Thursday, March 28, 2024

Leaving Or Living A Legacy—What’s Your Story?

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Not long ago I heard a sad story from a friend about his grandfather, who had passed away when my friend was a young child. As he grew older, my friend became curious about his grandfather and asked his parents and other family members, “What kind of person was he?”

“Oh yes (with a roll of the eyes), he was a piece of work,” my friend heard from many family members. “He was a womanizer, a drinker and a gambler, basically blowing the family fortune during his young lifetime.” The story of my friend’s grandfather was another instance where a considerable fortune was wasted by one individual in one generation!

Leaving a Legacy
Most of us think of “leaving a legacy” as a positive thing. In a Huffington Post article written by Joan Moran on April 27, 2015, she writes:

“The idea of leaving a legacy is the need or the desire to be remembered for what you have contributed to the world. In some cases, that contribution can be so special that the universe is unalterably changed. However, for most mere mortals walking this earth, most will leave a more modest legacy that does not necessarily change the world but does leave a lasting footprint that will be remembered by those whose lives you touched.”

I focused on the words “… a lasting footprint that will be remembered by those whose lives you touched.” Clearly, “Grandpa’s” legacy left a lasting footprint—just not in the way that he or most people would like!

According to a blog on the Human Options website entitled Legacies Happen—Don’t Leave a Bad One:

“There are two types of legacies that one can leave behind, a positive or a negative legacy. If one is not intentional about the legacy they are creating, an unintended legacy will be created whether you plan on it or not. Most people do not consciously choose between the kinds of legacy their life will leave, nor do they realize they are actively creating one with their actions of yesterday, today, and tomorrow. More often than not, legacies just happen.”

The Unintentional Legacy
Yes, in fact, often legacies are quite unintentional, and I wish that were not the case. I believe that intentionality is critical to leaving a positive legacy—leaving it to chance is for those who do not care or do not know any better. I honestly do not think that there are many people who would intentionally want to leave a negative legacy. I could be wrong.

I recently had a call from an advisor who asked how to advise a $25 million dollar net worth client who said the following when asked about his legacy planning:

“I don’t give a sh__. I had nothing; my wife had nothing—I have seen too much money do bad things to kids. We are leaving the money to the kids and they can pay the estate and other taxes out of what they get.”

The irony is that the client said that he had seen too much money do bad things to kids—the heirs—and in the very next sentence he said he is leaving the money to the kids. I believe that this story is going to end poorly, but not for the reasons you might think.

Like so many young couples, this client and his wife had nothing when they started out (generation one). And now, they are quite intentional about not planning to have their hard-earned wealth, garnered and carefully stewarded throughout their lifetime, last for generations to come. Their estate is valued at $25,000,000—a healthy sum by anyone’s standards.

Who is responsible for managing the wealth that has been created? If bad things happen to heirs who have been left “too much money,” where does the responsibility lie to minimize this possibility? This is a responsibility that many avoid… And that becomes their legacy!

Have you heard the term “shirtsleeves to shirtsleeves in three generations”? This proverbial saying from the early 20th century, often attributed to Andrew Carnegie, implies that wealth built in one generation will be squandered by the third, leaving nothing (or very little) for generation four except to start the cycle all over again (maybe).

True Wealth
Financial wealth is only one of the four aspects of something called True Wealth. Without the other three very important parts of True Wealth, financial wealth will very likely be lost. Lee Brower, well known speaker, author, and coach on Empowered Wealth, tells a story about a woman he met on a flight between Salt Lake City and Atlanta. Following is the story from my perspective:

After the usual pleasantries on the long flight from Salt Lake City to Atlanta, the inevitable question, “So, what do you do?” came up. Lee told the woman, an accomplished businesswoman from Jackson Hole, WY, with substantial wealth, that he helped people optimize their True Wealth. Perplexed by his reply, she probed further.

Lee asked the woman, “When you think of wealth, what do you think of?” To which the woman replied “money.” Lee drew, on an airplane napkin, four quadrants with the lower left one titled “Financial” and in that box he wrote “$$$.” They continued to fill the box with other financial assets such as stocks and bonds, real estate, business interests, etc.

Then Lee asked her what she valued more than money, to which she replied, “Her family, of course.” He labeled the top left box “Core” and wrote “family” in that box. He continued to probe… “What about health, would you trade your health or your family’s health for more money?” “What about your faith or your values?”

After completing the “Core” quadrant, Lee moved on to the top right box and wrote “Experience” and asked the woman to think how she would complete this box. The words “relationships,”, “exploration,” “education” and “wisdom” came to mind.

Finally, Lee titled the last box, the lower right, as “Contribution” (think charity) and the woman completed the box with “Time, energy, attention and resources.”

When they had completed the task, Lee asked her which categories of assets she would like to see carried forward to future generations, to which she replied, “All of them,” quite emphatically and with a very eloquent explanation as to why she felt that way.

He then handed her the pen and asked her the following question, “If you had to leave one behind, which one would it be? Please cross it out.” Almost without hesitation, she crossed out “Financial.”

Next came the most important lesson of this entire conversation. Lee asked her “Why?” She explained that if her children and grandchildren were “rich” in Core, Experience and Contribution that the money would take care of itself, but if they were “bankrupt” in those areas, the money would likely be squandered in very short order.

This story clearly demonstrates that True Wealth is not just about the money. How many wealthy individuals do you know that are genuinely unhappy? Many times, the dedication to money and success is at the expense of an individual’s health, family, and relationships, and often results in illness or sometimes death, broken families, and failed friendships.

The Rates of Failure
As financial, legal, and accounting professionals who advise families on the generational transfer of wealth, commonly known as estate and/or business succession planning, our failure rate is spectacular. Only 70 percent of generational wealth transfers succeed beyond the first generation, according to The Williams Group, and beyond that the success rate is pitiful! Research from many other sources claim that the failure rate beyond generation two is 85-90 percent and beyond generation three, some claim that it is as high as a 97 percent failure rate. Let me say that a different way… As financial “guides” to our clients, we fail 97 percent of the time in helping our clients transfer wealth successfully over three generations! This is a statistic of startling proportions! As an almost 40-year professional dedicated to building, protecting, and implementing plans to transfer wealth generationally, that really bothers me. A 97 percent failure rate is unacceptable to me—what about you?

Causes of Failure
The causes of these failures are indicative of the lessons learned from the woman on the airplane story. The 25-year study by The Williams Group showed that only three percent of failures were attributable to poor legal, tax or investment advice. The other 97 percent was attributable to a breakdown of family communication and trust (60 percent), inadequately preparing heirs (25 percent), and failure to establish a family mission (12 percent). Brown Brothers Harriman & Co. published some of the research in a paper referencing The Williams Group study in 2019 titled Crossed Wires: Why Most Generational Wealth Transfers Fail. It is a wonderfully educational piece.

The most important point of this study for advisors, from my perspective, is that we all need to speak more about the “Why” of wealth—not just the “How” of transferring it to our children.

Change the Conversation!
I spend a lot of time working with financial advisors to help them guide clients toward the goal of optimizing True Wealth. Ron Nakamoto, founder of The True Wealth Mentorship Program, and friend and mentor, asks, “If we are not trying to optimize what we really care about—True Wealth—then what are we trying to do?”

He goes on to say that “after satisfying our basic needs (reference to Maslow’s Hierarchy of Needs), Money is for discovering and rediscovering happiness, fulfillment, meaning and joy in every phase of life.”

Most advisors in the estate and business succession planning world focus on the financial, process or structural conversation—investments, taxes, insurance, trusts, cost:

“Based on my assessment of your financial assets, projected estate tax exposure and liquidity needs, I would recommend an irrevocable defective trust with crummy provisions, funded with life insurance,” has been said many times by an advisor to his or her client. If I were the client, I would walk away. Sounds like a really great concept, right? It is “defective,” “irrevocable,” includes life insurance, and has “crummy” provisions! May I have two please?

I believe that an entirely different kind of conversation needs to take place first.

David York, Esq., of York, Howell, & Guymon in Utah, suggests asking different questions from the beginning that would help lead to a more intimate understanding of the client’s vision and hope for the future. For example:

  • “If you could transfer all of your financial wealth without any tax or have grateful children, which would you pick?”
  • “If you could average a 12 percent return on your investments or have children who are self-reliant, self-sufficient, productive, and mature, which would you pick?”
  • “If you could ensure that your assets were used exactly as you outlined in your financial plan or have a family that is engaged, involved, and connected with each other 50 years from now, which would you pick?”

It is often said that clients do not care what you know until they know that you care. Change the conversation, learn to ask empowering questions, show prospective clients that you are committed to helping them optimize their True Wealth and nobody will care about fees, price, and other metrics, assuming you are competently doing your job as a financial professional with the client’s best interest at heart.

Focusing on the price of products, fees, historical returns, alpha and all the other “numbers” will ultimately lead you down a rabbit hole of commoditization. Advisors often gain a client for the same reason that they will lose a client—because of the numbers. There will always be someone who will undercut you on price or promise better returns—that is a very transient existence (and frankly, business model). What will happen when computers, through artificial intelligence, begin to take over many of the financial analytics and recommendations that are made today by humans? That is a topic for another day, but this reality is already knocking on our door.

Ask the Right Questions and Listen Carefully
Deep, personal, and intrinsic discovery that is revealed by asking the right questions and truly listening can never be replaced by artificial intelligence. Our goal as financial advisors should be to help our clients optimize multi-generational true wealth—“Living their Legacy” rather than “Leaving their Legacy.” To do that, we must understand our clients’ stories and provide the platform and the space to share these stories by asking empowering questions and creating a deep personal relationship. Only then will the financial assets that you help your clients build, manage, and protect steward the core, experience, and contribution assets for generations to come. This change in the conversation and approach will help create thriving legacies that survive the 97 percent failure rate that our profession currently experiences.

Choose New Shoes For A Complete Retirement Plan

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Creating a retirement plan for your clients is just like when you choose new shoes: You need to get them as a pair to be complete. And just like new shoes need a pair to be complete, so too do retirement plans need a pair of benefits to be complete. Why? And what are the pair of benefits needed for your clients to have a complete retirement plan?

When helping people prepare for retirement, financial advisors must help them to both build their wealth and protect their health for a safe and secure future. Yes, you need to help clients make money; but nothing will ruin their retirement faster than a serious health problem that drains all their lifetime savings you worked so hard to help them build.

When it comes to wealth building—the first of the two benefits in their complete retirement plan—you know there is no shortage of financial advisors who want to help clients do just that. After all, everyone wants to tell your clients how to save their money. Everyone wants to tell them how to invest their money. And everyone wants to tell them how to manage their money. This means you’re already in serious competition just based on the sheer number of other financial advisors in the marketplace. Then maybe you just might want, or need, to be a bit different and distinguish yourself from “the pack.”

Because here’s the “dirty little secret” about our business: Too many financial advisors think they’re in a “Zero-Sum game” with their clients’ money. They might think a dollar spent to protect health is a dollar they can’t spend to build wealth. “So forget about spending on health care,” those financial advisors will tell their clients. “You don’t need that,” they will say defensively.

But does that make sense to you? Do you care more about your clients than that? Do you only want to build their wealth? Or do you want to be different, do more, and help them protect their health, too? Remember “health care,” the other part of the complete retirement plan? Please don’t forget it like all the other financial advisors who are too busy building wealth to remember about protecting health. “Just put all your eggs in this one basket of investments,” they will tell their neglected clients. But what happens when that basket gets dropped and all your client’s nest eggs are shattered by a drop in the stock market—just when they’ve had a massive stroke and are forced into a skilled care nursing facility costing $10,000 per month? What can you do for them then? (That’s called the “sequencing” risk.)

This is why building your wealth without protecting your health is just like buying one shoe! You need the pair of these benefits to complete your clients’ retirement plan properly.

Moral of the story? You’ve got to be sure to also create your clients’ health care coverage for a complete retirement plan, or partner with someone specializing in Seniors Health Care to help you do this. It’s the right thing to do—and there’s still plenty of this pie left for you to share with this partner anyway.

Eventually, health care coverage always pays off when it’s needed most—when serious health problems arise. It’s much easier then for your clients to spend “other people’s money” to get well rather than having to spend their own. And it’s much smarter, too. (Remember that word, “smart”; we’ll get to it again soon.)

Your clients will realize when health care problems arise later that the coverage you helped them get now costs them just pennies on the dollar rather than the dollar for dollar cost they’ll have to pay later without it. (P.S.: They won’t have to cash in your accounts then to pay for it, either!)

Don’t let poor health cost your clients the dollars they can’t replace in retirement. Help them arrange now for the coverage they’ll need later, so they don’t have to spend their out-of-pocket dollars when they need it then. When it comes to health care costs, it’s just like the old saying: “Pay me now, or pay me later.” And pay more later, when it’s their dollars at that time.

So help your clients do what everyone needs to do: Create their own health care program to go with their wealth care program for a complete retirement plan. I recommend that you deploy something I call, “Six Steps to Smart Seniors Health Care.”

The title of this program always raises the question of whether it’s the “Six Steps to Health Care” that are smart, or if it’s the seniors who take the “Six Steps to Health Care” that are smart.

The answer, of course, is both. Yes, the “Six Steps to Health Care” is smart. But it’s also the seniors who take these “Six Steps to Health Care” who are really smart. And you should help your clients become these smart seniors too!

This is a real “Win-Win” situation, and not another “Zero-Sum game”. So, let’s learn how to help your clients’ play this win-win game. Here are the “Six Steps to Smart Seniors Health Care,” and what you must do to help your clients’ play this win-win game:

  1. Learn about our great “Social Insurance” system here in the United States (great so far, still great today, but how great tomorrow?), and how to help your clients plan their complete retirement based upon it.
  2. Learn what the “Original Medicare” plan is that clients will get when they turn 65, and why they may want to change it as their foundation for a health care plan in retirement.
  3. Learn about the two alternatives to Original Medicare: the Medicare Supplement, and the Medicare Advantage. Learn how to help clients decide if this may be a better alternative for them, and then which one of the two they should pick.
  4. Learn what the “Cost of Living” really is and really costs, and how best to pay for it (or, what will happen if you don’t).
  5. Learn about the most affordable approach to the most likely outcome for your future, and what to do about it now.
  6. And lastly, learn the reality of “the End of your Story,” and how to best prepare for it–emotionally and financially.

These are the Six Steps that your clients’ New Shoes need to take for a pair of benefits to complete their retirement plan. So let’s help them put on these New Shoes now, and…start walking!

The Power Of Renewals

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It used to be that people got into the life insurance business because of the renewals. “Mailbox money,” as it was sometimes called, helped smooth out the ups and downs of commissions and ensured that the agent wasn’t starting each year at square one. Renewals also gave the agent a means of funding his or her retirement, either as a renewal stream of income or a basis for selling the practice to another agent. For better or worse, the trend over the last 20 years has been toward heaped commissions, where almost all of the commission is paid in year one and renewal commissions are nominal at best. The result of this focus on the “urgency of now” is that the Power of Renewals has been overshadowed.

The result of this gradual transition is that renewals are looked at as a “nice to have,” rather than an absolute necessity, which just does not make sense. Think of the amount of time, energy and hard work that goes into placing a life insurance policy inforce. The prospecting, the client meetings, shepherding the case (and the client) through underwriting and then reminding them why what they are doing is so important. And that’s just the beginning. Then comes the servicing, the client reviews and reminding them why what they are doing is so important. All of that takes time, energy and hard work as well. Which brings us back to the original point about renewals. With all of the work that is done on the front end and all of the work that will be done when the policy is inforce, a renewal shouldn’t be a “nice to have,” it should be an absolute requirement. Is all of that work done just for the first premium or do you earn every premium that is paid? I think it is the latter. If a client pays a premium, the agent should get paid a commission that matters.

I said before that the trend has been toward heaped commissions, but not for everyone. There is one product that still recognizes the Power of Renewals–participating whole life. Renewal commissions in many participating whole life products range from two to four times what many UL and IUL contracts pay in the first ten years, while paying the same first-year commission. What does that mean in actual dollars? Potentially a lot. Let’s take an agent at a 90 percent contract who writes $100,000 in paid target premium per year. His first year commission is $90,000 each year, but what about the renewals? In a participating whole life policy with a 5.5 percent renewal (yes, this does exist!), the total renewal commission over ten years is $222,750 and the renewals paid in year 10 alone are almost $45,000. In a UL or an IUL that pays a two percent commission, the total renewal commission over ten years is $81,000 and the renewals paid in year 10 alone are $16,200. Which would you rather have? That is the Power of Renewals.

In addition to the dollars, another benefit of a good renewal stream is the flexibility and the peace of mind that they can provide to your practice. Everyone wants to grow their practice, get more clients and make more money, but it’s usually not that simple. Growth requires capital to invest in the business, something that is not always readily available. In the previous example, the difference in renewals in years eight through 10 is more than $22,000, $25,000 and $28,000, respectively. What could that be used for? Hire a part-time employee? Move to a bigger office? Invest in a better CRM system? All are possibilities when there is a stream of renewals.

If 2020 taught us anything, it is that peace of mind is important and can be fleeting. When the world shut down, our business slowed. Seminars were on hold. Client meetings were tough. Underwriting requirements were harder to get, so the business already submitted slowed as well. As our industry always does we found a way, but when prospecting, meetings and underwriting slow, so does revenue. And when revenue slows, peace of mind can take a holiday. Renewals would not have solved the problems that we faced last year, but they sure could have brought some peace of mind. In the previous example, the total renewals for participating whole life in years eight through 10 were almost $35,000, $40,000 and $45,000, respectively. In a year where top line revenue took a hit, would that have helped calm the nerves?

Renewals are not a “nice to have.” They should be an essential part of your business. A good, producing agent can build up a healthy stream of renewals in less time than you think. For that agent, January doesn’t mean starting from scratch, it means adding to an annuity stream of income. One that they can count on year after year. If you would like to take advantage of the Power of Renewals, all you have to do is take a new look at an old friend–participating whole life. Happy selling!

Balancing Tech And Human Touch

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Upgrade Customer Loyalty With Digital Solutions That Feel Personal

New business realities make it essential that you’re working with the right employee benefits provider.

It’s a digital-first-with-everything world. Consumers seek efficiency, which means they may sometimes prefer an online connection in addition to wanting to deal directly with a person. In other words, they want it both ways.

What we’re also seeing is that people are switching brands at a faster clip than ever. According to a McKinsey COVID-19 U.S. Consumer Pulse Survey, 76 percent of respondents experimented with new online shopping behavior.1 That means your competition is ready to meet the moment, even if you aren’t.

Now is the time to evaluate if the experiences you’re delivering reflect a balance between high-tech and high-touch.

For brokers, this is even more complex. As you collaborate with your provider, you want to have faith that their products and services are right for your customers and that their team is as committed to their care as you are.

In today’s plug-and-play world, the customer experience must be fluid, consistent and satisfying. To protect your business, you must ensure that the provider you collaborate with has what it takes to foster, not fray, your client connections. The best advancements are intuitive, feel personal and empower people to pay attention to what matters most—relationships.

Here are three questions to ask when considering that value:

1) Does their digital experience include the human touch?
Of course providers need to automate and provide self-service capabilities, but even these experiences should impart a feeling that real people are involved. Technology has to be personable. This is particularly crucial during the shift from what was in person to all virtual to a hybrid office environment.

At our company we’re human-centered and digitally enabled. We take a holistic view of the customer, whether they’re pulling a self-service report from the portal or calling into our contact center.

One way we’re accomplishing this is by bringing together siloed departments, systems and communication channels. This allows us to share information and cross-coverage customer support, which helps us evaluate our customer needs more quickly and provide better experience, whether via a claims associate or through self-service.

2) Can they provide anytime, anywhere service?
Eight to five doesn’t always cut it anymore. Your business and your customers are looking for service options that work on their schedules. Be sure to evaluate how easy it is to do business with your providers. If it’s hard for you, it’s likely hard for your customers, too.

We are constantly upping our disability tech to help bring our caring approach to every broker and employer interaction. While we pride ourselves on being available “live” when requests arise, we continuously introduce new ways to help authorized users (you and your clients) securely access reports and claim status on your own terms, whether inside or outside normal business hours.

The human touch is central to our new and ongoing claims processing improvements, including reporting and submission capabilities to service our disability solutions. Technology advancements enable our claims team to spend more time with you, your clients and their employees. Technology empowers our people to pay attention to what matters most—your people.

3) Are empathy and efficiency in balance?
Your provider’s system should have a two-way benefit.

For businesses, it must improve accuracy, increase scale and simplify administration. For customers, it must be easy to access, hassle-free and help them solve problems. But no provider, especially in our industry, should be tempted to completely switch to digital and away from “human” completely.

A key to a balanced use of tech is knowing what your customers want in their moments of need. Sometimes they just need the ability to do something themselves; other times they want the comfort and empathy only a caring, competent person can provide. Balancing empathy and efficiency are critical to building relationships with customers in the digital age.

Your provider should embed personal interaction at all levels–from the initial moment of contact with a salesperson, to onboarding a new policy, to claims submission. Employee benefits products are essential; how we deliver around them has to match.

Reference:
1. https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/covid-19s-impact-on-demand-and-costs-in-the-cpg-industry#.

One Of The Best IULs You’ve Probably Never Heard Of

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With all of the recent government tax and spending proposals, some of which may be signed into law in some form or another, the concept of tax advantaged growth and supplemental tax-free retirement income from a properly structured indexed universal life is certainly continuing to gain steam. Of course, coming out of a major pandemic, prospects and clients also can better see the value of owning life insurance. As a 15-year veteran in the indexed universal life space I can tell you that today there is no shortage of IUL products in our industry. Each tend to fit inside a particular niche, whether that is accumulation-focused, death benefit protection or even living benefits such as chronic and critical illness. Out of the roughly three dozen indexed universal life products, there are a handful, maybe just two, of top tier IUL’s that excel in the cash value accumulation space.

However, you can have the best IUL in the marketplace, and if it’s not structured within the best interests of the client with the minimum amount of life insurance that the IRS will allow, funding right up to the maximum Internal Revenue Code guidelines, it could actually be a poor addition to a client’s overall financial plan. It’s important advisors work with a qualified independent marketing organization who can shop around insurance companies to find the best product for a client’s situation, are leaders in the IUL space, and can set these up correctly.

One of the best, top-tier, accumulation focused IUL policies is actually one you may have never heard about. The reason being it’s a proprietary product only available to a select group of high-quality organizations and their respective advisors.

First, to backtrack to 2015, and again to 2020, there were two different regulations that were put in place to help minimize the illustrated values and loan proceeds of IULs. This was an attempt to get rid of some of the abusive sales practices in our industry, all of which were great steps for prospects and consumers alike. However, some insurance carriers reacted by making this great product more confusing, introducing various bonus options (some guaranteed while others being non-guaranteed) and adding significantly higher policy costs to an already somewhat expensive product.

Really their goal was to provide the best looking illustration and ledger to the prospect in hopes of winning the “illustration war.” The company I want to focus on today did things the exact opposite. Rather than focusing on the best looking illustration, they took the path of focusing on the best long term consumer value. To do this they’re not relying upon bonuses to provide the value. Instead they’re focusing on a simple design, low policy costs, high uncapped performance, loan flexibility and a proven history of high renewal rates.

This insurance company has one of the lowest policy costs in the industry, and to highlight that, the premium load is only 5.5 percent. The reason I point this out specifically is that premium loads have increased substantially with some of these new generation IUL products. Those premium loads are used to cover state premium taxes, the cost of bonus features, even profitability for the insurance company and of course advisor commissions.

This company has also updated their IUL product with the updated 7702 guidelines. January 1, 2021, the IRS updated the 7702 guidelines which dictate the level of life insurance that needs to exist in order to receive all of the tax benefits permanent life insurance provides. Resultantly, insurance companies were able to update their products and basically reduce the amount of life insurance that must exist for the dollar of premium funding. The benefit for this IUL is they’ve already updated it with the new 7702 guidelines which further reduces the life insurance cost structure. Additionally, they’re a highly rated insurance company. They have a 96 Comdex. Comdex is a 1 to 100 score, and 96 is one of the top ratings for a life insurance company offering an indexed universal life.

Let’s next talk about the fact that it’s a proprietary product with proven performance. Now, to give you an analogy, there are other low cost IULs in the industry, but think of them more like a Prius. You’re going to have the efficiency and high miles per gallon, but you are not going to have the horsepower or performance. This IUL not only has the efficiency in the low policy expenses, but it also has the performance upside. So think of this IUL more like a Tesla, where you have the efficiency of the electric engine but you also have a high amount of horsepower.

To do this, this product has three different uncapped index strategies all with participation rates greater than 100 percent. Let’s say the underlying index provided a 10 percent return and your participation rate was 125 percent. Your client would receive a 12.5 percent rate of return with no cap or upside limit. They also have three different index crediting segments: A one-year, a two-year, and a three-year, all with impressive 30-year lookback returns. As we know, past performance doesn’t predict any future results. While the averages look great, they look at past index data and current participation rates. We don’t know what the next 30 years of index data will look like and what participation rates will be. The low interest rate environment may continue to cause a drag on the insurance companies’ general portfolio yields causing participation rate pressure.

30 Year Average: One-year segment 7.55 percent, two-year 8.18 percent, and the three-year 10.63 percent.

Again, all very strong returns, but I’d take that with sort of a grain of salt considering we don’t know what the next 30 years will look like. The way these indexed allocations are structured is that the insurance company can provide higher cap and participation rates based on the cost of the options. These options and derivatives are based on the volatility of the underlying index and the time length of the index segment. Longer indexed segments essentially allow the insurance company or investment bank to offer greater cap or participation rates.

However, there is some risk with longer-term segments. Let’s say you have two really good years where the underlying benchmark is having a solid run. But a bad third year comes along that may potentially wipe out all your gains for the entire three-year segment. One way we mitigate against that is a very diversified approach. We recommend allocating a third into each of these indexed segments. Not only are we diversifying allocations, but we are also diversifying time. One key differentiator of this IUL is that it provides partial index credits for three reasons: Monthly deductions, withdrawals and death. With most insurance companies, if your client dies halfway through the segment, their beneficiaries are not going to receive an index return. With this policy, let’s say you’re two years in on a three-year segment and your client passess away. Their beneficiaries will still receive proportionate credit for the time they were in that index segment. Again, not only are we recommending diversifying the indexed strategies, but we also have a feature in this IUL to help mitigate against some of the risk of longer-term segments.

Lastly, loan types and rates are crucially important for a top-tier accumulation IUL. The way these policies work is you’re not actually withdrawing money from your life insurance policy, you’re merely taking a loan from the insurance company with your life insurance cash value and death benefit as collateral. Additionally, the amount you borrow from the insurance company continues to earn index returns in the contract, which can be quite substantial. The way to win with an accumulation IUL policy is to have low borrowing costs from the insurance company and high upside on the index.

This insurance company has three different loan types. A fixed loan (net wash after 10 years), an indexed loan and a variable rate loan. The index loan has a contractually set guaranteed rate of 4.75 percent. No matter what happens with interest rates, the insurance company can never charge more than that stated rate in the contract. The variable loan works a little differently, as the rate is based on the Moody’s Corporate Bond Yield Average, which as of right now is historically extremely low.

You may ask yourself, what happens if interest rates increase with a variable rate loan? Well, that is going to increase the variable loan rate. However, there is a cap in this policy of one percent over and above the fixed rate, which is similar to a moving target. The fixed rate currently is 3.25 percent, so one percent above that creates a current 4.25 percent cap. The nice thing about this IUL is it allows for the ability to switch loan types once per year. Hypothetically if your variable rate loan starts to exceed 4.75 percent you can switch loan types to the index loan and lock in that 4.75 percent rate. The nice thing again is this insurance company gives you the flexibility to decide that.

To summarize, this proprietary IUL offers a simple, low cost design, high indexed upside performance and great loan options with plenty of flexibility. To top it off, it’s offered by a highly rated carrier that has plenty of experience in the IUL market place. Our high net worth and high-income earning clients are looking for solutions to mitigate current and future taxation. If you aren’t delivering this message, they will surely be hearing it from someone else.

The Enhanced Flexibility Of Today’s VUL

Clients need flexibility in financial and insurance products as their circumstances change through life. When they age and face new challenges, the financial products they put their faith in should be able to adjust to directly address those needs. Historically, many financial and insurance products were built to service a single need, but through the decades these products have evolved to meet the demands of a consumer that values choice and flexibility. In the permanent life insurance world we have seen continual evolution towards that end, and I would argue the most dramatic change has been within the variable universal life or VUL product arena. Due to a series of regulatory adjustments starting with actuarial guideline 38, followed by 49 and 49-A, coupled with a very low interest rate and resilient stock market environment, it has shifted some of the attractiveness towards the VUL side of the spectrum. None of those actuarial guidelines mentioned had an impact on VUL.

In 2013, AG 38 shifted the spectrum from traditional GUL to lifetime no-lapse guaranteed VUL products, often referred to as GVUL, creating a situation where more death benefit could be purchased per premium dollar with VUL while maintaining the guarantees compared to GUL/UL. AG 38 increased the reserve requirements for a carrier’s general account products which had a negative pricing impact for certain products. At that time there was one specific GVUL product available, but now there are several. Outside of the death benefit guarantee, VUL added the flexibility of cash value accumulation potential for the customer that GUL simply could not provide for potential income needs or 1035 exchange opportunities down the road. AG 49, and subsequently AG 49-A, put pressure on the indexed universal life or IUL market via specific guidelines on product specifications along with illustration requirements. That forced many carriers to integrate their multiplier IUL options, along with more traditional IUL options, within the VUL chassis as sub-account options instead. This adds tremendous flexibility to the VUL offering where previously there were no such options available for downside protection outside of the fixed accounts for VUL. Now a customer can invest some or all their cash value within these indexed accounts, between 50 and 100 equity, fixed income, or alternative investment options depending on the carrier, or within the fixed account options. Cash value volatility control becomes important as a client’s risk tolerance changes as they get older, or they decide it is time to take income. Without many being aware of it, suddenly, VUL has become one of the most flexible permanent life insurance solutions available–regardless of a protection or accumulation-based design–simply with the addition of these new features. Additionally, every carrier has their value-added nuances, such as John Hancock’s popular Vitality program, business solution support teams, as well as many offering survivorship or SVUL products in addition to their single life lineups.

Popular VUL carriers with age 120+ no-lapse guarantee availability:
Lincoln, Prudential, Securian and Nationwide (via ENLG rider)

So now you have a situation where VUL offers a range of no-lapse guarantees depending on product, IUL sub-account options for downside protection when needed, and typically a chronic illness rider with many policies as standard. For example, Prudential’s popular Benefit Access Rider (BAR) is an add-on that many agents and clients utilize. On top of that there are a handful of fantastic carriers that offer long term care riders for the “what if I get sick” scenario. This option is what I would refer to as a “combo” sale, to supplement what a client has perhaps already planned for in terms of long term care coverage. We all know how much assisted living costs, and the ability to accelerate the death benefit to provide a pool of cash either on an indemnity or reimbursement basis is adding another layer of flexibility to the product. Obviously a long term care rider comes at an additional cost that needs to be taken into consideration by both the retail representative and the client, but it at least provides that option.

As it pertains to this topic, a particular carrier who has offered a long term care rider since 1999 has been Nationwide Financial. Currently, the rider is utilized in 45 percent of their policies where it is available. It is one of the only indemnity style riders available among the carriers and we have seen considerable traction with this solution. Nationwide has what I would consider a very balanced VUL offering with this rider, along with a strong sub-account lineup, indexed options, and available no-lapse guarantees.

Popular VUL carriers with available LTC riders:
Nationwide, John Hancock, Lincoln and Equitable

A primary barrier to entry to access the VUL market for general agents and insurance producers is the fact that it requires securities licensing and a registration with a broker-dealer. Offering VUL requires an insurance license, the FINRA Securities Industry Essentials (SIE) along with the top-off Series 6 and Series 63 exams in most states.

Securities licensing needed to market VUL products:
Securities Industry Essentials (SIE), Top-off Series 6, Series 63 (Most states)

As regulation continues to change, whether that comes from the NAIC, FINRA, the SEC, or Department of Labor (DOL), it may be advantageous to obtain these licenses as an insurance producer or general agent to remain competitive. Not all broker-dealers are geared for the insurance industry, although there are many to choose from for a potential affiliation and registration. If you are not able to offer these solutions, your agents and customers may be forced to go to your competition. This VUL market has evolved to offer some very competitive and flexible solutions that are certainly worth consideration as you think about the future of your business or agency.

Confessions Of A Born-Again Life Insurance Agent

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“We make a living by what we get. We make a life by what we give.”
—Winston Churchill

“Retirement is not in my vocabulary. They aren’t going to get rid of me that way.”
—Betty White

Readers of this publication are generally familiar with my ruminations on topics related to long term care planning and insurance. Being type-cast as a long term care insurance “guy” is understandable. Nearly 70 percent of my time in the insurance industry has been spent as a marketer, brokerage general agent, trainer, and consultant with a singular (some might say maniacal) focus on all things long term care. However, the first 14 years of my “agenthood” was spent in the trenches as a classically trained life insurance agent.

It may seem surprising to some that, as I come into the home stretch of my sixth decade on this planet, I am not longing for life in a planned senior community with a golf course and many recreational and cocktail choices. To quote the great George Burns, “Retirement at 65 is ridiculous. When I was 65, I still had pimples.”

COVID-19 gave all of us time to think about what we would like to do when life returned to some semblance of normalcy. As Ron Hagelman and I wrapped up a few consulting projects, it became clear to me I needed to “re-imagine” (I really hate that word; I have my pronoun and I’m sticking to it!) myself. An internet meme that circulated last year went something like this: During COVID, one became either a hunk, a chunk or a drunk. Having accomplished two of the three, I decided to add a fourth choice: Become a personal producing life insurance agent, again!

How could this notion possibly cross my mind? Could it be early-onset dementia? After all, in my early career I was not all that successful. Don’t get me wrong. I was a competent and knowledgeable agent but lacked the discipline to consistently get in front of enough prospects. Somehow, I sold enough insurance to get by, but Ben Feldman had no worries that I would surpass his sales records.

In the last quarter of 2020, as I contemplated revisiting life as a retail agent, some questions and ideas provided me with direction and a concept for this effort.

  • LIMRA reports continued to point to life insurance ownership rates in the low 50 percent range.
  • Has non-stop radio/TV advertising from term life call centers moved the life insurance ownership needle? Either no, or it is replacing what is not being sold by an aging-out sales force.
  • Feedback from my BGA brethren suggested that most “financial advisors” do not sell life or long term care insurance. Many BGAs today actually write life and long term care business for financial advisors on a split case basis, something that most agents were reluctant to do a decade ago.
  • Over the past few years I have helped some old clients and friends with their life insurance needs. The cases fell into two primary categories:
    1. Insureds who had purchased cheap 20-year term policies in their late 40s thinking they wouldn’t need life insurance after they were in their late 60s. They were wrong for various reasons, but now premiums were a lot higher, insurability was an issue, and conversion was not an option.
    2. Underperforming universal life policies that needed to be rescued.
  • I reviewed the demographics of our local community. Our county has a population just north of 300,000 (small for California), a broad socio-economic profile thanks to the wine and tourist industries, and it is becoming a tech alternative to Silicon Valley and other parts of the state. We have a demographically diverse population; lots of small business owners, professionals, and families with a focus on community and “keeping it local.”
  • I checked out the probable competition: Retail property/casualty and health insurance agents and financial advisors abound. Many offer life and long term care insurance, but based on their advertising and websites, these appear to be secondary offerings to their core business.

Maybe I’m a sap, but I’ve always believed that the services of life insurance and long term care planning are a societal good. Both make a significant difference in people’s lives while alive and at point of claim. After consulting with my wife and business partner Susan Blais, who’s been selling long term care insurance through a referral network she has established over the past several years, we concluded there is room for a local retail life and long term care insurance agency in our area. The initial goal is to establish a business presence via our local contacts and centers of influence, radio advertising, and a website with top-notch educational content. Blaze ‘n Bear Insurance Services, Inc., began operation January 1, 2021.

As I work to refresh my memory on a broader range of insurance planning topics, I admit that I have forgotten more than I remember. Interestingly, one of the first cases I wrote was a non-can disability policy on a young attorney, my first in over 35 years. The insurance carriers and BGAs I have affiliated with show a great deal of patience working with an “old dog” like me. The relearning curve has been steep but satisfying.

Our market focus is simple and clear. We help consumers mitigate risk. We do not give investment advice and are not looking for assets under management. After 30+ years of long term care focus, it’s a pleasure working with young people, especially when we can educate them on something more than just term life. When we sell term we always promote the value of convertibility. I am comfortable discussing the value of par whole life and the “Infinite Banking” concept. I like guarantees and reliable cash value growth. I wish I still had all those whole life policies I bought when I was in my 20s in order to qualify for contests or validate my contract. Indexed UL causes me concern. While some provide transparency, many do not. I understand their appeal, but I am worried that our industry is moving down another long and bumpy road that will not end well 20 years from now.

Working with small business owners is another key component of our strategy. While most plan to fund their retirement via the sale of their business, more than 95 percent do not know its value. We subscribe to a service that allows us to provide credible business valuation and helps us guide business owners in business continuation and succession planning. We also expect this to lead us into some estate planning cases, particularly if current laws are not extended past 2026. Long term care planning also continues to be part of our repertoire. Tax-deductible premiums and tax-free benefits still resonate for owners of closely-held businesses. An unplanned-for long term care event can blow up the best-laid retirement plans.

What has not changed in all these years is that consumers are reluctant to plan ahead unless, as Ron always says, “They’re touched by an angel.” When they do express interest in something we discuss, getting them to the next steps can be a struggle. Many people just fail to plan. Inertia, new “bright shiny objects” in the financial services space (ex. Cryptos) along with exhaustion from COVID-19, low financial literacy pertaining to life and long term care insurance and the unsettled nature of our times are all factors that cause frustration. Perseverance will be critical for success. I suspect it will take 18 to 24 months to create a robust prospect pipeline.

After 45 years in the insurance business, it is hard not to be a “student of the game.” When I was a BGA I was always gratified when one of my agents would actually try one of my marketing or sales ideas. Generally, they worked to some extent. Sometimes they did not, but learning from mistakes does make us stronger. I also remember getting calls from men or women that had never been in the insurance industry wanting to know how they could get started. I used to tell them it will not be quick or easy but being a successful insurance agent is rewarding for all parties concerned.

So, I am off on a new adventure. If you have any whiz-bang ideas that you think will help, please send them my way. I suppose from time to time BW’s fearless publisher will prevail upon me to share mine as well.

Good luck and good selling!

The Power Of Word Association

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Some things naturally go together. When we think of one, we automatically think of the other. Let’s take food, for example. Peanut butter and jelly are a winning combination. From eggs and bacon to french fries and catsup, spaghetti and meatballs to salt and pepper, the list of perfect food combinations are numerous. Taking the dynamic duo of words beyond food, I immediately think of high and dry, thick and thin, knife and fork, ladies and gentlemen, peace and quiet, bubbles and bath, and rock and roll (my personal favorite). I’m sure you get the idea. Unfortunately, there are also negative word pairings: pretty and ugly, clean and dirty, fun and boring. Here, a positive word is paired with a negative word and together, they create dissonance—two ideas not in harmony with one another. Another perfect example of a negative word pairing: Long term care and nursing home. Yes, I said it.

Long term care and nursing homes have a negative connotation as a word pairing. Mention long term care and most people will associate the term with a nursing home setting. As most of us know, care at home is the predominant setting when it comes to long term care needs, followed by assisted living, and lastly nursing homes. Similarly, when most people discuss long term care, it’s thought of in terms of being an insurance policy. Long term care is simply the need for care that is expected to last for 90 days or longer because someone can’t perform life’s everyday activities of living on their own or they are challenged by a cognitive impairment. It could just as easily apply to someone who underwent surgery and requires a prolonged period of recovery as it could mean increased care as we grow older. I would say that a more accurate and holistic view of long term care is that it’s a lifestyle and not a specific setting or an insurance policy.

For just a moment, picture what it would look like if you needed long term care. Where are you? How is your care being received? Who are you surrounded by? When we think about long term care we are envisioning a lifestyle for ourselves or loved ones, and we want to make sure it plays out exactly as we see it whether it be tomorrow or 20-30 years from now.

Think about every important decision you’ve made so far in your life: Where you decided to go to college, what type of career you chose to pursue, who you married, where you decided to work, if you wanted to have children, and where you chose to live. These were life-changing decisions. Did you let someone else make those decisions for you? No, of course not. So, why would you let someone else make the decision as to how and where you will receive care?

When we talk about long term care or present long term care as part of a holistic plan, there are four positive words that should be used in every conversation: Effective, efficient, access, and control. Each of these words are powerful when it comes to positioning long term care solutions and preserving a lifestyle. Ask anyone who is savvy with their money and they will tell you there are three things that are important: Preservation of capital, effective and efficient use of their assets, and maintaining access and control over both their money and the situation. We don’t want someone else controlling our money or making our decisions. Now, let’s use those four positive words.

We’ve all heard people say that, in the event of a long term care event, they are going to pay for their care out of pocket (because they believe it’s never going to happen to them). Your reply, “I can see you’ve given this some thought. That could be an effective plan. My compliments to you since most people don’t have a plan. But is it the most efficient plan? Additionally, you may have the money to self-fund a long term care event, but do you maintain access and control not only of your money but over your entire lifestyle?” Money does not mean access and control. We are talking about access to people and services and the ability to control the setting in which those services are provided.

So, while money is important and you could pay for this care on your own, I can show you a more effective way to create greater efficiency. In addition, you can make this happen while maintaining access and control over your money and care and solving for an unlimited and unfunded liability.”

With asset based long term care protection, you can effectively create a solution that more efficiently covers the costs associated with a long term care event. Should the client never need long term care, their money will pass to their estate and beneficiaries, in some situations tax free. This allows all parties to maintain access and control over their dollars whether it be for long term care or in the form of a death benefit. Asset based long term care can be framed in these terms for you—you either use it, you use it, or you use it. Live, quit, or die, asset based long term care is an effective means of creating greater efficiency while maintaining access and control of your money and care.

Asset based long term care solutions provide individuals and couples with options to help them protect against the threat of long term care expenses—and still provide value if care is never needed. By using the time-tested products of life insurance and annuities as their foundation, asset based long term care may help prepare for concerns such as living a long life, covering long term care costs, helping with asset accumulation, or assisting with wealth transfer. An asset based long term care solution can offer premiums that never increase, benefits even if long term care is never needed, and flexibility of either a single or two-person contract.

As you live and as you grow older, your chances for needing long term care increase and an asset based long term care policy will provide you with long term care benefits, potentially for your remaining lifetime. If you quit and decide to surrender the policy, a cash value has accumulated that can be returned to you. Finally, if you die, an asset based life insurance policy will pay a death benefit to your loved ones or to your estate. With an asset based solution, you create a win-win-win scenario.

So, when it comes to word associations, let’s change the paradigm. From now on, if I say, “long term care,” no longer should your clients immediately think of “nursing homes.” No more should long term care be synonymous with an insurance policy or a certain setting. Long term care does not translate to care in a nursing home, care in an assisted living facility, or, for that matter, care at home. Through each of our daily conversations, whether it be with distribution partners, existing clients, prospects, or care providers, we have an opportunity to work together and change a negative stereotype while creating a new definition and a new image of long term care.

Long term care is a lifestyle, and today’s solutions are effective and efficient at creating the ability for the policyholder and their family to maintain access and control.

My sincere thanks and gratitude to my colleagues Michelle Prather and Kevin Riley of OneAmerica. They, unknowingly, provided inspiration for this article. I’m always listening to this powerful duo. We’re better together.

Time for some pizza and beer, wine and cheese, margaritas and chips.

The Sister Sale

As we expand our businesses and look for alternative revenue streams to supplement the financial planning and life insurance products we are selling, many of us are looking for new ideas and new products that complement our current sales processes and customer base.

For example, if I am meeting with a prospective client who is interested in purchasing a final expense product I may have a conversation with them about buying a children’s whole life policy for their grandchildren (see “Don’t Forget the Babies” in Broker World, July 2019) or an annuity, prescription drug plan, dental coverage or Medicare supplement policy. Many refer to this as a cross-sell.

For my team and I, we refer to it as the “sister sale.

Sister sales happen all around you, every day. For example, when you access a popular online retailer to have items delivered to your home, there is often a list of products at the bottom of the page that says “inspired by your shopping trends.” That retailer realizes that if you bought one product, there are complementary products you also may want to buy.

If you remember your microeconomics course from college, we studied complementary products. For example, sugar and cream are examples of products that have an interrelated use with another good, such as coffee or tea. So, if sales of coffee dipped, so might the sales of cream and sugar. Conversely, if sales of coffee spiked, you might see a rise in sugar and cream sales, regardless of the price of the complementary items.

The P&C industry effectively cross-sells by offering bundles, meaning you can save more money if you purchase your home and auto insurance together. While this works for a commodity like property and casualty insurance, it is not always the case for financial products because there must be a perceived value to the customer. Even if they are told the price is less, if they see no value in having it the customer still won’t spend the money. While perceived value is also important for the P&C sale, a lot of times the customer is purchasing because insurance is required on the home for a loan or for the auto to legally drive in the state. The life insurance customer is not “required” to purchase life insurance, or other products such as critical illness or long term care—that is of course unless their spouse is requiring it.

This brings us to our sister sales idea. Whether you are a seasoned agent or a newer agent, the following may apply to you:

  • You need to earn commissions now to pay for leads or just to build your business.
  • You would love a way to secure your future and earn larger trail commissions.
  • You have your typical sales pitch and you know the drill:
    • Final expense
    • Mortgage term sales
    • Policy review
    • Income replacement

If any of these points apply to you, the sister sales idea may be just what you need. And it really boils down to asking prospects one simple question: Who provides your cancer, heart attack or stroke insurance coverage?

When you ask this question, it naturally leads to multiple follow-up questions:

  • Wait, you don’t have cancer or heart attack and stroke coverage?
  • Are you concerned at all about getting cancer or having a heart attack or stroke?
  • You have health insurance, that’s great, what’s your deductible?
  • Are you concerned about the “hidden costs” or expenses you might incur should something like this happen?
  • If something like this would happen, would an extra $10,000, $20,000 or $30,000 in your pocket make your life easier?
  • A 60-year-old male can get $10,000 of coverage for just $20 per month.
  • Can I run you a quick quote?

This leads to the second part of the conversation and the intrinsic or emotional part of the sale.

  • Do you know anyone who was diagnosed with cancer?
  • What would you do if you got that news?

The critical illness products available from many carriers provide a way for someone who has probably gotten the worst news of their life to help plan for unforeseen or unexpected costs, get their affairs in order, or even live out a dream.

  • Living the dream could mean taking the family on a vacation or buying something you have always wanted but could never afford.
  • Getting your affairs in order could mean paying off debts or bills so your surviving spouse will not have to worry about paying them off or finally having the money to pay a lawyer to write up a will.
  • And of course, there may also be unknown or unexpected expenses that also occur with a major event such as a heart attack, stroke or cancer. What if you were in a hospital and your spouse needed a hotel or airfare to be with you? Or what if you needed a wheelchair and needed to build a ramp in front of your home to get up the stairs?

The Benefit to You
Most carriers, mine included, levelized the compensation on these products for the entire life of the product. What this means to you is better trails and a way to build a larger stream of income for your future. Let’s take a simple example and assume 10 percent trails for every year after year one. If you just sold five cases per month, at $50 in ANBP per case, that would equal 60 cases per year at $300 ANBP per annum. You would earn an extra $3,600 per year in trails (not including the first year’s commission). This might not sound like a huge number, but after 20 years would give you an additional $72,000 per year in trails. Imagine what the number would be if you could double or even triple your sales or sell higher premiums! The rewards are significant.

For Me…
It is hard for me to admit that I am approaching 60. It is even harder for me to think about the fact that I lost two very dear friends of mine this year who were both not yet 60. I have been in the insurance industry for 30 years now and I have a great passion for what we do. I am never embarrassed to talk about the protection we provide. People need to be educated about their insurance options so they see the value and what it will mean in their lives should a tragic event happen.

Your Call to Action

  • Ask the question! Who provides your cancer, heart attack and stroke coverage?
  • Ask every client, family member and friend you have!
  • Go back to clients you wrote in the past and ask.
  • Ask everyone you know age 50 and older.
  • Write the application, no matter how big or small.
  • You can write at least $10K of coverage today and I bet you are even thinking of someone to talk to about this right now.

Most importantly, make critical illness products a regular part of your agent and client discussions. Everyone knows someone who can use this product.

Happy selling!

The Power Of Living Benefits

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Watching a loved one slowly lose their physical or mental abilities overtime can be extremely difficult to watch. My first experience with this occurred in the summer of 2015 to someone I truly admire. The founder and chairman of a major financial corporation Bill Z; then 70 years old, he was diagnosed with Amyotrophic Lateral Sclerosis (also known as Lou Gehrig’s Disease). ALS is a neurodegenerative disease that usually attacks both upper and lower motor neurons and causes degeneration throughout the brain and spinal cord. The once animated and energetic business entrepreneur over the next several months found himself needing the assistance of a wheelchair and was unable to walk without aid. In addition to his lack of mobility, his speech slowly began to worsen along with the weakening of his fine-tuned motor skills. Despite the disease and its restrictive limitations that it has had on him and his loved ones, Bill often says, “I consider myself the luckiest man on the face of the earth.” Bill’s body is progressively weakening but his mind and spirit are as strong as they have ever been. Thankfully, Bill had the foresight and understanding of the importance of life insurance along with the power of living benefits.

There is a 52 percent chance you may develop a chronic illness or disability when you are 65 years or older.1 With the help of modern medicines and healthcare our life expectancy has lengthened—people are living longer. However, have you asked yourself how your clients would survive if they were unable to work? What would they do if they were diagnosed with a debilitating disease? Are they prepared to bear the burden of those expenses? This is where the power of living benefits can protect and save families. Living benefits are optional riders available on a life insurance policy that allow a policyholder access to the cash value within a policy or accelerate the death benefit for the policyholder’s medical needs while still living. Living benefits have been around since the 1980s and have evolved over the years to include chronic illness, critical illness, and terminal illness provisions that allow a client to access a percentage of the death benefit or cash value if the policyholder has what the insurance company deems as a “qualifying event.” Most insurance companies consider a qualifying event to be the inability of a policyholder to perform two of the six activities of daily living. This consists of eating, bathing, getting dressed, toileting, transferring, and continence. The simple fact is that any of these illnesses can strike anyone at any time. Most people are not prepared for a chronic, critical, or terminal illness. Oftentimes people think that just because they have a health insurance or disability plan that they will be sufficiently covered in case of a sudden or serious health problem such as a heart attack, stroke or cancer diagnosis. The reality is that this is simply not true. Many Americans struggle with medical expenses. One in five Americans who have health insurance struggle to pay off their medical debt. For cancer patients with insurance, out-of pocket costs can reach $12,000 just for one medication and average treatment costs can hit $150,000 according to the Kaiser Family Foundation.2 Regardless of your clients age, income, or what kind of health coverage they have, two things are inevitable in the case of an unexpected illness: Their expenses will go up, and their income will go down—which can result in crippling a family financially. Now that we have established the importance of having an insurance policy with living benefits let us review how the insurance company typically determines the amount of benefit that will be provided.

  • For terminal illness, there is no charge for this rider until it is used depending on the company. This benefit can be accessed when a person has been given 12-24 months left to live. The insurance company discounts the death benefit at a predetermined interest rate. If the insurance company defines the terminal illness as greater than, let us say, 12 months, the company may also factor in the value of lost premium revenue.
  • For chronic illness and critical illness, the calculation of benefits can be slightly more complex. There are three different structures that are used to determine the impact of the acceleration related to the face amount of the policy. There is the discount method, lien approach and the additional rider charge. The most common method is the discount method. In this method, the insurance company looks at life expectancy, severity of the illness (mild, moderate, severe) and the present value of the death benefit to determine what amount can be accelerated.

Positioning living benefits should not only be considered for personal insurance but also business insurance. Business owners are the lifeblood of America. It can be devastating for a business to have one of its owners or key employees out of commission. Living benefits can also be used for business succession planning such as: Key Employee, Split Dollar, 162 Executive Bonus Plan or Buy-Sell. If your clients are business owners and one of their key employees becomes temporarily disabled, they can accelerate the death benefit of their life insurance policy to help recruit new talent or offset some of the costs associated with the employee’s absence. Or perhaps the business purchasing a policy for the key employees could be an added benefit to keep and retain key employees to the business. This business structure is known as the “162 Executive Bonus Plan.”

One of four of today’s 20-year-olds will become disabled at some point in their career.3 With the pandemic of COVID-19 that swept through our country and continues to affect people, numerous people were unable to work due to contracting the disease. Clients that have a policy with living benefits were able to accelerate their policy while out of work; ensuring that your clients have these benefits on their policy can be one of the most important insurance solutions you can offer them.

Because Bill Z was able to accelerate the death benefit on his life insurance policy, he is able to get the best care from the finest nurses in the comfort of his home. He is most grateful to be surrounded by his family and loved ones. People have often said that “Bill Z has a smile that lights up a room.” His determination to have a good quality of life for himself and his loved ones is stronger than the disease that keeps him in a wheelchair. Despite the daily struggles, he has been afforded a comfortable life in part due to his knowledge and understanding of the power of living benefits. When you see Bill Z, he will be sure to tell you, “I consider myself the luckiest man on the face of the earth.” 

References:

  1. Favreault M, et al. Long-term Services and Supports for Older Americans: Risks and Financing. ASPE Issue Brief. Department of Health and Human Services. July 2015, p.3, 9.
  2. https://outperformdaily.com/credit-com-how-to-control-medical-debt-after-a-cancer diagnosis/.
  3. https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf.
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