two international wars, criminal trials, inflation, rising costs, and the specter of long term care fill the headlines.

As 2023 came to an end, we lost some of our country’s most notable and influential non-elected leaders. Former Secretary of State and National Security Adviser Henry Kissinger passed away at the age of 100, still relatively healthy and presumably active. In May of 2023, he celebrated his 100th birthday and in interviews around his birthday, Kissinger said that many world leaders—including Chinese President Xi Jinping and Russian President Vladimir Putin—would most likely answer his call were he to telephone them unscheduled. Most recently, Dr. Kissinger focused his attention on the implications of artificial intelligence. He was a frequent guest with media and on panel discussions, writing, and traveling abroad. A remarkable life lived to the fullest until the end.

The same cannot be said for retired Supreme Court Associate Justice Sandra Day O’Connor who also passed away in December at age 93, suffering from advanced dementia.

Justice O’Connor broke the glass ceiling for a great many women. She was the first woman appointed to the Supreme Court of the United States, elevated to the Court by Ronald Reagan in 1981. Her early years were often referred to as the O’Connor Court because she cast the pivotal vote on several cases. This was only two years before I began my own law school experience, and the cases that we read during that time had long lasting impact for decades.

O’Connor was an amazing person in so many ways. She graduated from high school at age 16, went to Stanford University and was only 19 when she started law school as one of just five women in the class. Former chief justice William Rehnquist was a classmate and they briefly dated.

O’Connor graduated near the top of her class but was rejected for most law firm jobs. A Los Angeles-based firm offered a job as a legal secretary, but she declined and eventually found work in the San Mateo County, California, county attorney’s office where she initially began working for free.

What a lot of people do not know or remember is that Justice O’Connor left her lifetime appointment on the bench in 2006 after serving twenty-five years because of the health of her husband. In 2005, O’Connor’s husband was suffering from Alzheimer’s disease, and when the ailing Chief Justice William Rehnquist told her that he was putting off his retirement, O’Connor decided that, with her husband’s health declining, she could not wait and risk the possibility that the court would have two vacancies at once.

As it turned out, that’s what happened anyway. O’Connor announced her retirement, and the chief justice died weeks later. She stayed on for another six months while confirmation hearings proceeded, and in a cruel twist of fate, her husband’s health took such a precipitous downward turn that he had to be placed in a facility where he eventually died. We do not know if they had a long term care insurance policy, nor do we know the true havoc his illness caused financially or emotionally.

As we have observed on countless occasions, O’Connor’s retirement was the last step in a long balancing act between family and career. We often talk about the impact that the need for long term care in the home has on unpaid family caregivers. Aside from the physical, emotional, and mental toll, there is of course the professional impact. The caregivers often have to miss hours at work to accommodate doctors’ appointments for their loved ones, as well as other demands on their time. Quite often they lose out on promotions or may even suffer the indignity of losing their careers.

Sandra Day O’Connor gave up lifetime tenure on the Supreme Court—a job she loved and one with extraordinary power—to care for her husband of 52 years as he deteriorated from dementia.

That decision, in 2005, began a poignant final chapter of her extraordinary life. Her choice, at age 75, reflected her attempt to integrate the often-conflicting demands of professional achievement and family expectations in a country still adapting to changing gender roles and an aging population.

Justice O’Connor had hoped to care for her husband at their home in Arizona. But when that soon became untenable, she moved him to an assisted living facility. He was unhappy about the move, but then something remarkable happened: He found romance with another woman who was a patient there.

And Justice O’Connor, who not long before had been the most powerful woman in the country, was thrilled because he was content and comfortable again—even like “a teenager in love,” as their son Scott put it. The justice kept up her regular visits, beaming next to the happy couple as they held hands on a porch swing.

John O’Connor died in 2009, at age 79. In 2018, Justice O’Connor announced she was formally stepping back from public life because she, too, had dementia, most likely Alzheimer’s.

Then 88, she shared the news in an open letter to “friends and fellow Americans,” urging them to put “country and the common good above party and self-interest.” She wrote that she would continue living in Phoenix, where John had been, “surrounded by dear friends and family.”

“While the final chapter of my life with dementia may be trying, nothing has diminished my gratitude and deep appreciation for the countless blessings in my life,” she wrote. She hoped that she had inspired young people toward civic engagement, “and helped pave the pathway for women who may have faced obstacles pursuing their careers.”

Retired Supreme Court Justice Sandra Day O’Connor, the first woman to serve on the court, died of complications related to advanced dementia, probably Alzheimer’s, and a respiratory illness, the court announced. She was 93 years old. We can only imagine what her last years were like for her, her family, and those who cared for her.

We continue to live longer and age as a Society. It is nonsensical to believe that we are going to escape this world without needing some form of assistance. The COVID-19 pandemic drove up the cost of care like we have not seen in several years. The very idea that we can afford to self-fund this critical need is more nonsensical than ever before. It is incumbent upon all of us, regardless of the relationship we enjoy with our clients, to be educating and making them aware of this great risk we all face.

To this end, every January, we escape the cold and snow and head to my “happy place” in Cabo San Lucas. I go with the intention that I am going to work out daily, read voraciously while soaking up the rays, eat exceptionally well on a diet high in seafood, see some sights like the original Hotel California in Todos Santos, about an hour away, and talk to people in one of the two infinity pools about long term care insurance. What? Yes, I go on holiday fully prepared and mindful that I am going to advocate for the importance of long term care insurance. To this day my children take exception to this last point, but, when they were in the LTCI business with me they always welcomed the referrals generated–essentially policies waiting to be written—which I always returned from my holiday and shared with them.

How were these “sales” made in the pool or around the firepit after dinner? Very simply, I opened my mouth. When fellow vacationers would ask me the proverbial “What do you do for a living?” I remain very quick to say that I help people avoid disaster in the latter years of their lives. This always prompts the desired follow-up question of how I do this, and we talk about the growing need for long term care in our aging society. By asking about their own family experiences (which are becoming more and more frequent), it is becoming easier and easier to transition from identifying need to personalizing it and projecting their own potential future needs for these services, and to talk about the financial, physical, and emotional toll a lack of preparedness will have on their families.

Clearly, I am not afraid to talk about long term care insurance or Medicaid Compliant Annuities. Just as important, I have reached a point in my career where I am simply an advocate for these critically needed products. The industry has been very kind to me and my family, and I can honestly say that I do not care if these people ever purchase long term care insurance, but their failure to do so will not be because they did not hear about it from me. It has been very liberating to achieve this status, and to truly be able to dance like no one is watching. I have no fear or embarrassment or reticence in talking about what we do in an effort to help people protect themselves against this deadly age and health related tsunami that lurks offshore.

My New Year’s resolution for this year remains the same as it has been for any number of years now: To raise awareness and to educate people on this need in their lives, and to help them protect themselves while they have the requisite health and financial options available to them. I hope you will make this a resolution of your own. Whether you are an insurance professional, financial advisor, or attorney, we all share in this grave responsibility. P.S. The costs associated with these “marketing events’’ conducted in the pool are fully deductible according to the Internal Revenue Service.

7702(b)Or NotTo Be

Or Why 7702(b) Matters for Long Term Care Planning

No, this is not a dissertation on Hamlet Act 3 Scene 1, although considering whether a product meets the IRC section 7702(b) guidelines can seem like it.

Let’s set the scene and provide the backstory. Some states, like Washington, are considering offering a minimal long term care benefit funded by a payroll tax. California, with its 16 million strong workforce, is also considering this publicly funded benefit. Rumor has it (via the feasibility study) that the legislation may allow an exemption from the payroll tax if the employee already owns private long term care insurance. Like Hamlet, it’s important to understand what is “to be or not to be” by looking at the product types that may qualify for an exemption. In this article we explain what section 7702(b) is, how it works, how it differs from chronic illness riders (IRC 101(g)), and the advantages and disadvantages of each.

What is Section 7702(b)?
Not all long term care insurance policies and riders are created equal. Some may offer more benefits, more flexibility, and more tax advantages than others.

Section 7702(b) is a part of the Internal Revenue Code (IRC) that defines what constitutes a qualified long term care insurance contract and how it is treated for tax purposes. According to Section 7702(b), a qualified long term care insurance contract must meet certain requirements, such as:

  • It must provide only coverage of qualified long term care services.
  • It must be guaranteed renewable.
  • It must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed.
  • It must provide that refunds (other than refunds on the death of the insured or complete surrender or cancellation of the contract) and dividends under the contract be used only to reduce future premiums or increase future benefits.
  • It must meet certain consumer protection standards set by the National Association of Insurance Commissioners (NAIC)

Qualified long term care services are defined as necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services that are:

  • Required by a chronically ill individual; and,
  • Provided pursuant to a plan of care prescribed by a licensed healthcare practitioner.

A chronically ill individual is someone who has been certified by a licensed health care practitioner as:

  • Being unable to perform at least two activities of daily living (such as eating, bathing, dressing, toileting, transferring, and continence) without substantial assistance from another individual for at least 90 days due to a loss of functional capacity; or,
  • Having a severe cognitive impairment (such as Alzheimer’s disease or dementia) that requires substantial supervision to protect his or her health and safety.

Why is Section 7702(b) Important?
Section 7702(b) is important because it provides certain tax benefits for qualified long term care insurance contracts. Specifically:

  • The premiums paid for qualified long term care insurance contracts are treated as medical expenses and may be deductible (subject to certain limits) if the taxpayer itemizes deductions on Schedule A.
  • The benefits received from qualified long term care insurance contracts are generally excluded from gross income as amounts received for personal injuries or sickness.
  • The distributions from life insurance policies or annuities that have qualified long term care insurance riders are also excluded from gross income (up to certain limits) if they are used to pay for qualified long term care services.
  • Business owners may be able to take a first-dollar tax deduction as a business expense on some or all of the qualified long term care insurance premiums for themselves or employees.
  • Individuals may be able to withdraw premiums as a qualified medical expense pre-tax from a health savings account (HSA), health reimbursement arrangement (HRA), or medical savings account (MSA) annually up to an age-based limit.
  • States considering a payroll tax to fund a minimum long term care benefit may exempt individuals from the tax if they own a long term care policy that meets the 7702(b) requirements.

These tax benefits can make qualified long term care insurance contracts more affordable and attractive for consumers who want to protect themselves from the high costs of long term care.

What are 7702(b) Qualified Riders?
Besides a 7702(b) traditional LTCI policy, a 7702(b) rider is an add-on or feature to a life insurance policy or an annuity contract that provides long term care benefits in accordance with Section 7702(b). It allows the policyholder to access some or all the death benefit or cash value of the policy or annuity while he or she is alive if he or she becomes chronically ill and needs long term care services.

A 7702(b) rider can offer several advantages over a stand-alone long term care policy, such as:

  • Providing multiple benefits in one product: Life insurance/annuity plus long term care coverage.
  • Avoiding premium increases: Once the rider is purchased, the premium is often fixed and guaranteed not to increase unless the base policy premium increases.
  • Preserving some value for heirs: If the rider benefits are not exhausted by a long term care event.

How do 7702(b) riders work?
A 7702(b) rider allows you to access some or all your life insurance death benefit or annuity value while you are still alive if you meet certain conditions. Typically, these conditions include:

  • Being certified by a licensed health care practitioner as a chronically ill individual. This means that you are unable to perform at least two activities of daily living (such as bathing, dressing, eating, toileting, transferring, and continence) without substantial assistance for at least 90 days; or you have a severe cognitive impairment that requires substantial supervision for your health and safety.
  • Satisfying an elimination period. This is a waiting period (usually between 0 and 180 days) before you can start receiving benefits from your rider.
  • Submitting proof of claim and receipts for eligible expenses. You need to provide evidence that you have incurred qualified long term care expenses that are covered by your rider.
  • Depending on the type and design of your rider, you may receive benefits in one of the following ways:
  • Reimbursement: You receive a monthly benefit equal to the actual amount of qualified long term care expenses that you incur up to a maximum limit.
  • Indemnity: You receive a fixed monthly benefit regardless of the actual amount of qualified long term care expenses that you incur if you meet the eligibility criteria.
  • Cash Indemnity: You receive a monthly cash payment if you meet the eligibility criteria.

The benefits from your rider will reduce your life insurance death benefit or annuity value by the same amount. If you exhaust your entire death benefit or annuity value through your rider benefits, your policy or contract will terminate, and no further benefits will be payable.

Advantages and Disadvantages of 7702(b) Riders

Advantages of 7702(b) Riders:

  • Tax advantages: The benefits from your rider are generally income tax-free if they do not exceed certain limits set by the IRS.
  • Your premiums for your rider may be deductible for income tax purposes if they meet certain requirements.
  • Certain products offer riders with an extension of long term care benefits that significantly exceed the original death benefit.
  • Certain products offer features that significantly enhance the long term care coverage like guaranteed compound inflation protection to grow the long term care benefits annually on either the base coverage, the rider, or both.
  • Flexibility: You can use your rider benefits for any qualified long term care expenses regardless of where they occur (at home, in a facility, etc.). You can also choose among different types of riders depending on your needs and preferences.
  • Protection: You can protect yourself from the rising costs of long term care services without having to buy a separate stand-alone policy. You can also preserve some assets for your beneficiaries if you do not use up all your death benefit or annuity value through your rider benefits.
  • No use-it-or-lose-it risk: Products allow the unused portion of the death benefit to remain intact and paid to the beneficiaries or will even pay a residual death benefit in addition to long term care benefits being used in full.

Disadvantages of 7702(b) Riders:

  • Cost: Adding a rider to your life insurance policy or annuity may increase your premiums or fees significantly depending on factors such as age, health status, type, and amount of coverage.
  • Qualification: Not every life insurance or annuity policy offers a long term care rider and some riders have limited health underwriting.
  • Premium payment flexibility: Several products require premiums to be paid over a shorter period of time such as a lump sum or over 10 years to get the best value for the long term care benefits.

Chronic Illness Riders: How 101(g) Riders Differ from LTC Riders
There is confusion regarding how a long term care rider differs from a chronic illness rider, a rider that does not qualify as a long term care rider under section 7702(b). A chronic illness rider is a type of rider that complies with IRC section 101(g). They can be added to a life insurance policy to help pay for permanent qualifying events. More recently, some 101(g) products allow for payments even if the chronic illness is not expected to be permanent. A chronic illness rider is like a long term care rider, where two out of six Activities of Daily Living (ADLs) or severe cognitive impairment can trigger benefits, and a licensed health care provider—such as your doctor—will have to certify this.

  • A chronic illness rider may provide some flexibility over a long term care rider, such as:
  • Less extra rider premium: The extra premium for the chronic illness rider may be minimal or already included in the base life insurance policy. However, often the result of the no extra rider premium products is a reduced death benefit.
  • Better life insurance features: Often 101(g) products offer greater death benefits, better cash value accumulation, and other features desirable for life insurance protection.
  • Speed-to-market: For carriers, the 101(g) filing process may be quicker, and agents may not have to take additional long term care continuing education to offer these products.

A chronic illness rider may have drawbacks, such as:

  • No standard benefit language: Chronic illness riders vary widely in their contractual definitions and special care must be paid to whether permanency of disability is required, the definition of chronic illness that results in claim eligibility, whether the death benefit is discounted, and many other contractual details.
  • Limited benefit amount: The 101(g) benefit amount may be capped at a percentage of the death benefit. For instance, an acceleration of two percent to five percent per month up to a total of 50 to 90 percent of the death benefit.
  • No inflation protection: The benefit amount usually does not increase with inflation and may lose purchasing power over time.
  • Not marketable as long term care insurance: Chronic illness riders are not allowed to be called long term care insurance and may be excluded for the purposes of the exemption from a potential payroll tax depending on a state definition.

Wait, what?

This is where the confusion happens. States allowing for an exemption from a payroll tax, like Washington and possibly California, may require that a product meet the 7702(b) requirements. One of the reasons for requiring a policy to comply with the 7702(b) guidelines is to make sure that it offers sufficient and suitable coverage for long term care needs, and that it matches the state’s goals for its own program. The goal being to reconcile the exemption criteria with the federal standards, and to prevent possible conflicts or confusion between state and federal tax rules.

“To Be or Not to Be…?”
Choosing between a long term care rider and a chronic illness rider depends on several factors, such as health status, financial situation, tax bracket, and personal preferences. But when considering a product that will qualify as long term care insurance, particularly for tax purposes, make sure that it is compliant with IRC section 7702(b). For that is, indeed, the relevant question.

Dear Santa, All I Want For Christmas Is…

Further evidence shows that the holidays are coming earlier and earlier and are no longer dependent on the calendar. It is not even Halloween, and yet the aisles in the retail stores are already packed with Christmas trees, decorations, and other yuletide offerings. Both my regular [snail] mailbox and email account are jam packed with holiday catalogs offering stupendous savings. The Sirius XM airwaves are replete with many channels that are offering only holiday tunes. I see more Amazon and FedEx delivery trucks in my [small] neighborhood than I do regular cars. Did I miss Thanksgiving somehow? It used to be that Halloween ended, Thanksgiving took over, and Black Friday was the beginning of the Christmas season. The decorations in my home that made my house seem as if I were living in a Hallmark store have long followed this schedule as well.

Like the retailers who are actively pursuing their fair share of the holiday dollars that will be spent by you and me, it is never too early for us to sit with our clients and advise them on the one critical issue that most have ignored in terms of their future financial security: What is their plan for long term care?

Under the guise of asking “What’s Your Plan?” we can address the eventuality of their needing long term care, not outliving their money, maintaining their independence, avoiding government assistance and welfare, ensuring that they have access to the quality of care they will surely desire, and ensuring that they do achieve their vision for their own golden years. This is the time that we can be the Ghost of Christmas Present.

The odds of needing this long term care increases each year as our society continues to age in place. The most recent statistics still reveal about a 70 percent probability for anyone over the age of 65 requiring an average of three years of care before they leave this life. For couples, this statistic rises to a very sobering 90 percent that one or both can expect to require this care. With annual costs continuing to soar into the low six-figures, it is a concern that needs to be factored into annual reviews with clients regardless of whether you are a practicing attorney, financial advisor/planner, or insurance professional. As we have written about on other occasions, the cost of not addressing this issue while the client has the requisite health and wealth with which to purchase this invaluable coverage can be devastating to both the client and their family, but also poses a tremendous liability risk to the professional who elects to avoid the topic.
The Ghost of Christmas Past may remind them of other family members who required long term care. I can remember many a holiday season distinctly colored by the need to provide care for a grandparent or other family member. Even under the best of conditions, talk about a buzz kill. As we continue to age as a society, it is becoming more and more common to interact with clients who have themselves encountered a long term care need in their own family. We may have to help them identify these instances and explore why Grandpa had to come and live with the family after Grandma’s death because he could not be left alone, or the level of care that Mom required as her health or cognitive state declined. Whether it was informal care by an unpaid (family) caregiver in the home, adult day care in a local facility, or the expensive care of an assisted living facility (ALF) or skilled nursing facility (SNF), it is often up to us to “connect the dots” and to illustrate that all these examples are the long term care of which we are speaking.

Keep in mind that insurance companies routinely record a large spike in claims in November and December because families do get together and can better assess situations with family members who may be experiencing some form of decline in their health. As a result it naturally follows that we will also have a rise in sales, which has been the case for many years now.

Encourage families to talk to one another at Thanksgiving and to actively explore what the plan is for Mom and Dad and their care—maintaining their own residence, living with the kids, relocating to a facility, etc. Many years ago, I had a client say to me, “There’s no more significant gift that we can give to our family than to make an informed decision on how we are going to address this issue.” Many of the carriers have wonderful materials on how to start a conversation with older members of the family who may be either in a state of denial or lack the information necessary to make an informed decision.

Tis the season for end of year tax planning. The holidays remain a very good time with which to meet with clients you may have missed out on meeting throughout the year. With complete candor and humility, any appointment set in the month of December is a “virtual write” waiting to happen. For many holiday seasons we tracked as an agency the number of appointments that did not result in a sale because they were so few and far between.

The clients you see are going to be buyers because:

You have educated them—by definition, ignorance is the lack of knowledge. Once you have educated your clients and provided them with the necessary information with which to make an informed decision, it is easy.

They are in the buying mode—for years we have said that the only thing that could make it easier for us as agents is if the company accepted plastic as a method of payment or if Santa was footing the bill! Some carriers will accept plastic, but almost all of them will accept an Electronic Funds Transfer (EFT) and the advent of electronic applications has made the business so much easier. Ho Ho Ho!

They have the time to think—they are not “scheduled out.” They have time to sit and meet with you, either in person or via the Internet, and to make the right choice.

They are more relaxed—the homes are warm and decorated, and it is a more relaxed environment. It is fun to be a part of their holiday season! I love it.

It’s the End of the Tax Year—their financial advisors may have recommended that they buy now to take an end of year tax deduction.

It can be a Gift!—it can be a “gift” from one spouse to the other, or to their kids. Or maybe the kids will buy themselves a present by footing the bill for parents who cannot afford it. For this reason, it may be prudent to meet with the family who is in town visiting! Meet those third-party decision makers or influencers head on and maybe sell them too!

When my own children were younger, the words that brought angst to me were often printed on the outside of the package: “Some assembly required.” With the gift of long term care insurance there is no assembly required, but we do have to battle denial and procrastination. Be prepared on how best to handle the very common objections that you will
encounter repeatedly.

Like the Ghost of Christmas Future, you can ask them about what their vision is for their golden years? For the end of their lives? How will they deal with that unexpected illness or injury that debilitates them? Who will take care of them? Where will the money come from? Is this what they wanted or envisioned?

Sometimes we get a warning when a change in health is approaching, but most times not. The time to prepare for any eventuality is before it happens. Do they have a will? Do they have life insurance? Do they have a plan for long term care? If not, the time to put one in place is now.

I have had many friends say to me that they wish they could win the lottery and walk away a millionaire. In fact, I have one friend who has been saying that to me for about thirty years now. Ironically, he has never purchased a ticket! I have pointed out to him that he could vastly increase his chances of achieving this dream by plunking down a dollar and buying a ticket! Likewise, Santa can’t bring you what you want until you write him the letter. Our largest challenge is often exposing the client to the salient facts and risks associated with long term care but, once we do, most will take the necessary steps to work with you to develop a plan that meets these eventualities.

People do not plan to fail, but they do nonetheless fail to plan. Our responsibility is to help them help themselves by using the information that only a skilled long term care insurance advocate can provide them to make an informed decision.

The bottom line to success during the holidays is the same as it is during the other 46 weeks of the year—activity. It all starts with the phone, and the ABC’s: Activity, Belief, and Congruence. If you are committed to activity, and are in congruence, and avoid the negative paradigms and beliefs about phoning and appointment setting, you can overcome holiday phoning and make Thanksgiving to New Years a veritable bonanza for yourselves and your families. So, ask yourself, “Do I believe?”

Happy Holidays!

Who’s Batting Cleanup?

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When I grow up, I want to be the General Manager of a Major League Baseball team. The rumors of free agent signings and blockbuster trades thrill me, and I find it fascinating to see GMs address their roster constructions. Everyone wants their favorite team to draft a superstar, but it’s the less spectacular moves that often solidify the season. In my opinion, there is no greater acquisition than that of a cleanup hitter, the player who year-in and year-out delivers consistently, allowing the ball club to operate at full efficiency. Until the White Sox take my job applications seriously, I’m happily helping people construct their financial rosters, and I’m here today to make the case for another great acquisition: Whole life insurance.

Whole life insurance should be the cleanup hitter of your clients’ financial portfolio.

You may have clients at or nearing retirement age who have established a sum of money not likely to be needed for income. Their main objectives are preservation without exposure to risk, and to leave this money to the kids or grandkids while maintaining access and control for the “what ifs.” Clients fitting this profile will commonly have the asset somewhere they consider safe, like a savings, money market, or checking account. Pro-tip: If you identify a Certificate of Deposit (CD) or annuity, look for the “Payable On Death” or “Transferable On Death” designation indicating they don’t plan to use it for income in retirement.

A traditional single premium whole life (SPWL) policy is the perfect solution for your clients fitting this profile. Starting the day the policy is placed, the premium provides a greater tax-free death benefit for their beneficiaries than the traditional accounts mentioned. Other financial products may provide the same benefit down the road, but your client will have peace of mind knowing that their family would receive a greater tax-free benefit if something were to happen today, tomorrow, or several years from now.

As a SPWL policy is fully funded, the cash value builds quickly. Backed by strong guarantees, it is common to see the guaranteed cash values exceeding the initial premium as early as the third policy year. Additionally, the policyowner maintains control and access to the asset, and can utilize the policy loan provision to gain access to the cash value or even elect to have the non-guaranteed dividends paid annually as cash. Finally, with the addition of commonly available riders, the client can access a portion of their death benefit to cover expenses if they were to become critically, chronically, or terminally ill.

Perhaps your client checks all the objective boxes detailed but wants or needs more discretion in accessing the cash value. Pivot to a similar solution by funding a small life-pay policy with a large Single Premium Paid-Up Additions (SPUA) rider. In year two and forward, the premium can be paid out of pocket (un-needed distributions from a client’s qualified plan perhaps), or from dividends and a partial surrender of the SPUA rider. This policy construct will not only allow the client the ability to utilize the policy loan provision against the entire cash value of the policy, but also allow them the freedom to take a partial withdrawal of the SPUA rider’s cash value. A single premium solution with renewal commissions! Talk about a home run.

When discussing single premium solutions, it is imperative to have a full understanding of your clients’ intent. Many single premium solutions are classified by the IRS as a Modified Endowment Contract (MEC), so gains are subject to taxation and potential penalties for early distributions. If you have a client seeking tax-free access to funds, consider a limited-pay non-MEC solution. In as few as two years, the client can fully fund their policy on a non-MEC basis, as premiums can be designed to be paid from policy values after the funding period. Including dividends, it is conceivable for your client’s cash values to exceed total premiums as early as year four!

These solutions all speak to the strength and predictability offered by whole life insurance. It is a product you can place in your clients’ portfolios with confidence knowing that the first day is the worst day, and your client can enjoy a guaranteed performance each and every year. Plus, in an environment where we’re seeing dividends increase for the first time in a long time, there is the potential for the policy to perform even better than planned.

As a budding General Manager, I guarantee that whole life will be your clients’ cleanup hitter—the product that allows the rest of their financial roster to operate at full efficiency. Wishing you all a safe and happy holiday season (and maybe a great free agent signing or trade)!

From Boomers To Zoomers: The Seasoned Silver-Haired Advisor’s Guide To The Zillennial Gold Mine

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I’m a young, anxious, confused, and overwhelmed consumer and if you’re reading this, there’s a high likelihood that you retain more financial knowledge than me. I disclose this at the risk of some readers stopping here before they get to the end because I believe this presents a much more advantageous opportunity than it may seem. As a young professional born on the cusp of the Millennial and Gen Z divide, I have a unique position that allows me to understand the perspective of a largely untapped client base in the financial services industry and with the greatest wealth transfer in human history unfolding, your client base is going to start looking a lot like people such as myself if it doesn’t already. By providing you with my insights on what older generations need to know about working with younger generations, my goal is to help bring about a closure of the gap between the world as it is and the world as it should be.

The desperate need for financial advising among both Gen Z and Millennials is not something to ignore. In a survey by The Harris Poll in June of 2023, it was revealed that 82 percent of Gen Z (ages 18-26) and 84 percent of Millennials (ages 27-42) say there are financial topics they need financial advice on.1 Growing up through the major periods of devastating economic downturn such as the lost decade, the great recession, and a global pandemic, we are more familiar than we would like to be with the precarity of financial stability. That being said, you do not need to convince us that we need your services–we already know, we just do not know what to do about it. If you want to tap into the 76 percent of Gen Z and 71 percent of Millennials who haven’t sought advising from financial professionals, there are three big things you need to understand about Zillennials.

The first big thing is that we are fully aware of the uphill financial battle we face. Secondly, we need to trust you to work with you. Lastly, and perhaps the most important of all, is that our communication preferences will dictate how our relationship forms and develops.

As I mentioned previously, Zillennials are fully aware of the uphill financial battle we are facing. In fact, 65 percent of Gen Z and 74 percent of Millennials believe they are starting further behind financially than other generations at their age.2 The combination of our exposure to detrimental economic disasters, skyrocketing cost of living, and a lack of dependable financial knowledge are all major contributors to our inability to establish strong financial foundations in adulthood–not because we are frivolous with our money and waste it all on Instagram-worthy avocado toast. While we feel set back by the aforementioned economic conditions that are out of financial professionals’ control, there are things that you can do to address these problems in a way that makes us open to not just any solution, but your solutions.

First, ditch tradition and embrace modernity. We cannot trust traditional methods of financial planning. We watched our parents struggle through the lost decade when the 50-30-20 rule didn’t work then, and it’s not working now. How can we save when inflation drives up the cost of living before it drives up our income? It’s no wonder 40 percent of Gen Z have no retirement savings.3 We cannot depend on 401(k)s and we absolutely cannot depend on Social Security when it’s expected to be depleted before we even hit the halfway mark of our professional careers. Zillennials need out-of-the-box, holistic financial planning that works with our conditions and unique situations on a case-by-case basis.

The next thing you need to know about working with Zillennials is that we need to trust you. For most, if not all of our lives, we’ve had access to the internet and all of the mis, dis, and over information that comes with it. Because of that, we approach information cautiously and have developed advanced online literacy that determines where we do and do not place our trust. For instance, when it comes to making investment decisions, 42 percent of Millennials do not trust algorithms or artificial intelligence, including 51 percent of younger Millennials, while 92 percent say they trust their financial advisor.4 This demonstrates that the problem isn’t that we trust AI or computers more than you and value it higher than your expertise, it’s just that you haven’t given us a reason to trust why we should work with you.

The solution to this problem of gaining trust all rests on developing and demonstrating your authority in the field in a way that’s accessible to us. It’s important to have an online presence that is active, personable, and transparent in order for us to see you as a person with a knowledgeable background who wants to help as opposed to a person trying to take advantage of our lack of financial literacy. If our perspective of you shifts from feeling on guard to feeling advocated for, we are much more willing to work with you.

It’s also important to highlight that we aren’t getting word of mouth recommendations or references and depending on the internet as our place to research and learn more about you online. Because of this, you should establish your own referenceable place for prospects to learn more about you and your authority in the industry. Maybe it’s a website that has your bio, some family photos, some highlights of industry recognition you’ve received, or impactful client testimonials. Zillennials love reviews from others, and we tend to trust those endorsements because there’s no obvious ulterior motive from a fellow consumer.

Lastly, our communication preferences define how our relationship forms and develops. The first thing to keep in mind when prospecting for Zillennial clients is that we aren’t going to reach out to you, you need to come to us. Although 38 percent of Gen Z and 27 percent of Millennials have not sought financial advice from a professional when they needed it because they did not know where to find the right financial advisor for them, 79 percent of Zillennials have gotten financial advice from social media.5 If you are not advertising your services on social media, then you are giving away business to those who are.

Our world is evolving very quickly and it’s time to ditch antiquated marketing methods that are becoming more and more obsolete by the day. Adapting your prospecting efforts to align with our
communication preferences has the power to revolutionize the number of prospects you’re able to turn into clients. What I’m about to say may come as a surprise, but I had never heard of a mailer until this year. If this is your primary mode of marketing, you need to let that sink in and think about what a large chunk of the market you’re missing out on. I do not check my mail often, but I often check my phone which is always in my pocket. If you can deliver your message to my pocket as opposed to my rarely checked mailbox, it’s going to be a lot easier for us to find each other and start building a relationship.

Over the course of this brief article, I have covered the top three things I believe to be causing the biggest divide between our generations working together and provided solutions that you can incorporate in your business to close the gap. We are all aware of the uphill financial battle that future generations face, but by incorporating ways to build trust and meet us where we are at, we can find and create solutions together. The distance between you and your success is the same distance between you and members of the greatest wealth transfer, and vice versa. For the sake of both our generations, I ask that you do not let our gap distance us from mutual success and open yourself up to adding more Zillennials to your client base.

Reference:

  1. https://www.businesswire.com/news/home/20230628444139/en/84-of-Millennials-Say-There-Are-Financial-Topics-They-Need-Professional-Advice-On-According-to-intelliflo-Survey.
  2. https://www.usatoday.com/story/money/2023/09/26/gen-z-millennials-face-unique-financial-challenges/70910672007/.
  3. https://www.businesswire.com/news/home/20230628444139/en/84-of-Millennials-Say-There-Are-Financial-Topics-They-Need-Professional-Advice-On-According-to-intelliflo-Survey.
  4. https://www.napa-net.org/news-info/daily-news/millennials-turning-advisors-they-approach-middle-age#:~:text=Millennials%20are%20turning%20to%20advisors%20over%20algorithms.&text=Moreover%2C%20when%20it%20comes%20to,they%20trust%20their%20financial%20advisor.
  5. https://www.fool.com/the-ascent/personal-finance/articles/nearly-80-of-millennials-and-gen-zers-get-financial-advice-from-social-media-how-doomed-are-they/.

How DI Is Integral To Estate Planning

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In the most fundamental teachings of life and health insurances, we learn early on that life insurance creates an immediate estate and annuities assist in liquidating an estate. But what financial tool safeguards an estate during those oh so important income accumulation years while a person’s economic interests build, ride the inherent market ebbs and flows, rebound if necessary and hopefully grow a substantial wealth foundation to leave to future generations? The answer is disability insurance of course.

Widely accessible and sophisticated savings vehicles like 401(k)’s, Roth IRA’s, annuities and cash value life insurance programs allow Americans to begin planning for secured financial futures. These plans have proven to permit reliable income streams beyond volatile high-yield market investments and sedentary, sluggish bank savings and money market accounts as well as social security benefits, a program that’s future and longevity are highly suspect.

Although reputable savings vehicles are readily available to corporate America, the sad reality is that most Americans still don’t save enough in earned assets throughout their lifetimes and typically live paycheck to paycheck or close to it. Exacerbating this frequent dilemma is that little significant regard is given by most to financial planning beyond their working years. This is a predicament that can absolutely become an economic catastrophe when a working individual suddenly or even gradually becomes disabled during that ever-so-important first half of life, the years when wealth is typically accumulated.

Most of us work for a living to earn a regular paycheck, providing food, shelter, clothing, education, healthcare, other insurances (including life and disability) and transportation—the usual requisites of successful living in this country—for ourselves and our dependent families. Hopefully, after the bills and taxes are paid, a portion of income is leftover for simple luxuries, perhaps vacation travel or to be dutifully deposited into a savings vehicle. We are dependent upon our paychecks to not only provide for us today, but to allow the aggregation of wealth that will not only provide for comfortable lives in our senior years, but also the ability to maintain a looked-after and planned estate.

But asset building and income savings only happen when there is an inflow of cash. Trouble begins when the anticipated earnings halt or are completely terminated, which is a common result of disablement. Without proper disability insurance and income protection, there is no sufficient planning for a survivable estate. You can’t plan for the future without safeguarding the present.

The greatest weapon in combating short-term, long-term, partial, total, temporary or permanent physical incapacitation due to sickness or injury is comprehensive disability income insurance prescribed in sufficient amounts. Personal disability insurance programs come in many shapes and sizes, but most industry experts agree that a layering of multiple “own occupation” defined income protection insurances to at least 65 percent of personal income is adequate, providing continuation of at least a semblance of one’s pre-disability lifestyle.

The layered effect of income protection typically takes shape under varying tiers of employer-sponsored group disability programs, individual disability plans as well as specialty-market excess, high-limit disability platforms or some reasonable combination thereof. Importantly, insurance company disability benefit calculations typically allow for the inclusion of 401(k) employee contributions, keeping much of an earned salary intact including retirement allocations when an employee becomes disabled.

Personal disability insurance is the foundation of sound financial planning, retirement planning and estate planning as it provides the first line of defense of income, and financially safeguards the consumer’s arduous journey to saving for future life stages and beyond.

Ancillary income protection products from specialty-market carriers can also assist in directly fortifying an estate. The Lloyd’s of London market offers bespoke programs like retirement funding completion insurance as well as stock option protection insurance. Both of which protect career earnings to thwart off retirement-benefit collapse in case of premature disablement.

Retirement funding or pension completion insurances are standalone defined-contribution protection plans that provide an insured person with a lump sum of cash for the anticipated balance of aggregate retirement plan contributions at the time of permanent disablement. These resources are unique in that both employee and employer contributions may be included in the benefit calculations.

The stock option protection plan is a standalone disability program that insures anticipated stock option awards for those working for publicly-traded corporations who would stand to lose future stock option compensation in the face of disablement. A stock option plan pays a permanent disability lump sum benefit equivalent to a multiple of anticipated annual stock option awards.

Personal estate planning can also be heavily influenced by business assets. Business owners have additional fiduciary needs and potential financial liabilities when considering business succession and how their physical demise could negatively affect their employees as well as their business partners.

Business loans and corporate debt can certainly pose economic shortfalls for companies faced with the pending physical loss of an owner. Disability products like loan indemnification insurance and business overhead expense coverage are available to clients in addition to their personal disability benefits. Both assist in covering outstanding business liabilities including utility and insurance bills and payroll costs while allowing business owners to keep their personal disability benefits intact and appropriately earmarked for familial needs.

From a business owner’s perspective, much of the planning done to meet estate asset goals falls under the category of succession planning. Agreements are made and contracts are drawn-up with business partners, trusted employees or interested third parties to settle corporate loose ends and eventual buy-outs of ownership interest in case of an owner’s total disablement.

Key person disability insurance is an incredibly flexible tool when it comes to succession planning and business continuation. The product provides monthly, lump sum or a combination of benefits, so a business hit with the typically devastating loss of a marquee owner can survive and navigate often unfamiliar terrain before an eventual buy-out of the disabled owner takes shape. Key person policies pump in much needed stabilizing capital which is often used to secure replacement staff, to cover recruitment costs or to help maintain revenues after the sometimes-inevitable loss of key accounts.

But as a key person plan assists in business needs of the short-term, a buy/sell disability policy is the anchor of the succession plan. Designed to fund the buy/sell agreement between business partnerships and other corporate structures, an executed buy/sell disability policy provides cash payments over a scheduled period of time or in a hefty lump sum for the purchase of the corporate shares of the disabled owner, thus allowing a prudent and financially successful move into retirement and the stabilization of a business owner’s estate and taxation liabilities.

The purpose of financial planning is to provide a client with a solid foundation of diversified savings, asset management and growth as well as insurance services to maintain a comfortable level of financial freedom into retirement as well as safeguarding accumulated assets that will eventually be passed on after death. Disability insurances for both personal and business needs are a big part of that foundation by protecting those assets and that savings from the devastation of physically losing the ability to work and earn that accustomed and necessary paycheck. You can’t properly manage and guard an estate without sufficient disability coverage.

Reinsurance Isn’t As Scary As You Think

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Halloween is the quintessential celebration of all that is spooky and scary but even with the holiday being over, financial professionals may still have year-round fears about reinsurance. Submitting a life insurance application large enough that it must enter the reinsurance marketplace shouldn’t bring up those same fears that ghosts and goblins do. At one point I believed that the biggest fear an advisor had was the conversation with their high-net-worth clients about life insurance being an integral tool in their estate plan. But after 25 years in the industry, I’ve learned that their greatest fear is the feeling of helplessness and ignorance when the word reinsurance is uttered. The good news is, unlike the zombies and ghosts of Halloween, those reinsurance fears can be put to rest for good by the end of this article.

So, what exactly is reinsurance?

Reinsurance is simply an arrangement in which one insurance company, known as the “reinsurer,” provides coverage to another insurance company, known as the “ceding insurer.” The primary purpose of reinsurance is to help the ceding insurer manage and mitigate risks associated with the policies it has underwritten. By ceding a portion of its risk exposure to a reinsurer, the ceding insurer can protect its financial stability and reduce its exposure to catastrophic losses.

There are also a few terms that must be clarified in order to understand the underwriting process when reinsurance comes into play.

Internal Retention Limit
This is the amount of death benefit that an insurer can issue on an individual without ceding any of the death benefit to a reinsurer. In the event that the insured passes away, the insurer is solely responsible for the death claim if the insurer retained the entire death benefit.

Auto-Bind Limit
Even if the amount applied for is over the insurer’s retention limit and they must cede part of the death benefit to a reinsurer, this process is usually transparent to the broker and to the proposed insured. This is due to auto-bind agreements between the ceding insurer and the reinsurer. For example, if the auto-bind limit between a ceding insurer and a reinsurer is $20 million, then as long as the total amount being applied for is within this $20 million limit, the ceding insurer can approve the policy without the reinsurer reviewing the file. However, if the amount being applied for is over $20 million, then the entire file must be sent to the reinsurer for review, and the reinsurer must agree with the ceding insurer’s underwriting opinion before a policy can be issued.

Jumbo Limit
The jumbo limit is the amount of coverage inforce and applied for with all carriers on an individual’s life. The most common jumbo limit with most carriers is $65 million. To illustrate this, if your client has $35 million inforce and wants an additional $35 million, this exceeds the jumbo limit (assuming $65 million is the jumbo limit). In this example, one of the biggest mistakes that can be made with respect to jumbo limits would be to submit formal applications with multiple life insurance companies for $35 million each, with the intent to accept the single best offer. This can cause significant problems when multiple ceding insurers contact their stable of reinsurers to reserve what they believe is $35 million of capacity but the reinsurers are receiving requests to reserve a total of $70 million, $105 million, or even $140 million of capacity.

Now that we have established the basic terminology of reinsurance, what is the best way to proceed with a case that exceeds a carrier’s auto-bind or jumbo limits?

The first step is to make sure you work with a BGA that understands the large-case market. Next, have a conversation with your BGA about the specifics of the case. The most basic pieces of information that your BGA should ask you include:

  1. What is the proposed insured’s full legal name?
  2. What is the proposed insured’s date of birth?
  3. How much life insurance does the proposed insured already have in force and with what insurance companies?
  4. How much of their in-force life insurance, if any, will be replaced?

The reason your BGA needs the answers to #1 and #2 is that the first thing they should do is contact the underwriters at the top carriers that you are considering writing the application with and ask them to check for reinsurance capacity. This means that the underwriter at the ceding insurer will contact each of their reinsurers and give them the proposed insured’s information. The reinsurer will then check to see if they already have life insurance on them through other ceding insurers. The reinsurers will then tell the ceding insurers how much death benefit they can contribute to the total overall amount. Note that this amount can change prior to a policy actually being issued for a number of reasons, including but not limited to a worse-than-expected medical rating, a lack of U.S. citizenship, or due to some avocations or occupations.

For example, we had a recent case where the proposed insured already had $40 million inforce and wanted as much additional life insurance as he could obtain. His net worth was approximately $200 million. The ceding insurers we spoke with then checked with their reinsurers and the one that was able to obtain the most capacity came back with a figure of $62 million, including the ceding insurer’s own retention. Every ceding insurer we checked with came back with a slightly different number due to the fact that the ceding insurers’ retention limits differed and the mix of reinsurers that the ceding insurers had agreements with differed.

The next step is to submit an informal inquiry to the ceding insurers that you’re considering applying with. Submitting an informal on these types of cases is almost always the best way to proceed in order to avoid reinsurance capacity issues as mentioned. The ceding insurer will fully underwrite the case (other than running MIB, MVR, and a few other database checks) and will give us a very good idea of what rate class they should ultimately be able to offer. This process will also bring up any underwriting concerns that might exist. If any significant underwriting concerns do arise, the underwriter at the ceding insurer can check informally with their reinsurers to confirm what their thoughts are on the issue. Once we have informal “offers,” a formal application can be submitted to the one ceding insurer that you and your BGA believe will be the best fit for the desired objectives.

However, when the formal application is submitted, there are still additional hurdles before a policy can be issued. The ceding insurer will package the entire file including medical records, lab results, MVR, MIB, and database results and send the file to each of the reinsurers. The reinsurers will then fully underwrite the file in order to make a formal offer. Underwriting problems don’t normally arise at this point but it’s never out of the question.

The case that I referenced did come back with one such problem. The proposed insured didn’t admit to a medication that they took or to the doctor who prescribed the medication. The information came up on the Prescription Database Report which is only ordered after a formal application is submitted. The medication wasn’t significant with respect to insurability but one of the reinsurers wanted us to obtain these additional medical records. Neither the ceding insurer nor any of the other reinsurers felt they needed these records. We therefore had three options:

  1. Have the underwriter at the ceding insurer call the underwriter at the reinsurer and have a conversation about the need for these records and determine if the reinsurer can provide an offer without the records.
  2. Proceed without the $8 million of capacity that the reinsurer who wanted the records was offering.
  3. Obtain the medical records. But if we did, the records would then have to be sent to all of the reinsurers, not just the one requesting them.

An attempt to get the requirement waived should always be the first option and, in our case, the chief underwriter at the ceding insurer was able to get the reinsurer to waive the additional records and they proceeded with the approval. This is ultimately why it is so important for the underwriters at the ceding insurers to have good working relationships with the underwriters at the reinsurers.

The last step of the process circles back to the first definition provided…that of internal retention. Even after we’ve exhausted reinsurance capacity, carriers can still offer additional coverage up to their internal retention limits. Some carriers’ retention limits are as small as $250,000 but some are as large as $10 million or more. So, we can then piecemeal as much additional coverage as possible using multiple carriers’ internal retention limits.

Knowledge of the preceding steps when dealing with reinsurance is incredibly important but it’s much more important that your BGA is familiar with this process as they will be working directly with the ceding insurer. Make sure that they’ve worked in the large-case marketplace in the past; make sure that they have close working relationships with the chief underwriters at the different ceding insurers; and, make sure that they understand the difference between retention limits, auto-bind limits, and jumbo limits and what each ceding insurer’s dollar amounts are that correspond to each of these. Then the next time you meet with a high-net-worth client, you should be far more knowledgeable of the steps involved when reinsurers must get involved, and far less fearful that you might take the wrong step.

Truth Or Consequences

We all know that you need three key ingredients to have a successful interview that leads to a client purchasing some form of long term care insurance to safeguard the future for themselves—trust, need, and urgency. I’d like to share a few comments on how to really make urgency come alive while discussing the inherent risks associated with long term care. Many agents struggle with how to keep this key module interactive, especially with the knowledge that the talk/listen ratio should be 2:1, with the client doing more of the talking. How is it possible to both educate the prospects yet at the same time keep them actively engaged? Simple; end every statement with a question mark.

So, let’s talk about a natural flow with the client through the risk module of the interview. First and foremost, you need to do a complete balance sheet, laying out all the client’s assets to include the home (net of debt), investments (breakout tax deferred such as 401k, Keogh as you can’t use IOS on them with younger clients), other properties such as cabins, vacation properties, and heirlooms to name a few. Why is it so important to secure all the prospect’s assets? So, you can appropriately do the takeaway with real numbers and not made-up hypothetical numbers when you ask them to prioritize the order in which they would potentially liquidate (sometimes at fire sale prices) these assets to meet the costs of long term care.

I generally like to start with this simple line of questioning regarding homeowners’ insurance which so many people take for granted. Everyone agrees that it is a “necessity to protect our single largest asset,” yet they put little or no thought into whether from a risk perspective it is necessary.

A discussion of risk requires the producer to set the stage by demonstrating the degree of risk associated with the various and sundry risks we all face on a day-to-day basis.

“Do you have homeowner’s insurance? How come? Have you ever needed your homeowner’s insurance for anything significant? Where would you be today if you hadn’t had your homeowner’s insurance? If five minutes before I got here today you opened a letter from your homeowners insurance company telling you, effective today, they were canceling your policy, how would that make you feel? Five minutes later I came knocking on the door to talk about LTCI coverage. What would you tell me? Would you say, ‘Something more important has come up…’ or perhaps ‘Do you sell homeowners insurance?’ How long would you take to make sure one of your largest assets is protected? How well would you sleep tonight if you weren’t able to secure coverage today? Would you light a fire in the fireplace, light candles around the house, fire up the barbie, invite a few friends over for a kegger? Don’t you find it ironic (use their words) that you wouldn’t go a second without homeowners’ insurance even though you’ve never really needed it?”

“What are the odds of you ever utilizing your homeowner’s insurance policy? How many people do you know have lost their home?” Most will say zero or one. This is because the odds of a carrier paying off on one of these policies is literally one in 1200. Pretty remote, and low risk to the carrier.

After discussing homeowners’ coverage, we move on to their cars. “Have you ever totaled a car? Anyone in your family? Do you know anyone that has had to replace a car that was a total loss?”

“Which coverage is more expensive for you—your car insurance or homeowners?” Unless they are in a high-risk area (New Orleans, Florida, etc.) the answer should be that their car insurance costs more. Why is car insurance more expensive than your basic homeowners? Risk. Risk to the insurance company. With five times the odds of paying out on a policy, they must charge more to mitigate their risk which is literally in the one in 240 odds range.

Health insurance companies charge more than their property and casualty peers because why? Because of the risk of paying out claims. The odds of one needing a major procedure, heart surgery, hip replacement, cancer treatment after age 65, is literally one in 15. For everyone else, it is rare that we do not see our doctors at least annually for wellness checkups or minor illnesses, aches and pains, and routine procedures. The risk to these carriers is tremendous and is reflected in the premiums that they collect from policyholders.

Why is permanent life insurance more expensive to purchase than term insurance? Risk. If a permanent insurance policy is in force at the time of death, the certainty of paying out the claim is 100 percent to the carrier. On term insurance, the risk to the carrier is less than two percent that a claim will be filed.

With those common insurances as a baseline, it is now the time to address the risk of long term care in their lives.

  • 42 percent of people under the age of 65 are in long term care.
  • 90 percent chance of the likelihood of one of a couple needing care.
  • 79 percent of women who are age 65 will need long term care.
  • Seven out of 10 people over 65 will require long term care.
  • Three years is the average number of years people use long term care benefits.
  • Eight to 10 years is the average life expectancy after an Alzheimer’s diagnosis.

Recent cost of care surveys published by several carriers place the (average, national) cost of assisted living facilities at $54,000 per annum, home health aides at $62,000, and skilled nursing facilities (semi-private room) at a staggering $108,000 per annum. Again, these are national averages and there are many areas of the country where these costs are significantly higher.

You’d be surprised how this line of questioning and tact really helps set up the client to have an emotional discussion regarding long term care protection. When talking about LTCI I like to share the statistics from the New England Journal of Medicine which cites that once you reach the age of 65, one in four Americans will spend one year in a nursing home. Perhaps more significantly, one in 10 Americans will spend five years in a nursing home. “Which assets, Mr. Smith, would you liquidate first to pay for your care? Don’t you find it ironic that you’ve covered all the risks that are not likely to happen, but the one that is most likely to occur, with the biggest costs, you’ve left unprotected?”

“Can you think of a bigger risk than the cost of long term care which can involuntarily wipe out your life savings, cause you to be a burden on your kids, lose your independence? Bigger than the risk of long term care? Do you see this as a real problem for you? Is this a problem you’d like to solve today? If I can show you a way to solve your long term care problem without compromising your lifestyle or depleting your life savings, wouldn’t you want to take action today to secure protection while your health still gives you a reasonable chance to do so?”

What to do if you are talking to Superman, who refuses to buy into the entire risk argument? It is at this point that you stop using the term risk and pivot to the term consequence. “Okay, Joe, I hear what you are saying. Your family history, as well as your current health, may very well allow you to fall into that ten percent that drops dead of a heart attack, gets hit by a car, or simply allows you to die without the need for long term care. But what if you are wrong? What are the consequences to your spouse, your children, and your financial legacy? How damaging would it be to the very people you have so diligently served as the breadwinner all these years if you suffered an accident or contracted some acute or chronic disease that required care, and depleted your assets?” I do not know why it took me so many years to have this epiphany, but once I discovered the word consequences, I found that I could overcome nearly any objection thrown at me by the client.

Finally, the questions that should spark the desired urgency: “If you needed care tomorrow…where would you want to receive your care? Who could care for you? Where would the money come from to pay for your care? How long could you afford to do this monthly?”

The long term care advocate’s role is to help the client understand the concept of long term care insurance and the options available in the industry. He or she assists the client with research, insurance companies and policies, and represents multiple carriers to offer coverage that best fits their individual needs.

As much as I’ve always preached the power of emotional need, I truly believe that a great risk module comes in a close second and keeping it fully interactive is crucial. By using powerful takeaways, we can help clients feel what it would be like to not have peace of mind having the insurance they absolutely take for granted. Failure to do a great risk module absolutely jeopardizes your ability to sell today. The failure to address consequences may jeopardize your clients’ future. Good selling to you all.

Instant Issue Life Insurance In The Age Of Immediate Gratification

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What Instant Issue Is, Isn’t, And Why Your Clients Want It Now

From instant meals to instant messages; from on-demand food delivery to on-demand movie streaming, it’s clear: We live in a world where nearly everything we could want appears at the touch of our fingertips. This applies not just to our creature comforts, but to the way we do business as well.

Today’s consumers have become accustomed to, and fully expect, solutions that offer simplicity, speed and seamlessness. There was a time in the not-too-distant past where when we wanted or needed something, we went to a store or consulted with someone at an office. Then came online shopping, where the convenience of home delivery changed everything, and Zoom opened up a whole new virtual experience for service providers such as physicians, therapists, financial advisors, and more. For brokers, working with instant decision/instant issue carriers is somewhat like placing your grocery order and choosing whether you want it delivered to your home or, if it’s more convenient for you, to choose curbside pick-up. Your customer is still ordering the same items, but how they obtain them is the variable factor.

It’s no wonder, then, that almost half of all U.S. adults say they are more willing to purchase a life insurance policy via simplified underwriting than traditional underwriting due to the convenience, no need for medical exams, and transparency when it comes to premiums. In recent years, options such as instant issue life insurance policies have grown in popularity as more digital-first providers emerge to meet consumers where they are to help bridge the coverage gap for the 48 percent of Americans who do not yet own life insurance.

Whether an applicant is approved or not, instant issue policies may sound like a great fit for today’s digital natives—“instant” is the name of the game!—but what are they, really? Read on to bolster your knowledge of what instant issue life insurance is (and, perhaps more importantly, what it’s not).

Quiz: How Much Do You Actually Know About Instant Issue Life Insurance?
But first, a quiz. To test your instant issue savvy, review these statements and determine whether they are true or false.

  1. All instant issue policies are the same.
  2. Anyone can apply for and receive instant issue life insurance.
  3. Instant issue life insurance offers the same level of coverage as traditional policies.
  4. Instant issue policies are always more expensive.
  5. No-exam life insurance is just “instant issue” by another name.

If you answered “false” to all of the above, you are correct! When it comes to instant issue policies, like most things in our industry, there is a bit more nuance behind the magic.

The Ins and Outs of Instant Issue
In a nutshell, instant issue life insurance refers to a policy that expedites underwriting, providing rapid approval and coverage without the need for extensive medical exams. It’s designed for quick and straightforward applications, making it a convenient option for clients seeking smaller coverage amounts promptly. While policies and terms vary by carrier, most instant issue options have a few key features in common:

  • Client Convenience: Instant issue insurance caters to clients who prioritize a rapid application experience.
  • No Medical Exams: Instant issue policies typically do not require medical examinations, reducing potential barriers to purchasing.
  • Simplified Applications and Streamlined Underwriting: Applicants complete health questionnaires to expedite underwriting and approval time compared to traditional policies.
  • Immediate Coverage with Immediate Effect: Clients gain access to coverage almost instantly upon approval.

Instant issue policies may be worth exploring for your clients—including the 47 percent of U.S. adults who say they would consider a simplified underwriting process simply for the benefit of avoiding face-to-face interactions to make the policy purchase. As the life insurance industry continues to modernize, there is great opportunity for brokers to leverage digital and tech solutions to not only delight clients, but also to reallocate time toward value-added activities such as prospecting, relationship management and more. As always, it’s important to remember that these tools are not meant to (and could never truly) replace the integral role of brokers, but rather to help boost productivity and cut through the red tape of the traditional purchasing process.

Reference:

  1. The Life Insurance Consumer Report Study 2023, Insurist.
  2. 2023 Insurance Barometer Study, LIMRA and Life Happens.
  3. The Life Insurance Consumer Report Study 2023, Insurist.

Is The Future Now…Or Can We Slow Down To Smell The ROSEs?

Times are a-changin’! There have in recent years been numerous technological advances in our industry which have allowed, in some instances, greatly expedited underwriting. This is a good thing as it brings the potential for an improved experience for the end consumer, your client. Improved customer interface and faster underwriting decisions tremendously lower the barrier for a sizable customer segment by making life insurance easier and quicker. There is also a promise of improved producer efficiency. Streamlined processes in addition to the expedited underwriting decisions decrease the necessary “touchpoints” and allow the producer to strike while the iron is hot so to speak.

These developments are welcomed and necessary. Yet, as it relates to the underwriting outcome—the end pricing for the client—these changes have not always led to improved, more cost effective results. We must acknowledge the carriers’ cumulative goal is not to provide a more aggressive offer or client-friendly pricing; it is simply to arrive at the same underwriting decision (as if they had all APSs and complete exams/labs) quicker and more cheaply. Because the data sources are newer, rawer, and not specifically fine-tuned for life insurance, there are inefficiencies in the data gathering. Because life insurers are not in the business of losing money, the imperfect decisions are more likely to be conservative rather than liberal.

Here is a quick example which illustrates this point. We recently had a gentleman approved without traditional records or insurance labs. However, health insurance billing codes stemming from an ER visit nine months ago provided a “diagnosis” of alcohol dependence. As it turns out, the code originated from a contracted emergency department anesthesiologist who gave 20+ other “diagnoses” in the form of billing codes. There were no accompanying chart notes, no associated records to be obtained, and, lastly, the proposed insured had absolutely no idea why or how that specific code was originated. Our client was approved Table 2 due to alcohol concerns. Because the underwriter’s first impression of our client was a gentleman with an alcohol issue, the burden of proof fell on us to overcome this obstacle; this task was tremendously difficult and time consuming… Long story short, it required obtaining two sets of records (personal care physician and Emergency Department), soliciting direct input from the client, and moving this case from the assigned accelerated underwriter to the Assistant Chief Underwriter to get this engagement to the correct pricing of preferred rates. Had only the APS and exam been reviewed, this would have been approved appropriately from the beginning.

The Law of First Impressions
The story highlights the importance of the Underwriting First Impression. Though this engagement was eventually salvaged, there are incidents where the client is not so fortunate. For this reason we underwrite any engagement of significance upfront at the brokerage level before engaging the individual life insurance carriers. As a BGA, we can best advocate for our affluent clients and their accompanying needle-moving engagements by obtaining all clinical evidentiary data up front (with the exception of exams/labs). This allows us to first understand the clinical story, then fill in any gaps in the data and thereafter control the flow of information to the carrier to ensure a favorable first impression is made.

The first impression by the carrier underwriter is a critical component to the end pricing. As the marketing adage goes, you never get a second chance to make a good first impression. This is in large part due to what psychologists have termed the first impression bias which influences decision makers to place more weight on information first received rather than information received later. Carrier underwriters are by no means impervious to this bias. Changing the inertia of the first underwriting impression—whether favorable or unfavorable—is exceedingly difficult if not nearly impossible. When there are underwriting hurdles at play, the Law of First Impressions must be utilized to the client’s advantage.

The goal on any engagement of significance is to deliver an improved insurance experience and differentiated pricing outcome to the end consumer. We have found that doing so provides an insurance “win” for all parties: 1) The client is happy they received the time and care they deserved on one of the most intimately important facets of their life—their mortality; 2) The producer got to place a great case while also having forged a deeper relationship with the client; and, 3) The carriers also walk away as winners for placing a high-quality engagement and are moreover grateful for the research, organization and effort we put into our presentation—which allowed them to feel comfortable in delivering a top-notch pricing assessment. We have, at Brokers’ Service Marketing Group, built out an underwriting platform specifically for these types of engagements—we call them ROSEs because the clients on these engagements are any combination of the following: Rich, Old, Sick, and Exciting! Successes on these highest-importance engagements have allowed us to build incredibly strong relationships with our producers as well as strong underwriting relationships at the carriers with an appetite for these types of risks (and production premium). The word of mouth success stories have furthermore led to sustained organic growth for our firm. We are now able to allot more resources to this platform and better support our producers, and the select carriers enjoy getting increased production on high-affluence individuals. This process has essentially created a virtuous cycle to ours and the end-consumers’ benefits. While producing a winning result is a challenge on each unique engagement, there are some best practices which can be summarized and a quick case study will hopefully pull it all together.

First, we believe underwriting is the sole fulcrum on which a high percentage of our large engagements hinge. For this reason we obtain all APSs which are likely to be needed. After triaging the clinical data, it may be necessary to get a prescription check or go after additional records. Once all clinical data has been obtained, the real work starts. Now it is time to bridge the gap between clinical medicine and insurance medicine which often requires multiple strategies. We are going to turn over every log and look under every stone to build as compelling an underwriting story as possible. Our philosophy is that a differentiated end-outcome requires a differentiated upfront effort and is built around these life underwriting truths:

  • Actuarial tables are based upon the law of large numbers, and mortality charts are built on a few key components which do not always adequately address complex impairments where multiple contributing features determine the prognosis. We therefore must provide an abundance of favorable data that demonstrates an incredibly unique profile which is not appropriately addressed by this assessment paradigm. We will endeavor to uncover additional favorable data which ultimately allows the risk assessment decision-maker to think outside the manual assessment shackles.
  • Money Matters—The average life expectancy in the U.S. by 2014 was 78.9 according to the Centers for Disease Control and Prevention. However, in that same year, men in the highest-earning income bracket enjoyed a life expectancy of 87.3 years, and women in the same bracket were expected to live an astounding 88.9 years (The Association Between Income and Life Expectancy in the United States, 2001-2014. Dr Raj Chetty, et al). We therefore must highlight, when available, the highest-quality care in which the affluent client is participating. When a client of means is willing to spend down a significant portion of their net worth to live longer, it creates a vastly improved prognostic outcome.
  • Insurance carriers have the difficult task of projecting future mortality outcomes based on a limited amount of present and recent data. Everything is not always pretty, and there are often numerous gaps in the clinical data. We therefore must take hold of the opportunity to provide additional data for the underwriter’s edification. By locating all the clinical pieces and completing the puzzle before tapping the carrier underwriter, we can create a favorable first impression and put them in a position to provide as aggressive an offer as is possible.

Preparation is Paramount
We can use these principles to bridge the often cavernous gaps in the clinical data with upfront underwriting. This is accomplished by speaking with the client directly, speaking—if necessary—with the client’s lead physician directly, and thereafter creating an underwriting package which amplifies the client’s participation in high-quality clinical care and highlights the unique idiosyncrasies displayed in the client’s individual profile. When performed correctly, we can pave the way for an enhanced pricing assessment and improved customer experience, yet it does not happen without careful and meticulous preparation.

One individual known for their preparation was legendary college football coach Paul “Bear” Bryant who outlined his coaching attitude with a famous quote. The opening sentence starts like this: “It’s not the will to win that matters—everybody has that.” This lesson is as applicable in life insurance as it is in football. The case of significance is not brought to fruition by willing it through once the formal assessment has already started—the opportunity for upfront preparation has at that point already passed.

“…It’s the will to prepare to win that matters.” Coach Bryant and his teams believed in preparation. Similar to winning the big game, upfront preparation is required to achieve victory on the big engagement. It is the time, research, fact-finding and—if needed—facilitation of uncovering new data before the game starts that will ensure success. I liken this to completing the puzzle—it is imperative we locate all of the puzzle pieces and build out the complete picture as opposed to sending out the APSs and hoping for the best. Once the puzzle is completed and a beautiful picture has emerged, the last step of preparation is building a compelling presentation that communicates a consistent story—a story of who the client is, what they have accomplished, and how they have overcome the obstacles life has thrown their way—health maladies and personal circumstances included.

I will leave you with a case study that illustrates our underwriting differentiation platform in action. We had an engagement earlier this year on a gentleman in his upper 60s who needed $5,000,000 of permanent coverage to protect his sizable estate. He had built up a prominent law firm from scratch and was willing to spend a quarter of a million dollars per year to protect his legacy. He had Coronary Artery Disease, Chronic Kidney Disease, and Hypertrophic Obstructive Cardiomyopathy (HOCM). For the HOCM alone he was a “by the book” decline in every insurance manual due to the left ventricular outflow gradient being elevated and therefore indicating a concerning obstruction. Think of putting your thumb over the water hose as a kid. The smaller area through which the water must travel creates pressure and results in a faster water jet (aka higher gradient) as it leaves the hose. In the same manner, the heart muscle was abnormally enlarged in a peculiar way to where the path of the blood leaving the left ventricle was partially blocked. The squeezing effect resulted in a higher gradient which represented at first blush a decline across the board. However, this gentleman, despite the suboptimal outflow gradient, displayed many interesting clinical idiosyncrasies which could be utilized to create doubt that his specific profile merited a decline. We uncovered this through a lively 45-minute Zoom with our client. Not only was his intellectual ability off the charts, but he understood intimately the details of his heart condition. The numerous encouraging features uncovered during this Zoom built excitement as the possibility of a differentiated outcome started to become apparent. Here is an abbreviated outline of what we learned (this list is shortened but includes the more pertinent details):

  • HOCM diagnosis age of 55 with current age 68—both favorable.
  • Asymptomatic with no fainting, no arrhythmias, and no conduction issues for nearly fourteen years—highly favorable.
  • Exercise tolerance of 13.0 METS was elite for his age. He was/is an avid hiker and despite his malady remains a physical specimen. He has, since the diagnosis, completed the Appalachian Trail over several visits and had the previous summer completed the Tour du Mont Blanc, a 170 km trekking trail through France, Italy and Switzerland. It took him and his two children all of eight days. He completed the entire thing without symptom or difficulty—highly favorable.
  • Perhaps the most important factor is he received “best in class” care from the Mayo Clinic.

Due to his level of affluence, he was followed by a team of holistic cardiologists which was personally headed by the Director of Cardiovascular Medicine and Chair of Heart Failure Division within one of the Mayo Clinic locations. Our client actively participated in the highest quality care possible bar none. Because of who our client was, he actually brokered a meeting between his lead cardiologist (the Director of Cardiovascular Medicine) and myself which resulted in a 30 minute phone discussion. We discussed the above the features, and the Director, a personal friend of our client, was excited to introduce clinical clarity as to why, in his expert opinion, the client had “beat the odds.” He mentioned that while the outflow gradient may be suboptimal, the excellent total cardiac output (elite for his age) and decreasing septal thickness were of more concern to him and both associated with an encouraging prognosis. Also, through extensive workup spanning nearly 14 years, the demonstrated clinical stability was incredible. He went so far as to directly state the client “is past the risk of progression.” Ultimately, the Director was willing to speak to the contents of this paragraph and more in the way of a letter that he created and sent to me. This Summation Letter created new and directly applicable clinical evidence which was utilized to bridge the gap in clinical and insurance medicine. Moreover, as a preeminent authority—in addition to running multiple divisions within the Mayo Clinic system, he has authored 80+ peer-reviewed papers, has authored textbooks, has spoken all over the world, etc.—the clinician brought immense credibility to our overall underwriting presentation and was the final nail which allowed us to obtain a viable pricing.

The final underwriting package included the complete records, a four-page underwriting cover letter which we created, and a two-page summation letter which the Director created and emailed directly to me. When all was said and done, we were able to obtain a Table 3 Nonsmoker pricing on a client who had previously been declined.

When the brokerage possesses the will to prepare to win and is willing to surmount the underwriting challenges on the front end, a path to underwriting victory starts to take shape.

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