Thursday, March 28, 2024

Legacy Planning Comes In A Variety Of Forms

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Legacy planning comes in a variety of forms when we think about life insurance. As everyone who has read one of my articles will know, I espouse VUL solutions and, in today’s marketplace, a correctly structured VUL product is the best solution in either creating a guaranteed legacy or managing an effective wealth transfer solution. It is important to make sure the solution itself is designed to be the best option for the insured and not solely focused on the product that illustrates the best.

The goal of legacy planning is to create a pool of money to be passed on to loved ones or a charity of some kind. The general idea is to do this as cheaply and efficiently as possible. If we knew when a client was going to die, we would use term insurance that would run until that particular date of death. However, since we don’t know when a client is going to die, and the legacy plan is designed to last until death, we need to use a permanent policy to accomplish this planning goal. Together with declining interest rates and the NAIC discussion of retooling AG 49 to change the way IUL can be illustrated, guaranteed VUL products will outperform fixed products for the foreseeable future. Variable universal life products are usually cheaper because of the reserving requirements created under AG37 and AG38. More specifically, the net amount at risk is the only component that needs to be reserved for in a VUL policy, whereas the entire amount needs to be reserved for in fixed products since they are held at the general account of the carrier. This fact reduces the premium needed for any level of death benefit for VUL, which we’ve seen as especially applicable in the lifetime no-lapse VUL space. With VUL, there is also the ability to grow some cash value in later years which is not an option in a guaranteed UL contract. This cash value gives the owner options down the road if their goals change or if the tax laws change making another alternative more attractive. Without any cash value, a GUL must either be continued or surrendered without any other choices available.

Given the new accumulation structures for VUL products and the recently added “multipliers and bonuses” in IUL, I expect that accumulation VUL will be the more predictable of the two and will be the best funding vehicle for wealth transfer. It is important to make sure the accumulation VUL is structured correctly to get the best results in a volatile market similar to what we see now. Setting aside the cost-of-insurance payments in a money market sub-account or assigning it to draw from a conservative bucket has significant impact on the cash value if the market drops in the first or second year of the policy. Also, using the dollar cost averaging option will improve the returns for the life of the policy. The one thing that history teaches us is that the markets go up and down, and yet the reality has been the market lows of the future will be higher than the market highs of today. This is why VUL policies that have been correctly funded and structured have always outperformed all other types of cash value policies over complete market cycles. In studies conducted comparing historic returns over time, the correctly structured VUL policies have met or exceeded illustrations almost 60 percent more often than similarly funded IUL policies. With interest rates projected to remain low for five or more years, the actual future results could be even more skewed toward VUL over other products. I believe that the concept of IUL is very valid and has a place for very risk-averse clients, but I don’t think it should be used as the primary option for most people.

Since all life insurance accumulation structures are designed to be long term with an assurance of death benefit if the insured person doesn’t live long enough to need the living benefits, there is nothing besides cash value life insurance that can build tax advantaged accumulation for wealth transfer and still maintain the ability for clients to access some or all of the money along the way. I believe that VUL will provide the best opportunity to grow the cash value and in turn can increase the ultimate death benefit transfer to beneficiaries. The historical argument that life insurance should not have risk if other assets are invested in the markets sounds reasonable until you realize that in a low interest rate market, insurance companies will need to charge more to make a profit. In VUL, the only moving parts are M&E and the cost of insurance. In IUL, the insurance carrier can and will adjust caps, participation rates, as well as M&E and COI to make up for low rates. To take this a step further, if we move to a European situation of negative interest rates, fixed products will be forced to become much more expensive in order to be maintained or exist in general. Our job is to help clients find the best tool to reach their goals. With the ability to have the asset allocation set up and rebalanced by the insurance company automatically for VUL, it reduces the risk and increases the probability of realizing the goals our clients are trying to accomplish when they buy permanent life insurance.

Dealing With Long Term Care Insurance Rate Increases

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Agents and brokers who have sold traditional long term care insurance policies over the last twenty years or more are now dealing with a relatively new phenomenon…substantial rate increases on older policies. Let’s look at the causes, the current situation, and how to respond.

At first, many carriers saw LTCI as a terrific marketing opportunity and rushed into the market beginning in 1988 with competitive prices. For years agents and brokers sold policies with the understanding that the carriers had appropriately priced their products and that the chances for rate increases were small. However, the industry was a young one and no one knew for sure whether or not the pricing would prove to be accurate.

The carriers then broadened the appeal of long term care insurance in the mid 1990’s by including home health care as a major benefit with little increase in premium. These benefits were very attractive to consumers, and they eventually led to a large number of home health care claims.

This in turn stressed the profitability of long term care insurance products. By the late 1990’s other problems arose, and carriers saw that their pricing assumptions were incorrect for four major reasons:

  • Interest rates were well below expectations so that carriers made less gain investing the premiums they received;
  • Unlike life insurance, lapse rates were extremely low creating more future policyholder claim potential;
  • Claims were more frequent, with higher costs and of longer duration than expected; and,
  • These factors in turn led to higher governmental reserve requirements, tying up assets.

Until now, insurance commissioners have been very resistive of carrier requests for big rate increases because they would impose extreme hardship on senior Americans with limited income and assets. Their emphasis was to protect the consumer, which was the major part of their job. They believed that insurance carriers had created their own problems by underpricing their products in order to sell more. They “made their beds” and needed to sleep in them. Insurance is a gamble and the carriers have lost, so they said.

But there has been a major change in thinking in the last five years. Insurance commissioners have realized that they need to provide carriers enough flexibility in pricing to enable them to pay future claims. Consumers in turn needed to be confident that their claims would be paid. They would be furious if their thousands of dollars of investment turned out to be wasted.

Insurance commissioners therefore needed to grant significant rate increases to protect consumers, and have done so. Because there was such a long period of time in which any rate increases which were granted were small, the rate increases needed now have only become greater as long term care insurance policies have matured. A large specialist carrier which has endured great turmoil, and is being liquidated, has been a prime example of what can happen when a carrier gets into financial difficulty. We don’t need more scenarios like that company, and the insurance commissioners know it.

This has led insurance commissioners to grant one-time rate increases as high as 80 to 95 percent on major blocs of policies. Carriers have to prove that their requests for rate increases are actuarily warranted. In many cases even the large rate increases granted have been less than those requested. One would expect the carriers to request rate increases in future years in addition to those granted thus far.

The reaction of agents and brokers are twofold. First, they are distressed that their honest past representation that the industry is a stable one has proved to be false. They are embarrassed, feel a loss of their reputation, and are empathetic with their policyholders not the insurance carriers.

Second, their will cease if policyholders cancel their policies or accept a contingent nonforfeiture benefit, which in many cases must be offered. For many this is a substantial part of their retirement income and needs to be protected. However some BGAs have contracts in which carriers will pay renewal commissions on the increase in premium. If these increases are passed on to agents, there may actually be an opportunity to receive increased renewal commissions.

In many instances insurance commissioners are insisting that carriers offer benefit changes which can ameliorate or even prevent any increase in premium. These options can or cannot be acceptable alternatives, depending on the current benefits in a policy. Let’s consider a few of them.

  • In many of the older policies containing five percent compound inflation riders, the daily benefit may have grown substantially and may even be higher than the current cost of care of a nursing home. With reimbursement policies, a reduction in the inflation rate, especially for policyholders now in the late seventies and eighties, may result in little reduction in benefits actually paid out.
  • In policies with lifetime benefits, the policyholders may have aged sufficiently that reducing the lifetime benefit limit to a certain benefit period may be a good gamble. This assumes that benefit periods for people in their late eighties or nineties are usually of short duration. This could even be true of a policy with say a five-year benefit period if one reduced it to a three-year benefit period.
  • In many other situations one could reduce the maximum daily benefit but maintain the five percent compound inflation rider in the hopes that there would not be a claim for a few years and that the maximum daily benefit would return to its previous level or higher. This solution may be more appropriate for policyholders who are still in their sixties or early seventies.
  • In policies with no inflation rider or with very little inflation of the daily benefit having occurred through increased benefit options, the policyholder should pay the increased premium if he or she can afford it. These rate increases are often well below the increases of policies with five percent compound inflation riders and are less onerous.

The rate increases normally take effect on the respective anniversary dates, so this cycle takes a whole year to occur. Policyholders are normally notified about sixty days in advance. Agents and brokers should be contacting their clients at the appropriate time and should be proactive in this process. If they don’t have current contact information, the carriers can provide at least the current mailing address and some of the time an up-to-date phone number if the phone number has changed. By servicing their policyholders, agents and brokers truly earn their renewal commissions.

They will find that their clients are initially angry and upset about their rate increases. Let them blow off some steam if necessary. However, some empathy and an honest discussion of alternatives will bring their clients around to appreciating their agent’s honesty and advice. Agents may even suggest alternatives not proposed by the insurance carrier which may be more appropriate in a given situation. It’s an opportunity to bind their relationship and even in some cases obtain referrals or sell additional products. And it’s the right way to deal with these long term care insurance rate increases.

This discussion should not end without mentioning that the long term care insurance industry has learned a great deal in the last thirty plus years, and that current rates should be far more stable. Hybrid and linked policies often have guaranteed rates, but this may not be such a big point of difference if traditional long term care insurance prices remain stable. Because the hybrid and linked products contain two benefits and the traditional long term care product has only one benefit, the traditional long term care product will probably remain the less expensive alternative.

Housing Solutions For Special Needs Families

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When I first watched the movie Rain Man in the late eighties, I remember the scene of Tom Cruise driving through the gates of Walbrook Institute, past the manicured grounds and up to the large brick building to see a brother he had never met. Walbrook was an institution for individuals with intellectual disabilities and while I was in fact watching a Hollywood movie, Walbrook Institute is most likely what much of the public could relate to when talking about housing for individuals with special needs. While many of us can relate to the movie Rain Man in some way, fast forward thirty plus years and one thing is for certain: Housing options for individuals with special needs is still a major concern for parents, primarily due to the cost and limited options available.

In today’s environment, advisors like myself advocate that all of our clients implement a comprehensive plan for their retirement years based on their lifestyle and their wishes. We cover a lot of different topics that everyone should address with their own advisor, including contributions to retirement accounts, subsequent withdrawals from those accounts, when and how to file for social security, income protection, asset protection and legacy planning. When an individual or family has a child with special needs, an additional area of planning is required and typically should include a housing plan for the child when the parents or other family members are no longer able to care for them.

The facts support the need to implement a plan for a special needs child as early as possible. According to the National Down Syndrome Society (NDSS), approximately 1 in 700 babies born today will have down syndrome. NDSS also states that a child born with a cognitive disability in 1983 had a life expectancy of 25 years. Today, that life expectancy has increased dramatically to 60 years. More important, the facts go on to say that quality educational programs, a stimulating home environment, good health care, and positive support from family, friends, and the community enable people with Down syndrome to lead fulfilling and productive lives.1 According to the CDC, approximately 1 in 59 children will be identified with Autism Spectrum Disorder (ASD).2 A 2014 Study published by JAMA Pediatrics found that an individual in the United States with ASD who lives to age 67 will experience a lifetime cost of care of $2.4 million. The study also noted that during adulthood, residential care or a supportive living arrangement contributed the highest costs to that number.3 This reinforces a need to address future living arrangements when planning for your special needs child.

If you are caring for a child with special needs, housing is just one of the areas that needs to be addressed and should be completed with a qualified attorney that can help you with drafting the proper documents. According to Megan Selvey Esq., a special needs planning attorney with Bivens & Associates in Scottsdale, AZ, “Often when meeting with families to discuss planning for their special needs loved one, a main point of concern is how to pay for costs of living. A properly drafted special needs trust is a valuable planning tool. The funds of a special needs trust may be used to pay for, or supplement, costs of living for the trust beneficiary, above and beyond what a public benefits program may otherwise cover. This may include rent payments, or the purchase of a more permanent residence.” Selvey also states, “If a person receives Supplemental Security Income (SSI) or Medicaid benefits, it is important to discuss with a special needs planning attorney how distributions from a trust for costs of living may affect those public benefits. Distributions for housing or cost of living may have an effect on those public benefits.” Selvey’s statements reiterate the need for a plan to be put in place for the individual with special needs to ensure they receive the proper level of care, their benefits will be protected, and they can live a fulfilling life in a comfortable and safe environment. While each state may be different, these are some of the most common housing options available when the child becomes an adult.

Continuing to Live with Parents or Caregivers: This is the most common living situation seen. While there are benefits to continue to live with the people that know your needs best, what happens when they are no longer able to care for the individual appropriately or if the parents pass away at an early age? Most likely, the longer that the individual lives in the same surroundings the more difficult the transition will be when they are required to move to a new living arrangement.

Group Homes: These options vary depending on where you live. It may be difficult to find availability or there may be a wait list. The home may be far from the parents and/or family’s primary residences. However, they can provide social interaction for the individual as well as limited support for the residents to live semi-independently. Cost of group homes range anywhere from $1,500-$5,000 per month, depending on the location and type of home.

Nursing Homes: When an individual requires 24-hour medical care with ongoing supervision, this may be the best option. According to the 2018 Cost of Care Study by Genworth, the annual median cost of care for a private room in a nursing home is in excess of $100,000 per year.4 Depending on your assets, Medicaid may be an option to help cover the cost of this type of care.

Permanent Residency: This option has been around for a long time with families sometimes pooling their resources to purchase an additional home. Other options, like Luna Azul in Phoenix, AZ, offer a new community of 30 privately owned homes with a clubhouse and a 24-hour staff for adults with specialized needs. They are then able to access resources such as Phoenix carpet cleaning to help keep the homes clean and healthy for residents, This new concept allows individuals to live independently in a community with other residents that have specialized needs as well. The community also permits the owner to rent out their additional rooms to others who may not have the ability to purchase a home.5

In summary, implementing a proper plan for your loved ones with special needs is more important now than ever before. As Baby Boomers continue to live longer and often require long term care themselves, so do individuals with special needs. Advancements in medicine contribute to the longer life expectancy and health care costs continue to rise. Housing costs continue to increase, and there is a shortage of quality options for individuals with special needs. If applicable, government benefits can be an extremely difficult landscape to navigate. Cost and time are often barriers for families to start the planning process. If your clients haven’t explored their options yet, urge them to reach out to their attorney, a ChSNC, financial advisor, and tax professional to address their individual situation. Creating a plan sooner rather than later and reviewing that plan often, rather than never, will help provide peace of mind for your clients and their families.

Dan Mullen is a registered representative of and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC OSJ address 17550 N Perimeter Dr. Ste 450 Scottsdale, AZ 85255 480-538-2900. DFG Advisors is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. The views expressed here are those of Dan Mullen. Dan Mullen’s views are not necessarily those of MML Investors Services LLC. or its affiliates and should not be construed as investment advice. They are subject to change. CRN202011-255718

References:
1. https://www.ndss.org/about-down-syndrome/down-syndrome-facts/
2. https://www.cdc.gov/ncbddd/autism/data.html
3. https://jamanetwork.com/journals/jamapediatrics/fullarticle/1879723
4. https://www.prnewswire.com/news-releases/genworths-15th-annual-cost-of-care-survey-shows-continuing-rise-in-long-term-care-costs-300730947.html
5. https://www.lunaphx.com/

Apply Best Practices To Build Stronger Carrier Relationships

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Today’s insurance brokers face new challenges and market trends that their forerunners did not. To succeed in the 21st century, brokers must adapt to the changing landscape by leveraging best practices across all operational areas. One area of particular importance is their relationships with the carriers. Knowing how to apply best practices to address key industry trends and build strong carrier relationships is essential.

Key Industry Trends and Market Conditions
The insurance marketplace is in a transformative state. The landscape is now marked with new distribution models such as online aggregators and InsurTech firms. Willis Towers Watson-CB Insights’ research found that from 2012 -2017, $312 million was invested in life and health insurance global InsurTechs. There has also been entry into the insurance market by major retailers like Amazon, Walmart and various banks and credit unions, all of which may have more robust e-commerce platforms through which to reach customers. The presence of these new players, coupled with industry consolidation, has introduced new competitive pressures on brokers.

Besides the pain points coming from within the industry, there are higher expectations coming from customers. They expect brokers to have a broader portfolio of products to meet their specific financial wellness goals, have a deeper understanding of their needs, and have product information accessible on a 24/7 basis via their PCs, tablets and cell phones. There is also the ongoing expectation that the broker still will be accessible for in-person meetings. This was confirmed in the LIMRA Insurance Barometer Survey 2018 which found that 69 percent of all respondents and 72 percent of Millennials agree that meeting with an agent/advisor before buying life insurance is important to them. This same survey also noted that customers expect a more seamless, self-service experience when it comes to researching and learning about a broker’s product offerings. Customers expect to continue their relationship with their broker over the life cycle of their experience with any given carrier. In fact, based on a J.D. Power 2018 study, customers go first to their broker or agent for advice or support relating to an insurance matter rather than a carrier’s website or call center. This wasn’t always the case.
Given these factors alone, what worked in the past may not be as effective today. The current insurance distribution environment requires that brokers have a clear value proposition which not only addresses new market conditions, but also requires them to assess their performance and then develop best practices that accommodate their customers as well as the carriers.

What Carriers Want from Brokers
There have been many surveys covering what brokers want from the carriers. For example, a 2017 Cannel Harvest Research Report, focusing on personal lines insurance, found high percentages of brokers to place a high value on these aspects of a carrier’s operation:

  • Competitive pricing (65 percent);
  • Carrier technology (61 percent);
  • Customer service (57 percent);
  • Agency compensation (55 percent); and,
  • Underwriting flexibility (51 percent).

What carriers want from their brokers has not been the subject of as many surveys. What we do know, however, is that carriers want clear and complete communications from brokers, greater access to customers in order to improve the customers’ experience, and less use of them (carriers) for testing quotes against other carriers and/or soliciting lower quotes and then not transferring the business to them.

Regarding communications, both carriers and brokers alike strive for more collaborative, open communications with the other. It’s one of the reasons why carriers are establishing broker advisory councils. These forums are proving very effective in facilitating productive exchanges between these two symbiotic entities. Also relating to communications, there is a heightened expectation by carriers that brokers will embrace more digital communications that help support their mutual customers’ service experience. Further, carriers want brokers to be that “in-the-field” presence in order to remain connected to their customer base. Even with all of the virtual communications through digital platforms, carriers recognize the importance of the human connection and believe brokers need to continue focusing on this.

Carriers also want their brokers to be strong generalists in terms of their product knowledge. If the carrier has a broad suite of solutions, they are more inclined to want to do business with brokers who can master more than just one or two of their products. This requires that brokers remain up-to-date on product developments and how they relate to the marketplace and especially the demographics of the region(s) they serve.

Technology is also a tool carriers hope the brokers will fully leverage. A small broker applying technology, for instance, to target Taft-Hartley multiemployer plan sponsors or middle market companies, can project an “easy-to-do-business with” identity that conveys a strong customer-service orientation more so than a larger, more established brokerage that is not deploying the latest digital technologies.

Along with accommodating the carriers on these factors, brokers can put themselves on a path to greater success by adhering to best practices that are in step with today’s insurance marketplace.

Best Practices Pave the Way to Success
Best practices aren’t confined to areas of carrier communication or customer service. They should envelope all aspects of a broker’s operation. They shouldn’t be static, but rather evolve to reflect changing market developments and customer expectations. Best practices should be a function of the broker’s business value proposition which answers such questions as:

  • What differentiates the broker from others as it pertains to the carrier relationship and the customer relationship?
  • What are the short- and long-term benefits derived by the carrier and the customer when working with this broker?
  • What expectations can the carrier and the customer have of this broker?

In support of their value proposition, brokers should establish best practices that include:

  • Consistent reporting on prospects indicating interest in the carrier’s products;
  • Sharing with the carrier their short- and long-term business goals with respect to increasing their marketing/sales of the carrier’s products;
  • A distribution strategy that embraces both digital technologies as well as the human touch, and keeping the carrier informed about this strategy designed to deliver optimum customer service, attract referrals, and facilitate new customer relationships;
  • Highlighting the carrier’s products in its customer newsletters or on their social media pages;
  • Regular product and industry training of their staff;
  • Marketing and sales initiatives that effectively target industry niches and/or other market sectors on which their business is focused;
  • Continuous benchmarking of sales performance and customer service metrics wherein performance data is regularly analyzed, demonstrating a strong commitment to a high quality operation;
  • A robust cyber security program that encompasses systems vulnerability assessments, penetration testing, data breach prevention/cyber security policies and procedures, employee training and cyber security awareness, maintaining a strong firewall, the deployment of leading-edge technologies (i.e., anti-virus software, encryption software, and key logging software to impede the key logging effect of malware, etc.), and a formal digital governance policy; and,
  • Policies and procedures that support the confidentiality of the carrier and its proprietary information.

Final Thoughts
The end game for brokers and carriers is the same. They both want to see their mutual customers gaining the financial protection insurance provides, and they each want to derive the financial rewards that come with doing business the best way they can. If that means changing with the times as needed, updating internal systems when required, investing in regular staff training, and remaining vigilant and ready to adapt to new market conditions, whether the influx of new players like the InsurTechs or the pervasive presence of cyber criminals, then that is what needs to be done. Above all, the best practices a brokerage can adopt to build stronger carrier relationships will also position it for long-term viability and success.

Insights Into Disability Financial Underwriting

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No matter how long you have made a living in the financial services industry, you are at the very least somewhat aware of the amount of time and usual care that goes into the underwriting of insurance policies by carriers. Insurance companies employ learned, specialized professionals to analyze risk and weigh the financial gain of making a profit by collecting premiums versus providing financial protection products to consumers. Underwriting is defined as accepting liability under the form of an insurance policy, guaranteeing payment of benefits in case of loss or damage. In the eyes of the insurer, there is a delicate balance of indemnifying risk and paying out monetary claims while still making money.

Underwriting methodology is, dependent upon the type of insurance, often broken down into two categories—medical underwriting and financial underwriting. As medical underwriting is a complicated subject unto its own, it quite rightly deserves a separate discussion at a later time. Here we will focus on the other imperative aspect of insurance risk analysis—financial underwriting.

Financial underwriting involves the evaluation of insurance policy applicants and classifying them so appropriate rates may be charged and appropriate benefit levels may be provided. It further involves assessing whether a proposed sum insured and product limitations are reasonable when considering the potential financial loss to a client.

Many of you sell life insurance and are probably very familiar with the underwriting standards and financial guidelines set forth by your usual life carriers. Benefit limitations are generally based upon calculations of multiples of income, varying proportions of net worth or even estate tax liability snapshots of your prospective clientele. In general, the equations measuring the financial underwriting of life insurance tend to remain straightforward and less complex than other insurances. Disability insurance financial underwriting, on the other hand, tends to be less elementary, requiring extra diligence by both insurance company underwriters and the consumer’s representative insurance agent.

Disability financial underwriters are commonly certified public accountants or at the very least have strong backgrounds in accounting on top of professional financial degrees. Expertise in the position doesn’t happen overnight and it can take years to develop the craft as they analyze risk after risk, case after case, while heading toward a common goal of reasonable financial protection of the carrier while providing marketable and affordable income-protection benefit programs to consumers.

Financial underwriting methodologies can differ among disability product lines. Regarding personal disability insurance, underwriters tend to maintain the insured person as their focus in terms of fiduciary needs and over-insurance concerns. Requested benefit amounts are commonly reduced to save the client from overpaying for benefit levels that wouldn’t come to fruition during a claim because of the client’s relatively lower annual income. However, reconsideration of benefits are available once an applicant’s financial situation has improved. Over-insurance is a main concern of dutiful financial underwriters while underinsurance should remain a rightful concern of insurance advisors.

The first step in consideration of the financial insurability of an applicant is the thorough review of the application itself and the financial summary provided by the applicant. In some cases additional information and proof of insurability is needed—like two consecutive years of recent individual federal and state income tax returns. Benefit eligibility is measured upon a percentage of net earned non-passive income set by the insurance company. Domestic DI carriers often penalize applicants for having passive “unearned” income such as rental property or investment proceeds. Specialty-market carriers like Lloyd’s of London and other Surplus Lines insurers often times ignore passive income without reduction of available benefits. If the applicant’s current work year is showing more positive signs in terms of higher income levels compared to previous tax years, financial underwriters will review employment pay stubs, fully-executed employment agreements, K-1 earnings and sometimes corporate financial statements in the sincere attempt to prove financial insurability among clients whose taxable earned incomes aren’t measuring up to their requested benefit amounts.

There are differing ideologies when it comes to domestic carrier underwriters and specialty-market underwriters regarding their respective maximum benefit limitations and participation caps. Domestic carriers stick to strict benefit participation levels of 50 to 60 percent of income with usual monthly benefit caps anywhere from $10,000 to $25,000, dependent upon on the applicant’s age, occupation class and income level. Specialty-market carriers lean more liberally and flexibly in their offerings, allowing participation of benefit levels up to 65 to 75 percent of income without monthly benefit caps often regardless of age, occupation or income level.

Underwriters are regularly presented with unique cases and situations which raise concern and require a more investigative approach. An applicant’s earnings history can show significant income fluctuations and volatility in employment confidence which will require underwriters to analyze the occupation, industry, and economic trends that may have impacted past earnings and contribute to future income streams. Business owners showing unwavering earnings in industries ripe with historical earnings fluctuations will often require additional financial documentation to support the earnings stated on the application. Spousal business partnerships may require additional detail since income splits can be convoluted and unclear as to how the earnings are truly being generated. Newly self-employed individuals with no previous earnings history often require a more cautious approach since earnings trends are not established and accounting records may not be readily available. Seasonal employment opportunities can be challenging, as well as the income variations and earnings advancements seen with occupations stemming from the entertainment, arts and literature industries.

Circumstances may arise in the underwriting process that commonly call for a reduction of available benefit or even the ultimate declination of coverage. Applicants who report gross revenues instead of net income are problematic as well as those that include passive real estate income in their earnings when they are not considered real estate professionals. Another “red flag” is the inclusion of distributions from an S-Corp or draws from a partnership in personal income instead of appropriate non-passive taxable earnings as reported on a K-1 schedule for a given tax year. Also, applicants commonly leave out details of in-force disability insurance policies through other carriers as well as failing to indicate whether said coverage is employer-paid and/or taxable to the insured person. On the contrary, underwriters will seek to advise applicants if their eligibility for higher benefits exceeds the benefit level for which they applied.

The disability financial underwriting of business cases is similar to that of personal DI, but the fiduciary analysis becomes more focused on the corporate entity rather than proposed insured person’s personal finances. And again, over-insurance remains a primary concern, but underwriters assume a business owner knows his or her business needs better than the insurance company. Underwriters employ supplemental questionnaires to evaluate risk for the underwriting of key person, business overhead and buy/sell insurance policies. The financial underwriting is fairly straightforward as opposed to underwriting personal benefits, yet all business disability cases still require substantial in-depth review.

Key person DI underwriting uses a simple multiple of personal annual income of the proposed insured key person as a beginning measurement for financial justification of the benefit. Underwriters will take other factors into consideration in their analysis such as potential fiduciary loss to the company, potential loss of current and future accounts, corporate ownership value of the insured person as well as perceived value of the key person to the company.

Business overhead expense underwriting requires the applicant to provide a detailed listing of average monthly tax-deductible expenses including mortgage interest payments, utility bills, insurance premiums, accounting services, maintenance costs and certain employee salary expenses.

Buy/sell DI underwriting requires an accurate outline of corporate structure as well as an executed buy/sell agreement and corporate or partnership tax returns.

As an insurance professional, your role is absolutely important in the support of attaining disability insurance for your clientele. You can read between the lines and address certain criteria as to what attributes disability underwriters will favor and fault in a prospective risk. You can also help streamline and accelerate the financial review processing of your client’s file by providing missing information that was mistakenly not disclosed on the application. Be proactive in assisting your clients by providing tax returns, year-to-date pay stubs and any details pertaining to changes in employment or income fluctuations. Providing these items can simply help provide a sense of goodwill with underwriters, demonstrating the client is forthcoming with their overall financial situation, and will most likely help in the ultimate approval of the risk and the issuance of the insurance policy in a timely manner.

The financial underwriting of personal and business disability insurance policies isn’t always black and white and is much more than just numbers, dollars and cents. Underwriters will look at all the provided figures and data, but additionally take the inherent value of the prospective client into consideration, in hopes of providing appropriate insurance levels to paying consumers while still maintaining a profitable bottom line for the insurance company.

Two Case Histories: The Motivated Impaired Risk Buyer Of Life Insurance

Getting it right at the start

How to motivate life insurance buyers who are faced with higher costs than their healthier counterparts daunts many advisors. The question is anything but theoretical since nearly 50 percent of current cases are classified as impaired risk.

Life insurance sales is not for the faint of heart, particularly since many advisors find it difficult approaching prospects with “sensitive” health questions. It interferes with and can disrupt the sales process, making it both difficult and uncomfortable for advisor and client.

It need not be this way if advisors view their role as helping clients reach a goal or objective. By taking this approach, discussing personal issues such as health and medical history are put into perspective and become an essential part of the process.

Prudent advisors recognize that impaired risk is the new normal, not the exception, and they are well-prepared with the knowledge needed.

Further, they embrace the impaired risk process as one of shepherding clients so they come to view it as a partnership with the advisor. The client’s unique role is being candid and forthcoming about their health and medical situation because that’s what it will take for them to gain the coverage they need and want.

All of which is to say that an informed and actively engaged prospect is more likely to become a motivated life insurance buyer. Or, to put it another way, participation is persuasion.

The road map to success
Even so, beware! Like any road map, there are challenging twists and turns, blind spots, and unexpected surprises that are involved in writing and placing impaired risk cases. To keep them to a minimum, the sales process of getting a motivated client—or a client motivated, as the case may be—should begin with a realistic appraisal of what is possible for the client. Specifically, how various possibilities can assist clients reach their personal or business objectives.

During their discussion, advisor and client drill down and evaluate the options so the client understands each one and can make informed choices or select an agreed upon course of action. During this process it’s germane that the advisor addresses the underwriting component:

  • The advisor needs to encourage clients to relate information pertaining to their personal medical history to assess the realities of any pricing that is discussed.
  • Many clients may know the significant details related to their medical history. Others, however, may not be as aware or, worse yet, be in denial or deliberately obscure medical health challenges that could impact underwriting results. It’s not unusual to have what appears to be an “open discussion” to later discover that the client has been less than candid in disclosing medical or social impairments that will ultimately impact the client’s life underwriting.
  • Throughout all such discussions, it needs to be made clear that underwriting is an essential part of the process for obtaining a client’s desired result.

Engaging a client
How to go about successfully engaging an impaired risk is critical and should be taken seriously because of the impact it can have on the outcome of the case. This is where the advisor’s primary role becomes that of a consultant rather than a salesperson, which a prospect may typically associate with some life insurance producers.

When client and advisor are on the same page, there is no confusion or distrust and expectations are easily managed.

The knowledge that’s needed for success
Granted, advisors should be able to raise probing questions to determine a case’s underwriting challenges. However, this is not always where advisors can find themselves. Since so many cases today involve impaired risk issues, advisors are best served by educating themselves on the actual impairments to help frame questions so they are non-threatening or cause clients to be less than forthcoming.

In the same way, obtaining a HIPPA authorization enables advisors to begin to build a file. More information leads to greater understanding and a better result.

Building client files is also a helpful tool and valuable resource for advisors with impaired risk cases, particularly when two forces are at work at the same time. First, clients are often coping with doubt and anxiety to one degree or another involving their medical situation. And, second, impaired risk cases take longer to process—not just a day or two or even a couple of weeks, but often much longer—and this adds to a client’s distress. With each passing day clients can become more anxious, wondering if something is going wrong.

Advisors can manage cases and stay on top of their progress through the client file. Armed with this information, the advisor is better equipped to reassure clients. Their understanding can go a long way in making the process smoother and may even help to substantially shorten time frames to a point where shopping for coverage can begin in earnest.

It’s also worth noting that past application results are not necessarily a “slam dunk” for the way a new, current application will be viewed by an underwriter. The risk presentation may be substantially different than before when results were not so good. This can occur since there are factors that can turn a prior declination to a good offer, such as new clinical information, improved test scores, a more liberal carrier position on certain risks, or simply a better presentation to a different insurance company.

Two impaired risk case histories
Against this background, actual case histories can help put motivating impaired risk clients in perspective. Here are two cases:

The Case of the Cooperative Client
The client, a single, 43-year-old, highly-driven business owner, whose construction company was experiencing massive growth, was seeking an accumulation plan so he could contribute $200,000 annually for 10 years. The coverage would be $5 to $10 million. His father, who was his life insurance advisor, had tried three insurance companies to no avail before coming to us.

The father made it clear that his son’s medical history involved several accidents requiring back surgery that left him with severe back pain. His openness set the stage for a cooperative working relationship.

We began building a client file with the initial information. Although the client had seen a physiatrist regarding his persistent pain, he offered little help. Eventually, a “pain doctor” surfaced who was willing to assist in responding to carrier requirements for making a good offer. We then spoke with underwriters at several insurance companies to understand what would work.

Armed with the relevant talking points, the advisor/father then wrote a thoughtful and detailed letter as to why his son should be considered in a positive light. He pointed out his son’s unique personal attributes, while acknowledging that the son was on a medication that insurance companies reject since it’s commonly used to control the abuse of opioids.

We then selected three insurance carriers that said they could give an offer based on our discussions and a written summary of the case. One approved at a Table D, another at Table B, and a third at a Standard non-smoker rate, which the client accepted, and then added $10 million of term life for bonding purposes and future corporate needs.

The Case of the Controlling Client
This case involved a pressuring and overbearing client who was less than forthcoming when seeking $25 million of life insurance coverage for his personal needs.

A 57-year-old male, he gave us the name of his primary care physician and we obtained his medical history, which raised a number of questions related to various medical issues. In addition, it referenced regular psychiatric visits. However, the name of the psychiatrist was missing. While this raised concerns, the client passed it off as “dealing with anxiety related to his divorce.”

As it turned out, the insurance summary was getting mixed results from the 20 carriers we were shopping. The concerns amounted to a variety of medical issues including the missing psychiatric counseling history and notes. We saw offers ranging from Preferred (two carriers), a Standard, and four Table D offers with the rest as declinations.

Of the two tentative Preferred offers, one carrier didn’t indicate a need for a psychiatrist’s statement. A formal application was submitted, which permitted the carrier to request a report from the prescription database. It revealed a detailed record of prescriptions filled, along with dosages, dates and name and address of the referring psychiatrist.

As a result, we now had the information the client had not made available to us. It was clear from the name and nature of the medication prescribed that this would never be a Preferred case and probably not Standard. Even so, we now knew where to get the missing piece of the case to build a complete file. We would write to the psychiatrist to make available his office notes for this patient.

Armed with the knowledge of the doctor’s name and the prescription ordered for his patient, we would be able to confront the prospective client. Originally, we were all too ready to accept the prospect’s version of his psychiatric history. He now owned up to having seen this psychiatrist, but expanded on what seemed obvious. He had only seen this psychiatrist twice and did not complete or refill the regimen of medication ordered for his diagnosis. That history was two years prior and followed by another medical professional that the client made known to us. This professional did not diagnose the patient with the same impairment, thus reducing the seriousness of the previous diagnosis.

During our shopping process, we discovered that the prospect had made applications a year before, only to receive declinations from those carriers. That finding was understandable and less of a concern now that we were armed with all of the facts needed to present the case.

Our request for file notes and history generated a one-page handwritten note jam packed with pertinent historical information. The letter revealed a long history of failed trials and a few serious psychological concerns on the part of the doctor. The client then ended his relationship with the psychiatrist and began seeing a psychologist who viewed him in a much better light.

The two companies that were potentially offering preferred backed off their tentative offers and changed them to Table C, given the psychiatrist’s report. A third company offering Standard non-smoker, withdrew and was now a “decline to offer.”

A fourth company expressed interest in competing for the case and made a generous offer of Standard non-smoker. They made that offer based on their analysis that the client was off all medications for two years, was functioning quite well, and had a good report from the most recent attending mental health professional. It can be a magical feeling when you get an offer that works for the case after having so many twists and turns.

When informed, the client was very pleased and there was a positive exchange. The client now seemed transformed into a different person. In fact, he was so happy, he issued a check for the $365,000 premium.

Yet, the question remained: Since it would have saved everyone a considerable amount of time, why was the client not forthcoming until confronted with the reality of his situation? We surmised that his need for privacy wouldn’t permit him to open up until he was pressed and his history became known. Once he was found out, he became a much friendlier, happier, and free person, who was prepared and willing to write a check for a substantial insurance premium.

Whether impaired risk clients are cooperative or difficult makes little difference. What’s important is how the advisor manages a case. Here are some thoughts about that:

  • Dismiss any preconceived ideas about the case.
  • Be relentless in tracking down every possible bit of information. Be open with insurance underwriters to gain their trust.
  • Keep looking for what may be missing that will be the key to unlock the case.
  • Be willing to confront a client with gaps, missing pieces, and erroneous information.
  • Let your actions make it clear that you don’t give up. This will do more than anything to motivate a client.
  • If you’re successful at working in the impaired risk space, it won’t take long before you earn a reputation as the go-to advisor for these cases.

Life Distribution And Underwriting Face Unique Challenges—But Share Common Goals

Life insurance agents have a difficult job, helping their customers meet their protection needs and goals within a fast-paced and competitive industry. In fact, Americans have more insurance options than ever before, which means vying for their disposable income is increasingly challenging.

On top of that, there’s the growing concern among life insurers that too many families are failing to protect their loved ones and businesses enough with their individual life insurance policies.

Additionally, the traditional approach to the life insurance purchase is being viewed more and more as time consuming, slow and too invasive—as overall customer experience expectations are influenced by online ordering, one and two day free shipping and highly targeted marketing.

On the other end of insurance applications are underwriters. They largely empathize with the difficult sales process and want to appropriately price each application. Also, underwriters recognize that if they don’t meet the client or agent’s pricing needs, they’ve spent time and effort on a case that won’t get placed.

Strict regulatory environment
Both agents and underwriters work in heavily regulated environments, with many of the statutory and regulatory demands overlapping. They work together to meet the financial needs and desires of customers in an ethical, fair and appropriate fashion—while also complying with the law.

While agents and underwriters each work in compliance with many overlapping requirements, there are also regulations that apply to their specific role in the sales and application process, including both governmental and non-governmental rules. In addition, agencies and carriers generally follow their own procedures and processes aimed at managing risk, various sales practices and transparency.

While these guidelines, laws and rules can feel onerous at times, both agents and underwriters benefit from managing their emotions, as well as empathizing and understanding each other’s perspective and unique challenges.

Agents are often all too aware of how long it took to get to a completed application—even as that same application looks and feels like the very first step in the process from an underwriter’s chair. Underwriters benefit from recognizing that for many of those applications, there is a months- or years-long series of meetings, discussions and reviews that led to that application.

Agents can benefit from remembering that the underwriter was not often party to the myriad information exchanges that occurred leading up to that application.

Successful sales of life insurance requires that everyone begin with the assumption that both agents and underwriters are professionals and trying to do what’s right. In 26 years in the industry, I have yet to meet with a successful, respected agent or underwriter who wouldn’t argue the benefits of clear, frank and honest communication exchanges.

The vast majority of underwriting professionals recognize that their salaries are the result of the difficult and underappreciated work that sales professionals do. Most sales professionals I’ve had the pleasure of knowing are quick to comment on their appreciation for the carrier’s need to underwrite and administer life insurance policies with an eye to the future.

Decisions that don’t meet the needs of customers, or are poorly reviewed and priced, don’t serve any of us in the long run.

No one likes a surprise
With very few exceptions, agents and underwriters share their distaste of surprises during the application process. Unfortunately, sometimes they are the reality. We best support each other by quickly and candidly bringing new, contradictory or unexpected information to each other’s attention as soon as prudently possible.

For agents, that might include presenting the complete medical and financial case, good bad or indifferent, as early as possible—or advising underwriters of changes in finances or insurability mid-underwriting. Wherever possible, it’s most effective to provide the all-important context and “rest of the story” up front, versus mid-stream as a result of information coming from elsewhere.

Underwriters are very familiar with context being a critical component of any decision and the “hows” and “whys” of an agent’s sale. It’s crucial for underwriting to keep agents informed throughout the underwriting process. Agents have a difficult job engaging and retaining a client’s interest in a sale. And when an unnecessary surprise arises, it can jeopardize the likelihood of the sale—especially if their client is faced with a decision or extra requirement late in the game because of it.

I’ve rarely encountered a situation where delivering unexpected news to an agent as soon as it’s prudent, even if difficult news, does not improve the likelihood of conserving a sale. In fact, more often than not, the underwriter/agent relationship is strengthened by the willingness to get into the foxhole together in dealing with an issue.

Change is inevitable
Without a doubt, the pace and scope of change in the life insurance industry creates the potential to increase or exacerbate tension between agents and their underwriters. Every facet of the application process is being, or will be, disrupted in the coming years.

We are seeing disruption for some of the reasons noted above, as well as the demands of our end customers whose expectations around purchase experience are forcing us to look outside of our industry to understand and improve that experience.

The growth of online sales blurs the lines between market segments and allows for the purchasing of everything from perishable foods and electronics to luxury vehicles to change customers’ expectations of our industry. We are increasingly being expected to deliver a simple and enjoyable experience that mirrors the ease of purchasing a pair of shoes online.

Duplicating that process with complex financial products that rely on the high-quality expertise and price points that traditionally required face-to-face meetings and invasive underwriting tools is daunting. Customers are increasingly demanding options around when, where and with whom they meet, without sacrificing quality, expert recommendations or price.

This is, and will only continue, impacting how and when agents interact with their customers, how they communicate with them, how they collect information and initiate applications, how they share status of applications, and ultimately how they deliver and pay for policies.

At the same time underwriters also need to react to many of those same changes while exploring and using new tools and techniques to improve the experience for agents and applicants and meeting product design and pricing experience.


To meet the needs of insurance customers with the products and services we sell in the regulated market we serve will be a challenge—but also a tremendous opportunity.

By working together to face the inevitability of change and disruption in our marketplace, I believe insurance professionals have the opportunity to encourage and provide perspective to carriers as they address needed changes to product, process and customer experience. And underwriters have a role to play in facing change head on and participating in new and innovative approaches to underwriting tools and techniques.

As a profession, we have not historically been leaders of change as we tend to focus on the tried-and-true processes honed throughout our careers. The success of our industry will include a significant role for the many dedicated and honest sales professionals who serve customers every day in protecting their financial security. The work underwriters deliver in pricing products ethically, competitively, fairly and in support of their home office pricing strategies is crucial to maintaining the trust of agents and their clients.

According to the LIMRA 2019 Insurance Barometer Report there is a significant number of un- and underinsured Americans. With new and emerging ways for customers to apply and be underwritten for life insurance, increased collaboration between underwriting and sales professionals offers the change to tap previously underserved marketplaces and deliver solutions that allow for more targeted application of our expertise.

By listening to our customers and investing in responding to their needs, we can target and focus our areas of expertise on the cases that need it, and deliver significantly improved buying experiences that grow our industry.

Where the opportunities present themselves, underwriters and agents need to challenge themselves to engage in constructive and frank dialogue at the case level and to significantly increase our industry-level collaboration. We are in this brave new world together.

Think Like Your Customers Or Lose Sales

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Changing the sales narrative

Don’t fall into the trap of thinking like a customer. If you do, you’re done! This warning has been pounded into the heads of life insurance agents from day one —and it will follow them until their last day on the job. Thinking like customers is a noxious notion that leads down a dark and dismal path to serious trouble—lost sales.

If agents dare let themselves think like a customer, they will be distracted from their mission, become soft, overly sympathetic, and even find themselves “walking in a customer’s shoes.”

Yet, those who make a success of selling life insurance work hard at sharpening their understanding of what customers are thinking. It takes effort and skill to get inside someone’s head and it starts with asking questions:

  • What’s important to them?
  • What are they looking for?
  • How motivated are they?
  • Are they focused or unsure of themselves?
  • What are they trying to tell me?
  • Do they expect too much?
  • Will they be fair?
  • What are they not telling me?
  • Are they worried about being taken for a ride?
  • How concerned are they with making a mistake or getting stuck with a decision they will come to regret?

Accurate answers to these questions help create a clear picture of what’s going on in someone’s head—and that changes the sales narrative.

Instead of thinking about how to get customers to do what you want, your questions tell an important story. It lets them know you’re on their side and your mission is to help them meet a need, get to their goal or fulfill their dreams. When this happens, you will have overcome their wariness and doubts. You will have earned what you need to make the sale: Their trust.

It only happens when you do the opposite of what so many life insurance salespeople have been told to avoid—thinking like a customer.

What is it that the customer is trying to say? Some people—no, many people—have trouble expressing themselves clearly, either unwittingly or at times on purpose. People often want others to think well of them, so they answer questions in ways that they hope will impress you. They may let it be known, for example, that they can afford a purchase that’s far beyond their financial means. On and on it goes.

We all use shortcuts for coming up with assumptions so we can get the job done as quickly as possible. In sales this leads to believing we know more about how customers think than we do. Without even realizing it, opinions become facts and certainty supersedes questioning, doubt, and curiosity, the essential tools for understanding customers’ thoughts and behavior.

And at what cost? Lost sales.

Four common sense rules for understanding customers
Here are four basic rules to help zero in on gaining a better understanding of how customers think. And that means more life insurance sales.

Rule #1. Never assume you know what a customer is thinking.

This is the place to start. Believing we can know what someone is thinking is useful–it gives us the feeling of being in control, even though the deck is stacked against such a belief.

The neurologist Robert A. Burton, MD, writes, “We make up stories about our spouses, our kids, our leaders, and our enemies. Inspiring narratives get us through dark nights and tough times, but we’ll always make better predictions guided by the impersonal analysis of big data than by the erroneous belief that we can read another’s mind.”

Rule #2. Avoid thinking about what you want to say or do next.
In other words, the human mind isn’t up to speed on multitasking. When we’re with a client and our mind is on our proposal or what we want to say next, we simply can’t concentrate on what a customer is saying.

Here’s the point. Nothing is more important than what a customer is telling you. If you don’t get it at that moment, it’s gone forever. Try as hard as you can, you can’t recall what you missed.

Rule #3. Make key word notes.
A similar problem occurs when you’re concentrating on what a client is saying so you don’t miss anything. You don’t want to be taking notes because it disrupts what the client is saying. Using a smartphone to record the meeting may not be appropriate, and often makes people uncomfortable and cautious.

So, how can you keep your attention on what you’re hearing and still recall back at your office? Keyword note taking can help. Instead of trying to jot down even four or five words at a time, let alone sentences, just one or two key words can aid recall.

Rule #4. Use “rewind reviews.”
Missing essential information, or getting it wrong, undermines an agent’s credibility—and the chances of making the sale.

An effective way to avoid such unnecessary mishaps is the “rewind review.” You might say to a client or prospect, “I want to be sure I understand what you’re telling me, so let me put it in my own words. Correct me if I get it wrong.” This not only will help get it right, but it sends the message that you’re a serious listener.

The battle for the control of a life insurance agent’s mind is relentless. “Don’t give in. Don’t let yourself think like a customer,” they say. “Always remember, it’s what you want to accomplish that counts.” Yet, at the same time, we are quick to tell our customers that we put them first. But how can those words ring true with customers unless we think like them? If we do, then just maybe life insurance sales will go up.

The Five Stages Of Exit Planning

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According to the Exit Planning Institute’s State of Owner Readiness Survey:

  • 67 percent of business owners are unfamiliar with all of their exit planning options.
  • 78 percent have no formal transition plan.
  • 83 percent have no written transition plan.
  • 49 percent have done no planning at all.
  • Less than seven percent had a formal post-transition plan for what they were going to do “next.”
  • 40 percent have no contingency plans for illness, death, or forced exit.

As the survey reveals, business owners are a mess when it comes to exit planning! Other statistics bear this out as well:

  • 12 months after selling, three out of four business owners “profoundly regretted” their decision to sell.
  • 70-80 percent of businesses put on the market do not sell.
  • Only 30 percent of all family-owned businesses survive into the second generation.
  • Only 12 percent survive into the third generation.
  • Only three percent operate at the fourth generation and beyond.

I absolutely believe that “Exit Planning is the Best Business Planning.” This is true even for the business owner who has no intention of selling their business at this time, although they may get some help with this in the future by visiting CGK Business Sales, or a business broker near them, when it is time to sell. I fully subscribe to the Exit Planning Institute’s description of the Five Stages of Exit Planning and that exit planning is a long-term process and not a one-time event. I’d like to briefly discuss these five stages.

The Five Stages of Exit Planning
Identifying Value: 60-90 percent of most business owners’ wealth lies in their businesses. Most owners do not have a realistic view of their business’ value and its contribution to their overall net worth. Most accounting systems are “tax oriented” and they usually significantly understate the “Real Number” in terms of what the business is worth. Most accounting systems are not built to give feedback on the “Real Number” and what can be done to improve it. The “Identifying Value” phase of exit planning is where a business owner finds out his or her “Real Number” and initiates steps to maximize that value so that they have the option to unlock that wealth.

Protecting Value: After properly identifying a business’ value and taking actions to increase that value, a key next step is protecting that value and what I call “De-Risking.” Risk is a major factor in determining value, and a less risky business, relatively speaking, is a more valuable business! The “Protecting Value”stage of exit planning is where a business owner formally integrates broad risk management into his or her business and personal planning. It’s where business owners perceive risk seriously enough and develop an understanding of risk based “deal killers.” Some quick examples are a business’ inordinate dependence on the owner, lack of documentation, lack of transferable and scalable systems, product liability, EPA/safety issues, and lack of succession or exit planning.

Building Value: When discussing building value, I like to talk about “The Four Capitals:” Human Capital, Customer Capital, Structural Capital, and Social Capital. These “Four Cs” are all drivers of “Intangible Value” and understanding how the highest valued companies in the world perfect these intangible areas is a major key to building great value. It is also important to build a company’s “Tangible Value” which does get us back to what the typical accounting systems allow us to do. With proper assessment tools during the “Building Value” stage, a Certified Exit Planning Advisor (CEPA) can quantify how going from weak to strong in the Four C’s can have a geometric effect on a company’s Real Value.

Harvesting Value: The key to Harvesting Value has a lot to do with what I call “Exit Readiness.” Readiness is a state of “fact,” and not a state of “mind.” Two key questions are: “Is the owner ready?” and, “Is the business ready?” Transition timing is important. The first timing consideration is the owner’s “Personal Timing.” Is the owner tired and burned out or is the owner still on fire every day? The second timing consideration is the “Business’ Life Cycle.” Is the business a start-up with very high growth potential or has the business reached some form of maturity and/or possibly about to enter a decline? The third timing consideration is often overlooked and that is the strength of the “Capital Markets.” If investment capital is abundant through private or public sources, a company will likely sell for more money. If investment capital is scarce, a company may sell for less. The “Harvesting Value” stage of exit planning is the process of managing all three of these timing events at the same time and at all times.

Managing Value: Personal preparedness for a liquidity event caused by selling one’s business is a vital step in exit planning. Of course, all business owners want to sell their business for the highest price. But careful planning, pre-sale, in areas such as tax planning, investment planning, estate planning, charitable planning, and personal financial planning is vital to a successful outcome. Many people may wish to work with someone like these Red Deer lawyers when dealing with things like estate planning to make sure that everything is taken care of properly. That being said, very few business owners have even heard of a “Net Proceeds Analysis” much less integrated one when contemplating the sale of their business. The Certified Financial Planning Board defines financial planning as “The process of developing strategies to assist clients in managing their financial affairs to meet life goals.” Even fewer business owners have developed their “Third Act” or their “Life After Sale” plan. The “Managing Value” stage of exit planning asks the question, “What does happiness look like?” and seeks to ensure that the business owner is personally and financially prepared for a lifetime of…or even generations of…success and significance.

Get Involved with Exit Planning
Why would you want to get into the business of exit planning?

First, it will differentiate you from the masses in your industry. Exit planning uniquely engages the business owner in a process that is very different from the typical financial planning, insurance advisory, investment advisory, estate planning, legal or tax planning process. Exit planning may just be the one service that will work for those business owners that found your prior “industry standard” approach to be lacking. Exit planning also helps establish a long-term relationship with the client and will establish you as a “thought leader” on a topic that very few advisors possess.

ESG Investing—Much More Than A Millennial Story

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There are lots of investment opportunities that younger investors are much more willing to invest in. For example, lots of young people have invested in bitcoin and have looked into different Bitcoin Prime Ervaringen to make sure they were using the right tool to invest with. Those looking to invest in Bitcoin will be pleased to know that there are a variety of ways in which they can do this, Brazilian investors can check this out – comprar Bitcoin com Paypal. They are also more likely to invest in tech startups as well as environmentally friendly initiatives. Environmental, social and governance (ESG) investing is a topic that is getting a lot of attention lately-and rightly so-as people are becoming more personally invested in the companies where they put their money. In fact, according to a recent study* which examined how consumers are feeling about ESG, nearly three quarters (73 percent) of people say that choosing an ESG investment is a way to reward good companies.

It’s possible you’ve already had some clients ask about adding an ESG component to their portfolio, and odds are they were on the younger side of your client base. This makes sense as nearly two-thirds (64 percent) of millennials in the study said ESG issues are important in their investing decisions. Not forgetting that having access to the best Trading Apps im Vergleich (trading apps in comparison) can help them to make the most well-informed decisions when it comes to making the best investment for their portfolio. If they don’t have that, the process could become a lot harder. The study also found that millennials are more likely to be interested in learning about various types of ESG information and are more likely to take action based on issues that are important to them.

But if you think ESG investing is purely a millennial story, think again, there is more than millennial money that meets the eye when it comes to investments.

Interest across generations
Although the study found that millennials are more likely to make investment and purchasing decisions based on ESG topics, Gen Xers and baby boomers are also putting their values into action-and this is a trend that is only going to grow.

More than half (54 percent) of Gen Xers said ESG issues are important in their investing decisions with boomers not far behind at 42 percent. In addition, majorities across all generations say ESG is a key factor in which companies they choose to do business with (77 percent of millennials/64 percent of Gen Xers/61 percent of boomers).

Furthermore, baby boomers are actually more likely than millennials and Gen Xers to say that the reason they want to participate in ESG investing is to encourage companies to be good corporate citizens (61 percent of boomers, compared with 51 percent of millennials and 48 percent of Gen Xers). Baby boomers are also more likely than other generations to take their business elsewhere if they disagree with a company’s track record related to certain ESG issues including transparency in business practices and finances, levels of executive compensation, and charitable contributions.

Lack of action equals opportunity
It’s clear that people from all generations-not just millennials-are looking to learn more about ESG and want to put their values into action. But actual participation in ESG investing is still quite low. Only 17 percent of millennials are currently participating in ESG investing, with percentages much lower for both Gen Xers (seven percent) and boomers (three percent).

What could be causing this lack of ESG activity? Part of it is undoubtedly a lack of education and resources as survey respondents noted they need more information in order to feel comfortable making ESG investment decisions. Yet, an equally important factor to consider is the lack of guidance people are currently receiving about ESG investment opportunities.

The study showed that clients simply aren’t hearing enough about ESG options from their financial professionals. In fact, most financial professionals have yet to take a proactive approach helping clients learn about and participate in ESG investing.

Only 30 percent of Americans working with a financial professional say they have discussed ESG investing with their advisor, and most of the time it was the client who initiated the conversation (69 percent). This, despite the fact that three-quarters of respondents currently working with a financial professional said they have positive perceptions of ESG investing, and over half (51 percent) of those currently not involved with ESG investing are interested in it.

3 steps you can take today
So, how can you put this knowledge to good use and strengthen relationships with you clients? Here are three things you can do today to make ESG a bigger part of your practice:

  1. Do the research-As ESG investing is becoming more common, resources to better understand ESG investment opportunities are more readily available. A couple of good options that can help build your ESG knowledge include the United Nations Sustainable Development Goals and the Principles for Responsible Investment. Keep in mind that it’s also becoming easier to learn about companies’ business practices across the ESG spectrum- something more and more clients are coming to expect of their financial professionals. Take the time to understand the full picture before making any recommendations.
  2. Be proactive-Don’t wait for your clients to bring up ESG-let them know that you’re informed and able to provide sound advice about ESG options that could benefit their portfolio, especially when it comes to saving for retirement-after all, the majority of people already believe that companies that are good corporate citizens are better positioned for long-term success. It’s important to proactively work with clients to identify what issues are important to them and help them build their portfolio in a way that reflects their values.
  3. Be inclusive-One of the biggest takeaways from the ESG Investor Sentiment Study is the fact that-contrary to popular belief-all generations are interested in learning more about ESG investment options. Although millennials are a clear target for ESG discussions, don’t leave your Gen X or boomer clients out of the conversation. It’s likely they have opinions on ESG and would appreciate the opportunity to discuss and determine if some involvement with ESG investing might be right for their larger financial strategy.

Becoming more knowledgeable about a company’s operations, including its ethical impact and sustainability practices, can help your clients make better-informed spending and investing decisions. By taking the time to learn more about ESG investing, you can differentiate yourself and engage you clients in a new and meaningful way.

*Allianz Life Insurance Company of North America conducted an online survey, the Allianz Life ESG Investor Sentiment Study, in December, 2018, with a nationally representative sample of 1,000 respondents ages 18 years or older.

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