Thursday, March 28, 2024

An Interview With Eugene Cohen

2009 Honoree International DI Society’s
W. Harold Petersen Lifetime Achievement Award.

2015 Honoree of NAILBA’s Douglas Mooers Award for Excellence.

From time to time we will feature an interview with Eugene Cohen, who has dedicated over 57 years of his life to learning, teaching, and supporting brokers in the agency’s quest to help consumers protect their incomes from the tragic effects of a disability. With the help of Victor Cohen, we will chronicle many of Eugene’s life lessons, advice, strategies, and what drives him every day to mentor those who wish to help their clients protect their incomes. Disability insurance is one of those products that can change the trajectory of an individual and a family’s life and is crucial for every financial planner and insurance professional to learn about and offer to clients.

This is the second part of our ongoing series with Eugene Cohen, CEO and founder of the Eugene Cohen Insurance Agency, Inc. The agency started as a disability insurance brokerage MGA and has grown to over 35 team members who are all focused on the wholesale service needs of financial professionals for disability, life, long term care, and annuities.

Victor: In our last conversation, which appears in Broker World’s November 2020 issue, you mentioned four different objections advisers may face when discussing individual disability insurance with a client: No Need, No Money, No Hurry, and No Confidence. Which of those objections would you say is the most important for an adviser to answer?

Eugene: The “No Need” objection must immediately be addressed—before it even becomes an objection. If the client realizes the need for disability income protection, they are going to want to buy the product. The more time spent on need, the more likely the other three objections will evaporate as the client truly understands the reasons that Disability Insurance is so important.

Victor: Are there specific occupations you suggest advisers focus on, where clients may more easily or naturally see “The Need” for disability insurance?

Eugene: Many advisers like to present disability insurance coverage to physicians and doctors of dentistry because individuals in these occupations recognize the need very quickly. They often see patients and/or train on medical conditions that can disable people. They see the devastating financial effects of a disability almost every day!

If a surgeon or dentist loses three fingers—they know the very likely unfortunate outcome. That career is done. So, it’s very easy to present a disability insurance policy to them.

Also, a physician or dentist is often in a hurry to buy disability insurance. So, they want to purchase it very quickly. This product is so important, especially for those who see people suffering from disabilities.

Victor: I can see how a physician or dentist would clearly see the need to protect their income. How would you help an attorney see the need for DI?

Eugene: Well, if the attorney loses three fingers, the lawyer can likely easily work and not have a major problem. Yet, attorneys learn about personal injury law; they are trained on how to calculate lost wages as part of a settlement. When a client sees and understands disabilities, they know they too can become disabled. So, we have to look at what could disable that attorney. What could prevent him or her from working in their occupation?

Prior to every appointment, when presenting disability income protection insurance, we have to design what we are going to say, and tailor make the conversation to address the client’s specific occupation.

We know there are many illnesses and injuries that may affect a person’s short-term memory. Can you imagine if an attorney lost his or her short-term memory? Or what if they had Parkinson’s disease, multiple sclerosis, a mental disorder, or a serious back disorder?

What if a trial attorney had cancer of the larynx and couldn’t speak? He or she may be out of work. These are the things we have to look at. What will disable that attorney? Some of the illnesses/injuries that could end, or seriously affect, an attorney’s ability to earn an income, may be different than the illnesses/injuries that may disable a surgeon or doctor of dentistry.

Attorneys are excellent DI clients because most of them, like medical professionals, understand the need. Many lawyers earn large incomes that need to be protected.

Victor: So, what about the adviser who doesn’t have medical professionals or attorneys as clients? What other types of clients do you suggest advisers focus on?

Eugene: Disability income protection is the foundation of any financial plan, regardless of anyone’s occupation. Whether the client is a doctor or an electrician, truck driver, factory worker, plumber—they all rely upon income.

If a client earns $30,000 or $35,000 dollars per year, they still have the same problem as someone making $300,000 or $350,000 annually. They still have to pay bills when they are disabled.

The only difference is you have to work on adjusting the premium so the premium is something the client earning $30,000 per year can afford.

For example, maybe it is better for some prospects to be insured for a shorter elimination period of 30 days (instead of maybe 90 days), with a shorter benefit period of two or five years (instead of to perhaps age 65 or age 67). This may be something that can better fit into some clients’ budgets. Also, with a shorter elimination period, the client will get their benefit sooner. (This is very helpful to clients who don’t have adequate savings.)

Victor: I know that you feel strongly about small business owners needing disability insurance. How do you discuss the need for DI coverage with these prospects?

Eugene: Small business owners are excellent DI clients. I have given many presentations to business owners who employ eight to ten people. The small business owner has a major problem if he or she can’t work. They have a tremendous investment in their business. Not just an economic investment. An investment in time, passion, long days and often long nights and weekends. Also, the business owner is providing an income for their employees. These employees have families who are relying on that business to stay open and to be profitable. The business owner has an incredible amount of responsibility and liability.

Victor: I’d think business owners immediately see the need for DI.

Eugene: Not necessarily. I have had business owners say to me, “I can run this business with my eyes closed.” I am sure he or she never tried that. Or they may say, “There aren’t many things that can disable me.” Well, I always like to ask the small business owner, “What’s the longest vacation you’ve ever taken?” Their reply is usually, “Two weeks…a week…” I will then ask them, “Why don’t you take a longer vacation?” They answer, “I can’t afford to. I have to watch this business.” Small business owners are often working 50, 60 hours per week or more.

As this client’s adviser, I’d ask, “If you had a sickness or accident that lasted two or three or five years, would that create a problem?” Most business owners would see their life savings and business disappear quickly.

Victor: Other than doctors or other high earning professionals—who may more easily see the need to protect their income—what are some general questions an adviser may ask clients working in other occupations who may be earning a more moderate income?

Eugene: I suggest asking, “Is your income important to you?” After the client answers, “Yes,” I would ask, “What are you doing to protect that income?”

Victor: That does get straight to the heart of it.

Eugene: This policy works when you can’t work due to a qualifying claim. It’s your silent partner. When you get the prospect to understand they need the product, they are going to be interested in it. If your client doesn’t understand that they need it, then don’t waste your time going over the policy.

Victor: So, let’s say a prospect does understand the need to protect their income, but they say they don’t need an individual disability insurance policy because they already have group long term disability insurance provided by their employer. How do you answer that potential “No Need” objection?

Eugene: I would ask them, “What does your group policy cover?” The client often doesn’t know. They haven’t taken the time to read it. I will offer to review their plan with them.

Group LTD (Long Term Disability) or Group STD (Short Term Disability) can be a wonderful supplement to an individual disability policy. Many professionals have both group LTD and their own individual disability insurance policy.

Victor: And what would you say to a client who may not have group LTD from work, but already has their own individual disability insurance policy? How would you handle that potential “No Need” objection?

Eugene: I would ask the client when they last had their individual disability insurance policy coverage reviewed. The client’s income may have grown substantially since they first took their policy. They may be ready for additional coverage.

It is common to layer a new individual disability policy on top of an already existing DI policy—if the income allows it. It’s always about doing what is best for the consumer. That is always rule number one.

Victor: Thank you for another very insightful and inspiring conversation. Unfortunately, we have to wrap it up for now. I look forward to us doing this again soon. To be continued!

Aortic Aneurysm: A Silent Killer

An aortic aneurysm is a dilatation of the aorta which predisposes itself to rupture, hemorrhage and death in short order. The aorta is the largest vessel in the body carrying blood out to the rest of the other organs. There are three layers in the aorta—intima, media and adventitia. A true aneurysm is a dilatation of all three of these layers. When an aortic aneurysm ruptures, there is only a short time frame to emergency surgery to repair it before death ensues.

Aortic aneurysms are usually silent killers in that most (almost all that involve the abdominal part of the aorta and half that involve the upper or thoracic part) are generally asymptomatic. A physical exam may detect a pulsatile mass in the abdomen that corresponds to an aneurysm that hasn’t yet ruptured, but the majority of aneurysms are discovered on more routine imaging. Chest X-rays or ultrasounds are the most common detection methods. Symptoms of a large aneurysm may include low back or mid-abdominal pain or trouble swallowing when the aneurysm compresses the esophagus. Once the aneurysm ruptures, chest pain is sudden and severe along with a sharp drop in blood pressure and throwing up or coughing up blood. Death is common when there is not proximity to a hospital or operating room, and even surgical morality in an acute situation may be as high as 50 percent.

Risk factors for aortic aneurysms are many. Men over age 65, hypertension, smoking and high cholesterol are a few of the major ones. Others include weight lifting, trauma, a bicuspid aortic valve or any other kind of aortic valve disease. Genetic causes including Marfan’s syndrome (a particular offender), Ehlers-Danlos syndrome and Turner’s syndrome are widely recognized. Inflammatory diseases such as ankylosing spondylitis, giant cell arteritis and Takayasu arteritis cause weakness in the aorta through their underlying inflammatory component and screening for an aneurysm may be part of the disease for these conditions work-up per se.

How to treat an aneurysm when discovered in an asymptomatic person has undergone changes in recent years, but is still designed to get to the aneurysm and surgically repair it before it is too late. That said, not every discovered aneurysm is referred immediately for surgery. Things that go into when to make the repair are time since discovery, size of the aneurysm, underlying conditions (like atherosclerosis, hypertension and smoking) and the rate of growth of the lesion. Clinical problems are rare when the aneurysm is 4 cm in size or less. Between 4 and 5 cm, the mortality rate increases but again surgery is not an immediate consequence. Once the aneurysm measures 5.5 cm (this is an increase from the previously accepted 5.0 cm) or the growth is marked in between radiographic evaluations, surgery to accomplish repair is undertaken. As mentioned, this is not an operation with trivial surgical risk, so repair is accomplished in those with larger lesions. The annual rate of rupture is highest in the larger lesions and a rupture may be fatal in up to 80 percent of these cases.

Surgery is usually accomplished as an open repair of the aorta. It must be done in skilled hands as the aorta then certainly is a weakened vessel subject to further problems if not done effectively. As it is a problem in older individuals, a procedure called EVAR (endovascular aortic aneurysm repair) is done in older individuals who are considered high operative risks due to the presence of other complicating diseases or circumstances. It requires indefinite surveillance to monitor for leaks, closing of the vessel or re-expansion even though it is safer for high risk individuals.

Underwriters who assess aortic aneurysm look for various factors in assessing its future morbidity and mortality. The location of the aneurysm is important, as well as the size, cause, treatment, and rate of growth if unoperated. Monitoring control of other contributing conditions is important as well, both in the operated and unoperated individuals. Follow-up is also key— those who do not have adequate medical follow-up with this condition increase their mortality several fold.

Smaller aneurysms may be taken with a small rating as long as follow-up is good. Larger ones have to be followed with care to assess stability, as their rate of growth may pre-dispose them to acute injury and death if a rupture occurs and an operating room is not immediately in reach. There may be a waiting period of six months to a year before insurance is considered after surgery, and the longer time goes by without a recurrence the better. Those with EVAR as treatment are rated more severely as the procedure for repair is not as complication free and there are generally other health problems that were significant enough to have chosen that approach over the more tested open repair.

FIAs And GLWBs: WTF?

(Part 2 Of 2)

This is the second article of a two part “mini-series” on discussing “what the flow” (WTF) of an annuity conversation should be like. Afterall, based on CG Financial Group’s surveying of agents, discussing annuities with GLWB riders is an area where agents would like some further “refining.”

As discussed last month, there are five areas that financial professionals cite as areas they would like help explaining.

  • Can’t a “financial advisor” give the same amount of income from a stock/bond portfolio? Afterall, the stock market has gone up 10 percent on average since 1926 and only five percent withdrawals (example) seems paltry! Ken Fischer says he can do better!
  • Only $5,724.50 in income on a $100,000 premium? That means the client is merely getting back their premium for the first 18 years! That is not very sexy!
  • I do not understand the relevance of the “Rollup Rate.” Isn’t that seven percent rollup rate just “funny money?” Afterall, it’s not like you can just cash that value out like you can the contract value/green line (subject to surrender charges).
  • Don’t these riders cost a lot? Suze Orman says they do.
  • How do I, as the financial professional, articulate the mechanics of the product as well as the overall value proposition? What’s the flow (WTF) of an annuity conversation that is effective?

Objection Bullet Point #1: “Can’t A Financial Advisor Do Better?”
To jump right into bullet point #1 above, here is my belief that bears repeating: Consumers will likely not recognize the true power of annuity GLWBs unless they are educated on the traditional withdrawal rate rules of thumb.

By educating consumers on these rules of thumb, you can “re-anchor” their expectations to reality and the fact that traditional withdrawal rate “rules of thumb” at retirement are anywhere from 2.3 percent to four percent, depending on which study you want to go by.

Many consumers know that the S&P 500 has gone up double digits on average for the last century and therefore overestimate what withdrawal rate they should utilize. Well, even though the S&P 500 could average 10 percent over the coming years does not mean the client will not run out of money by taking only four percent of the retirement value from their “stock and bond” portfolios! How is this possible? Because of sequence of returns risk that the “stock” portion can subject the client to and the low interest rates that the “bond” portion can subject the client to. And because of these two risks (sequence of returns and low rates), a client should not overestimate what a “financial advisor” can do as far as withdrawal rates. If you would like a graphic that helps you explain “sequence of returns risk” to your clients, email me.

Following are a few diagrams I use to help educate consumers on what their “financial advisor” might do as well as what an annuity might be able to do.

I first educate them on the old four percent withdrawal rule of thumb, (see diagram 1) even though that is being generous as the pundits are saying 2.3 percent to 2.8 percent is more like it today! I rationalize with them by drawing the diagrams on an “example” 63-year-old wanting to retire two years from now. Our 63 year-old has $100,000 in a stock and bond portfolio.

0121-diagram1-gipple

I discuss how this 63-year-old may have the expectation that her $100k grows by five percent or so per year between now and retirement in two years. Well, based on her $110,000 value at that point, what withdrawal should she take in her first year of retirement? This is where I discuss the old four percent withdrawal rule, which is contrary to popular belief. I also discuss the reasons for the withdrawal rate being only four percent. Hence, sequence of returns risk and low interest rates. But the end result of this diagram is a payment of $4,400. But that is only if her expectations Actually happen!

I then draw a second diagram (see diagram 2) that demonstrates the possibility of her expectations not coming true. As in, maybe between now and two years from now her portfolio loses 20 percent, versus gaining 10 percent that she had hoped for. This means she only gets $3,200 a year in income, a 27 percent pay cut relative to her “expectations.”

0121-diagram2-gipple

Lastly, I draw a diagram (see diagram 3) using the example GLWB rider that I showed you in last month’s column. This GLWB rider gives a “rollup rate” of seven percent per year then a payout factor of five percent at age 65. This particular rider is able to guarantee her 30 percent more income ($5,724 versus $4,400) than what she “hopes for” in her securities portfolio. No ifs, ands, or buts!

0121-diagram3-gipple

Usually, the response by the time I get done with the third diagram is, “How is that possible?” or “It seems too good to be true.” That is where I discuss longevity credits with her. (Email me for my conversation points on longevity credits.)

Objection Bullet Point #2: “Only $5,724 in income?”
We already discussed why these “rules of thumb” are so low—because of sequence of returns risk and also low interest rates—and why a guaranteed payment of $5,724 is quite attractive. However, if the client is only getting their premium back over 18 years ($100,000 divided by $5,274), they may question the worth of these riders.

This is where I discuss with them (diagram 4) that I showed you last month. Their contract value (dashed green value) is still available to them and still gains interest based off the index, although it likely will be reduced if withdrawals are taken out. Note, many consumers think annuities are just locking them into a “lifetime payment.” Obviously not so with the innovation of GLWB riders that began almost twenty years ago with VAs!

0121-diagram4-gipple

I then discuss with them that all we are doing with a GLWB rider is buying an “insurance policy” on their longevity. And that insurance policy is what gives us that additional blue “Benefit Base” line.

Objection Bullet Point #3: “Isn’t that blue line just “funny money”?
This is a good question because a carrier could just do away with the “Benefit Base” and the required algebraic formulas, and instead just list payout percentages for certain ages and deferral periods. An example would be our 63-year-old having a guaranteed payout factor at age 65 of 5.72 percent ($5,724 withdrawal on her $100,000). Some carriers have in fact taken this route! However, for marketing reasons or what have you, the bulk of the carriers use the benefit base rollup and payout factor design.

I have two responses to the “funny money” question:

  1. I don’t care if the benefit base is “funny money” if the end result is that the client is guaranteed a very large withdrawal amount after the calculations are done. It is also important that agents not market the “Benefit Base” guarantee of seven percent like that is a liquid “contract value.” Lawsuits.
  2. When I explain the blue “Benefit Base value,” I draw a comparison to cash value life insurance. It goes something like this.

“Now the blue elevated value is a value the insurance company gives you in addition to your green “contract value.” This is the longevity insurance you are paying for. Do you get to just “cash out” that blue value? No. Instead, there are various rules the insurance company mandates you follow in order to get that blue value. Kind of like cash value life insurance where you have your “cash value” that you can cash out and you also have another value that is usually higher than your cash value, right? Except that “blue value” on the life insurance policy is the death benefit and, as we all know, you need to follow certain rules for that death benefit to pay out, correct? (Chuckle) Yes, you must die! Well, for this blue value on the annuity, you don’t have to die. The insurance company just says that you cannot take any more than five percent per year of that blue value out in order to not have the blue value/blue line decrease. That is the main rule you have to follow.”

Objection Bullet Point #4: “Suze Orman says annuities cost a lot”
Most indexed annuities without GLWB riders have no fees. The high-fee objection has its roots in the variable annuity world where subaccount charges, M&E, and rider charges can very easily get above three percent.

Now, if you are adding a GLWB to the indexed annuity, a common fee might be one percent. What I have found is, if you have done a good job explaining the diagrams above, old rules of thumb, blue line versus green line, etc., a one percent fee per year should not be a huge hurdle for that client that is concerned about outliving their money. If they do take issue with the one percent, it may not hurt to put the risk of outliving one’s money into perspective:

  1. There is an 18 percent chance you will total your car over your life. You buy auto insurance to hedge that risk!
  2. There is a three percent chance your house will burn down over your life. You buy homeowners insurance to hedge that risk.
  3. Morningstar says there is a 52 percent chance today that a stock and bond portfolio will not last a 30-year retirement by using the “old” four percent withdrawal rule. Why not hedge that risk as well? Afterall, there aren’t many things more important than not outliving your savings.

Objection Bullet Point #5: “How do I, as the financial professional, articulate the mechanics of the product as well as the overall value proposition?”
We all think differently, process information differently, and speak differently, but I hope these articles at least gave you ideas on how you should articulate the GLWB conversation as well as ideas for “napkin diagram drawings” that you can use with your clients.

Independent Life Distribution Technology Survey

The Life Brokerage Technology Committee (formerly NAILBA Technology) is a gathering of industry technology leaders with great experience to discuss and report on standards and trends. The group is represented by brokerage general agencies, carriers, medical information providers and solution vendors. Workflows were documented, data sets were negotiated, and appetite to change was measured. In short, the day’s discussions produced new solutions and road maps that materialized some years later. The committee’s work over the last two decades did bear fruit and greatly impacted cycle time, accuracy (IGO), underwriting, and digitalization to big data, while the cost savings were taken over by rising compliance cost.

Then COVID-19 hit us out of left field. A new virus to all of us, requiring us “overnight” to work from home, wear a mask and quarantine. Thankfully the current maturity of our available technology made it possible. The pandemic forced change also in the life insurance process as well. In 2016, 45 percent of BGA new business submissions were E-Apps (full) which by October 2020 jumped to 75 percent. In 2016 the number one E-App obstacle to adoption was “Agent Training.” It took a pandemic to create change and even other lines of businesses (i.e., annuity, long term care, final expense, group, disability) grew from nowhere to 20 percent.

LBTC conducted a 2020 survey that was different from the previous eight years of surveys. The new qualitative paradigm focused on areas of the workflow process to automate and standardize whereas the previous surveys focused quantitatively on tools and vendors. The PaperClip survey adhered to the old survey scheme because many people would use its results to help justify partnering on projects and decide who to spend resources on. Experience shows you want to engage with market leaders whereby the desired change being introduced would reach the largest audience possible. In review of the LBTC 2020 survey the takeaways were exchange standards, automated underwriting, commission standards and E-Policy delivery.

The leader by request remains “Data Exchange Standards” with the specific mention of Application Program Interface (API), and second was Automated Underwriting (AU). These two items are joined at the hip and to get an effective AU you will need the appropriate data. ACORD messaging as the standard for many years became problematic because of the different needs it had to address for data exchange, hence why virtually everyone had their flavors of ACORD standards. This is now changing to a less structured format, to a simpler JSON (paired values) model, while relying on a common data dictionary. The next question becomes who should create the data dictionary, LBTC or the vendor community? The LBTC is the best venue to construct the data dictionary terms and to manage the terms. The Data Dictionary, though, should support custom terms as needed.

Next is actual integration from the source data container (E-App, AMS, Paper App) to the receiving partner’s data container, SaaS to SaaS. So, let us start with the design question of “Point to Point” or a “Centralized Hub Model.” Well, the Centralized Hub Model is the most efficient choice based on our 22 years of experience exchanging over 70 million documents just last year among 1,400 Points of Presence (PoP). Today, data integration is dominated by point-to-point vendor SaaS PoP. One would think it should be a one to many, but every customer needs a change because they do things differently—ACORD’s challenge. Whoever brings the solution to market, it should be “Data Dictionary” based and the community (LBTC) should police it like we did with document exchange (can anyone say doctypes…).

The 2020 PaperClip Survey maintained the vendor questions so the reader can see what their peers are doing with their technology resources. We see from our customers a continued trend to move from on-premises to vendor SaaS solutions. The driving forces are work from home, compliance, and technology staffing cost. The buyer’s top requirements are compliance and integrations with other vendors. Larger offices (> 100 users) want Cloud (Azure, AWS, IBM, etc.) deployments because cyber security depth will only be accomplished in the Cloud.

The following results reflect vendors that singularly or collectively obtained more than 65 percent market share. The complete report can be downloaded from PaperClip’s website. The survey request was sent to over 5,000 people—249 started the survey and 39 participants completed it, dominated by BGA distributor’s (33). The responding BGAs reported they process 150 to 300 life and annuity applications per month. These BGAs process 80 percent of their business between six to 10 carriers. BGAs found very important to them “ease of doing business with,” “product pricing” and “relationship with the underwriter” in keeping their business. An agent is producing about 50 to 150 applications annually and the age of these producers are 40 to 60 years old.

BGAs use social media to attract agents and to keep current producers informed. The primary services are LinkedIn (87 percent), Facebook (56 percent) and Twitter (41 percent). Fifty-six percent advertise on these social services while only 38 percent prospect.

The following solution categories and vendors again represent the market share leaders, but each category is being challenged by new vendors that have a strong mobile offering. As noted above, the age of producers is just now including millennials and that group will gravitate to mobile selling tools. The most requested mobile applications are quotes, illustrations, and pending case status.

Customer relationship management (CRM) is the solution that manages your client relationships and interactions with prospects. There were eight different vendor responses, led by SmartOffice and “None,” and 25 percent of respondents do not use CRM tools. I expect significant change here with mobile adoption.

Agency Management Systems (AMS) market leaders remain iPipeline’s Agency Integrator and Ebix’s SmartOffice. Only 15 percent of BGAs open access to their AMS to producers. BGA’s would open more if “pending case status” was better. Fifty percent of BGAs use carrier web sites instead of accepting the AMS data feeds. The lack of timely and accurate data is the objection and remains on the BGA’s top five LBTC request list. Quote Engine had 14 vendors listed with the market share belonging to iPipeline’s LifePipe and Ebix’s VitalSales Suite.

Document management with eight vendors maintains PaperClip’s Virtual Client Folder as the market leader. Interesting here is that 13 percent of respondents report “None.” I hope this means they paper-out and store paper. If this means images on a local hard drive it would be considered today as gross neglect. BGAs preferred method of submission to carriers and receipt from medical service providers is “secure email” and “imaging vendor;” at zero percent, looks like the FAX machine and FTP servers are finished. Secure email delivery was led by PaperClip’s eM4 and TLS direct connect. Twelve percent reported “None” which opens their email traffic to the world—not a good thing.

Electronic Application (E-App) with six vendors noted is led by iPipeline’s iGO. The next group combined representing 30 percent were Applicint, Ebix’s LifeSpeed and PORCH. Twenty percent selected “None” with only one write in for “home grown.” E-App electronic signature most used was DocuSign followed by Click Wrap (10 percent). Deeper in the survey, Customers (41 percent) would prefer a simple “Click and Close” solution. Drop Ticket options support nine solutions with “Carrier’s Direct Link” and ApplicInt holding the market share. Agents that will take a paper application and then rekey it into an E-App was 25 percent and BGAs that keyed from paper was 36 percent. This tells us that 61 percent of new business is from distribution via E-App and 39 percent is still paper.

Electronic Licensing and Contracting (E Con) only had two vendors with the leading market share held by SureLC followed by “None” (18 percent). Electronic Policy Delivery (E-Policy) is owned by carrier provided solutions. The major reason is risk tolerance—each carrier wants it done their way. BGAs would like to see that change but I think this falls into that untouchable realm of events like Check21 and 1035s—a “carrier-controlled process.” The leading E-Policy E-Sign vendor is DocuSign.

Compliance was something new added to the survey. Since compliance continues to demand more resources, we wanted to see how those surveyed viewed compliance. Many misconceptions surround responsibility for unauthorized use of confidential information. The truth is, “You can outsource your technology but not your responsibility.” Managing third party confidentiality is a double-edged sword—it cuts both ways. Access to secure data starts with the User placing confidential data into the solution, which creates a liability for the vendor.

When asked, “Where do you maintain client confidential data?”, 28 percent reported “In House,” 44 percent “Vendor” and 33 percent “Both.” This means the majority of BGAs continue to maintain shadow files, most likely in digital format. Here is where we start judging neglect versus gross neglect. If you conducted the best practices of oversite required by federal and state authorities’ laws, regulations and rules, loss of data at worst could be found neglectful. If you ignore or only partially approached cyber security and conduct, you most definitely would be considered grossly negligent and most likely fined.

Compliance “Best Practices” start with documenting how you control confidential information. Areas to address typically fall into these categories: Security, Availability, Processing Integrity, Confidentiality, and Privacy. These policy documents serve as the basis of training your staff on how to manage the personal data customers have trusted you with. Once you have policies and procedures you must maintain these documents to reflect change that naturally occurs as a business scales both up and out.

Annually these processes are evaluated and tested by an approved auditing firm called Service Organization Controls Audits (SOC Audits) and, because you manage medical information, HIPAA Audit as well. As part of the SOC Audits you need to provide evidence of third-party penetration testing of your internal/external network assets where confidential data exist. The 2020 Survey reveals that 25 percent conduct SOC Audits, 43 percent HIPAA and eight percent PEN Testing. A positive trend is the adoption of Multi Factor Authentication (MFA /2FA) at 72 percent and Single Sign On (SSO) at 59 percent. BGAs need to become more aggressive with cyber security and compliance.

Since most solutions are outsourced to vendors, the good news is that you can get major SOC and HIPAA carve outs by leveraging the vendors compliance documentation (i.e., SOC2T2, HIPAA, PEN, etc.). This helps to keep your audit simple. Some simple suggestions: Your “Clean Desk” policies should ban the keeping of shadow files and all employees should execute a privacy agreement that identifies your documented policies. Training and infrastructure maintenance should be continuous, so start a business objective to get audited (everyone starts with a SOC2 Type 1) and ask your auditor if they would combine it with HIPAA because the auditing controls are very similar. Great time and cost saver.

To improve cyber security, I would recommend we move to a 10-character minimum password scheme. Today, according to many experts, it takes five hours to crack an eight character all lowercase password, while it takes four months to crack a 10 character all lowercase password. Very strong passwords at eight characters can take a couple of years to crack and the Vendor community follows the strong password requirements. Truth is that hackers are not trying to hack your password when it’s proven to be easier with Phishing, password sharing, and poor system design that leaves passwords stored on-site in text files, databases, browsers and the actual code or email with no encryption.

Overall, the survey was good with positive trends to eliminating paper and touch points to process business. E-App for term and other simplified issue products has strong adoption, agent self-service portals have come online, automatic underwriting is rolling out quickly and “I’ve got a guy” quoting is seeing investment from BGAs, IMOs and carriers. Vendors have new challenges too—integration. The world of cyber security and compliance is making it harder to align with vendor partners that have a mature cyber security regimen. The risk of integration is in competition with Users ease of use. Example: If you’re downstream of a SSO integration, how can you document that SSO complied with MFA? How can you document your TLS connection did connect securely? How did the agent manage the information they electronically captured and sent to you? What are their safeguards?

Distribution is making the change and the industry is prepared.

How Are You Planning Your 2021 Disability Insurance Campaign? Here Are 12 Resolutions For 2021.

As we wind down 2020, it is time to start planning for 2021 and how you can support your clients’ financial goals. Disability insurance should be part of most of your working clients’ financial plans. There are many ways to help your clients and many great products, so it is good to start planning your 2021 goals.

January’s Resolution: “I’m going to review my client database and create a list of all of my clients who I have helped buy a disability policy. I’m going to make appointments to review their current coverage and needs to determine if more disability insurance is needed.” There are so many stories of clients who bought a disability policy when they first started working, but no one has reviewed it for years and more coverage is needed. We’ve never seen a claim in which someone wished they bought less coverage.

February Resolution: “I’m going to identify clients who own a business and have an office (that’s not in their home) and are the primary income producer of the business. I’m going to discuss with them the need for Business Overhead Expense (BOE) coverage and how this product can help save the viability of their business if they are able to come back to work.” BOE can reimburse a disabled business owner for qualified expenses that are incurred in operating a business. A business owner who becomes disabled, and due to that disability can’t produce the income that pays the expenses, can have a tremendous burden on their shoulders. Think about a sole practitioner physician, dentist, attorney, accountant, or any business in which the business owner primarily creates the income coming into the firm.

March Resolution: “I’m going to identify business clients who have bought key-person life insurance and discuss the need for key-person disability insurance.” If a business has multiple owners or any employee(s) who are key revenue producers for the business, it’s important to discuss key-person disability insurance. The need is similar to key-person life insurance. But the key person didn’t pass away, they became totally disabled!

April Resolution: “I’m going to learn about DI retirement policies and discuss this product with my clients who save money via their retirement plans.” Many planners miss the fact that if a client becomes disabled they most likely will no longer be able to contribute to their qualified plan. There are companies that can help create an alternative type of plan if someone becomes disabled.

May Resolution: “I’m going to identify all of the clients I helped buy life insurance to fund a buy-sell agreement and I’m going to discuss disability buy out insurance.” Many partnership and/or buy out agreements contain provisions if a partner becomes disabled. It’s important to have these provisions funded.

June Resolution: “I’m going to review my clients who have group disability insurance at work or clients who I have assisted buying LTD for their firm. I will explain to those whose incomes exceed the plan’s cap why obtaining more coverage may be in their best interest, primarily due to taxes and inherent limitations in most group policies.” Many times employer paid group plans can be a taxable benefit, which can reduce the net coverage. In addition, most group coverage has inherent limitations compared to individual disability coverage.

July Resolution: “I’m going to review any clients who have been declined for disability insurance in the past to see if I can now get them coverage.” It’s possible that clients who have been turned down for disability insurance in the past can be accepted for disability insurance in the future due to changes in their health, occupation, or income. In addition, there are more companies specializing in impaired risk policies.

August Resolution: “I’m going to identify clients who are owners or work for a business with multiple high-income earners and establish a multi-life discount by insuring three or more people.” There are various multi-life discount programs available.

September Resolution: “I’m going to reach out to clients who have loans and discuss with them how they would pay for the loan(s) if they became disabled.” There are so many types of disability policies and riders that can help ease the financial burdens caused by a disability and the lack of ability to pay contractual obligations.

October Resolution: “I’m going to understand the three basic parts of disability underwriting so that I can better pre-screen clients for individual disability insurance.” There are three areas of disability underwriting: Occupational, financial and health underwriting. Knowing the basics of these three areas can save a lot of time in product selection and preparing a client for various underwriting outcomes.

November Resolution: “I’m going to go to https://lifehappens.org/videos and watch the video testimonials of clients who have been disabled.” While many of us have personal stories of people who have been disabled, you may not know someone personally. These stories show how important disability insurance can be to individuals and families.

December Resolution: “I’m going to give myself a grade, from A+ to F, on how many clients I helped protect themselves or their businesses with some type of disability insurance in 2021.” What grade would you give yourself today? Have you discussed disability insurance with all of your working clients? If you have a client who gets disabled and they ask you what type of disability insurance they have, what will be your answer?

Biomarkers And Alzheimer’s: Coming To Underwriting?

The Alzheimer’s Association estimates that about one in 10 people over the age of 65 has some degree of Alzheimer’s dementia. I think about that every time I misplace my keys or wonder where my reading glasses are (it helps to have 10 pairs…). There was the old axiom that said if you think you might have it you don’t, but if things are happening to you that you don’t recognize a problem then you just might. Either way recognizing the disease is important and management of it even more so.

In clinical practice differentiating Alzheimer’s from other conditions whose treatment is far different is important. Can early Alzheimer’s be no more than sleep deprivation? Treatable depression? Metabolic disorder? Structural problem in the brain? Even vitamin deficiency? Many of the above conditions can rather easily be reversed with a positive outcome. Would it help to know these conditions in medical underwriting? Just as much. Diagnosing true dementia, particularly early in its course, remains a challenging endeavor.

Diagnosing Alzheimer’s disease, particularly early in the process, is important in that intervention could occur before a patient becomes clinically impaired, and decisions about care and financial and custodial issues can be addressed while a person’s faculties are still intact. But diagnosis of early Alzheimer’s, even when suspected, is still challenging. MRI scanning, touted as a first line of investigation, does not reliably detect Alzheimer’s disease. PET scanning is quite expensive and often does not distinguish Alzheimer’s from mild cognitive impairment of normal aging. And since the medications for Alzheimer’s are not curative and there are no known regimens at present that reverse the findings, one can speculate that having an early diagnosis (besides in advance planning) doesn’t really change much.

All that said, there is substantial interest in blood biomarkers to screen for the disease. An argument that drug development in Alzheimer’s treatment could be improved if the disease is reliably diagnosed earlier is one reason that has been advanced in their favor. The ability of an affected person to plan their life and communicate their wishes before being incapacitated mentally certainly is another. It makes the biomarker question a relevant one.

There are three major biomarkers that have shown promise. Circulating amyloid beta is one. Plasma total tau is a second. And studies with plasma phosphorylated tau 181 and 217 are additional ones. They are in early stage development and large scale studies are still needed to confirm their usefulness, but they are a start.

More than casual questions center on their potential use in insurance if and when they become more commercially available. First, would they be useful to insurers who might incorporate them as part of an age and amount related blood profile? Certainly they would, somewhat to life insurers (as Alzheimer’s does have a relatively longer life expectancy and slower course) but indispensable to disability insurers, long term care product offerings, health insurers and to the availability of many associated riders. Would they ever become just as routine as any of the other blood testing we access, like PSA for instance?

Most prospective insureds understand what insurance blood testing is measuring for and accept the use in order to price a risk and hopefully offer better rates for favorable results. Can the same be said though for an Alzheimer’s blood marker? The first logical question to ask is that if a sensitive test became available to diagnose Alzheimer’s before it became a clinical finding, would you have it run on yourself? Even more concerning, what if an insurer ran the test and then used it in their underwriting? The thought of having a blood test you didn’t want and then having an insurer use an adverse result against you is alarming. Just as concerning is getting a decline for a “confidential” reason and then figuring out by process of elimination what the cause was even though you never wanted to know the result in the first place. You could argue that this already happens with the aforementioned PSA—not all men choose to have it run on themselves (and even the United States Preventative Services Task Force does not recommend the test as part of routine men’s health screening) but insurers run it anyway and can take adverse action on an abnormal result…

We get a lot of blood testing that gives us information on an insured, some that would be considered routine (and a normal part of a doctor’s physical exam) and some that aren’t (like a CDT to screen for alcohol abuse). Genetic testing out of the realm of what normal testing would be and testing that can be considered sensitive information (as in Alzheimer’s) that an insured may choose not to know pushes the limits of what information an insurer should be entitled to. The hope is always that insurance medicine doesn’t kill the goose that lays the golden eggs and that one day even accepted information that we rely on for risk assessment will become unavailable if things get pushed too far.

2021 Index Figures

On October 26, 2020, the Internal Revenue Service issued1 the 2021 annual inflation adjustments for many tax provisions of the IRS Code. These adjusted amounts will be used to prepare tax year 2021 returns in 2022. Also on October 26, the IRS released2 the dollar limitations for qualified retirement plans for tax year 2021, including 401(k) plans.

Indexed Compensation Levels

As a reminder, for Healthcare FSAs that permit the carryover of unused amounts, the maximum carryover amount is increased to an amount equal to 20 percent of the maximum health FSA salary reduction contribution for that plan year. Accordingly, the maximum carryover amount from a plan year beginning in 2020 to be carried over to the immediately subsequent plan year beginning in 2021 is $550 (= $2,750 x 20 percent).3

While the $5,000/$2,500 DCAP limit has not changed, there are adjustments to some of the general tax limits that are relevant to the federal income tax savings under a DCAP. These include the 2021 tax rate tables, earned income credit amounts, and standard deduction amounts. The child tax credit limits are also relevant when calculating the federal income tax savings from claiming the dependent care tax credit (DCTC) versus participating in a DCAP.

The preceding general summary is intended to educate employers and plan sponsors on the potential effects of recent government guidance on employee benefit plans. This summary is not and should not be construed as legal or tax advice. The government’s guidance is complex and very fact specific. As always, we strongly encourage employers and plan sponsors to consult competent legal or benefits counsel for all guidance on how the actions apply in their circumstances.

Nothing in this communication is intended as legal, tax, financial or medical advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations. Always consult a professional when making life-changing decisions.

References:

  1. https://www.irs.gov/pub/irs-drop/rp-20-45.pdf.
  2. https://www.irs.gov/pub/irs-drop/n-20-79.pdf.
  3. https://www.irs.gov/pub/irs-drop/n-20-23.pdf.
  4. https://www.irs.gov/pub/irs-drop/rp-20-32.pdf.
  5. https://www.irs.gov/pub/irs-drop/rp-20-43.pdf.
  6. EBHRAs are only available for plan years beginning on or after January 1, 2020.

FIAs And GLWBs: WTF?

(Part 1 Of 2)

Recently I have been surveying financial professionals across the country on topics related to practice management, annuities, life, and long term care insurance. The purpose of these surveys is to get a better understanding of areas of confusion, training they feel they are lacking, and also what kinds of training they desire. The ultimate goal of my IMO is to then address these areas via videos, whitepapers, and ongoing coaching so that the agents can help consumers more effectively and make more money! (Shameless plug: This online training platform and sales community will be launching March 1, 2021, and it is called “The Retirement Academy”—www.retirement-academy.com.)

In these surveys, there is one particular question about annuities that goes like this: “What areas of annuities could you use more education and coaching on in order to be more effective at selling?” A common response to these surveys has been, you guessed it, around the withdrawal benefit riders (GLWBs). These surveys show that, even if financial professionals understand how the riders work, they may still struggle with how to effectively communicate the value proposition of those riders. I have known for some time that this was one of the top areas of annuity confusion, but these surveys have been an interesting confirmation. It is clear that agents would like more help with explaining the value proposition of GLWB riders in a simple and effective manner.

So, I figure since this month’s Broker World topics are on Retirement, Estate and Legacy Planning, what better item is there to cover than explaining the value proposition of indexed annuities and GLWBs for retirement income! In this article we will discuss how an agent starts the conversation, what the agent should point out to the client, what’s the flow (WTF) of the conversation, etc.

In an effort to make this topic manageable to the readers (and my friend and Broker World publisher Steve Howard) this is a two-part article, with the second half coming in the January column.

Background:
To give a little bit of background on where the issues lie, refer to my simplified illustration below of an example GLWB rider design. This is a greatly simplified visual representation of a rider design that I often use as an example with the numbers removed for ease of viewing. What the numbers and values are doesn’t really matter for this part, but usually I use the example of the blue “Benefit Base” line that the client gets representing their premium plus a “guaranteed benefit base rollup rate” of seven percent. That means that my blue benefit base line would be growing by seven percent per year on top of the premium the client puts in. Usually the premium I use in my examples is the good ole fashioned $100,000. The green dotted line is quite simply the client’s annuity “contract value” based on how the client’s $100,000 actually performs—whether the product has a cap, a participation rate, a spread, etc.

You can see that the green line has some good (five percent) years and some “flat” years. Remember, with indexed annuities you cannot lose value because of a market decline. There can be rider charges however that can slightly erode your contract value/green value, which I leave out in this demonstration for the sake of simplicity. This visual is merely a representation of what the “benefit base” typically does when there are no withdrawals/income being illustrated or “activated.” I will show you a diagram of WDs being activated in a bit.

GLWB Confusion
As the surveys show, there are many financial professionals—from new to seasoned–that experience a lot of confusion around how to explain the three main components of GLWBs:

  • The “Benefit Base” value;
  • The Payout Percentages of the benefit base that determines the ultimate income; and,
  • The ultimate lifetime income at various ages.

To be clear, when I say that there is “confusion” around explaining how these three items work, I am not saying that financial professionals lack the ability to discuss the mechanics. Afterall, most of us understand that #1 multiplied by #2 will equal #3 (benefit base x payout percentage=lifetime income) at the age the client chooses to activate their withdrawals/income. Rather, the confusion lies in how to explain the power of those three values in a logical and linear fashion that allows the clients to recognize the value of what these wonderful riders do!

The illustration below is the same except zoomed in and now illustrating income that the client “activates” after the second year (as an example). Once the client activates income from the annuity, she can only take three to six percent (depending on age of client and the product) of the benefit base/blue line per year in order for the blue line to not decrease or disappear.

A payout starting at age 65 might be around five percent of the benefit base, although that is a little on the high end nowadays. This would mean that if the client elects income in the second year and she is age 65, she would be able to get income of $5,724.50 ($114,490 x .05) for the rest of her life. With many products, at the time we “activate” the income the blue line will stop growing and the income level will be a percentage of that static benefit base forever! (Note: There have been innovations in GLWBs in recent years where, even if you are taking withdrawals, the blue line continues to increase.)

Even if you live until age 150 and even if your green “contract value” hits $0, your income of $5,724 will continue forever in our example.

Areas of Objection:
Now, whether in the minds of well-intentioned financial professionals trying to articulate the value of these products or in the minds of consumers, there can often be confusion on the value proposition of the GLWB. Examples of confusion can be:

  1. Can’t a “financial advisor” give the same amount of income from a stock/bond portfolio? Afterall, the stock market has gone up 10 percent on average since 1926 and only five percent withdrawals seem paltry! Ken Fischer says he can do better!
  2. Only $5,724.50 in income? That means the client is merely getting back their premium for the first 18 years! That is not very sexy!
  3. I do not understand the relevance of the “Rollup Rate.” Isn’t that seven percent rollup rate just “funny money?” Afterall, it’s not like you can just cash that value out like you can the green line (subject to surrender charges).
  4. Don’t these riders cost a lot? Suze Orman says they do.
  5. How do I, as the financial professional, articulate the mechanics of the product as well as the overall value proposition? What’s the flow (WTF) of an annuity conversation that is effective?

Now that we have laid out the background in GLWB product design as well as areas where many financial professionals would like help, let’s dive in.

(Note: This month’s column will address my thoughts on #1 above. January’s column will address #2, #3 and #4 above. Of course, the overarching intent of both columns is to address #5 above!)

The Re-Anchoring (Confusion Area #1):
As we know from the field of behavioral science—or just plain sales coaching—anchoring is a remarkably effective strategy as we sell and explain complicated concepts. It is because of the power of “anchoring” that it’s been said hundreds of times over the years that:

“Consumers will likely not recognize the true power of annuity GLWBs unless they are educated on the traditional withdrawal rate rules of thumb.”—Me

In other words, I believe that consumers are anchoring their retirement income expectations on the wrong thing and therefore should be “re-anchored” in reality. Hence these consumers should be educated on the fact that William Bengen’s study in 1994 showed that in order to sustain a stock/bond retirement portfolio for 30+ years in retirement, the consumer should take out no more than four percent of their retirement account balance that first year in retirement. Consumers should also be aware of the new updated studies by Morningstar and Wade Pfau that show “rules of thumb” of 2.3 to 2.8 percent.

I am not suggesting an agent go into a big dissertation on these individual studies. I just believe that going over the simplified math—specific to the client’s portfolios—based on these new “rules of thumb” should be done in order to show the power of annuity GLWBs. Heck, even using the old four percent rule of thumb will suffice in explaining the annuity value proposition. By demonstrating this math to the clients, you will be “re-anchoring” their expectations to realistic numbers. And only then do I believe they will realize the true power of GLWB riders. (An example of going over the math with a hypothetical client will be in the January “Part 2”.)

Why Do Consumers Need “Re-Anchoring”?
Re-anchoring is important because consumers are generally unaware of what a reasonable withdrawal rate should be from their retirement portfolio. They have seen the glorification of the stock and bond markets and have likely seen the mountain charts like the Ibbotson SBBI Chart. You know what charts I am referring to—those that show that the stock market has done double digit returns forever and that their one dollar invested back when Adam met Eve would be worth enough to purchase their own private island today. Thus, if a consumer has in their brain that “stocks and bonds” have always performed at seven percent, eight percent, 10 percent, 12 percent…then they will tend to believe that their retirement withdrawal rate is beyond the four percent or 2.3 percent that the research shows. Even if a consumer has heard of the “four percent withdrawal rule,” they may not have had the math laid out for them yet that is specific to their situation.

To demonstrate my points in the previous paragraph, I want to cite a study by Charles Schwab. In their 2020 Modern Retirement Survey they asked 2,000 pre-retirees and the newly-retired about how much money they had saved for retirement and also how much money they expected to take from their retirement portfolios. The answers from the participants were that they had $920,400 in retirement savings (on average), that they planned on spending $135,100 per year from those portfolios (on average), and that they were generally confident in those dollar amounts allowing them to live the retirements they would like.

I would argue that a 14.68 percent withdrawal rate ($135,100 Divided By $920,400) defies any retirement research I have seen! Naturally, Schwab then points out that—contrary to these participants’ beliefs—a $920k portfolio will run out in only seven years (obviously not including interest/appreciation). Clearly, these consumers should have the math explained to them. Even if the consumers understand the new “rules of thumb,” they may be experiencing cognitive dissonance that should be addressed by the financial professional. By doing so you will “re-anchor” their expectations to the new realities of 2.3 or four percent withdrawal rates, which will set you up for the annuity conversation that we will discuss next month.

To hammer home my main point here. Again, I believe the ensuing GLWB conversation will resonate most only after you anchor the client’s mind on the fact that their stock and bond portfolio will likely not last if they are withdrawing at five percent, six percent, seven percent, or 15 percent rates. If you would like more information on those previously cited “rule of thumb” studies, feel free to email me. See you next month!

Zero Premium Contortions

First, LIMRA does a fantastic job evaluating our sales progress along all product discipline lines. For the most part our progress or retreat from a given market appears as a reasonable incremental up or down movement. The steady yearly fall over the last 17 years of individual stand-alone “traditional” LTCI has become an unfortunate fixture in the celestial sales firmament. Sales of any long term care planning solution, to include life combo and traditional, have been holding relatively steady at about a half million new buyers per year. And relatively speaking, individual LTCI has apparently bottomed out in 2019 at a little over fifty thousand new proud (and BTW extremely smart) owners of peace of mind inflation protection. We know all this only too well.

Please feel free to consider the following as just another “rant” as we absolutely must look at these numbers from a different perspective—a frequent contortion in this column. Let’s begin with what is sold versus what is simply placed. Please feel free to generalize about some very clear basics. You do get what you pay for in life. There is no free insurance. If we sell a benefit, we expect to be able to easily define and measure what it will be when it is needed most. Please hold long term care planning sales up to the light and look for transparency. Is it life insurance or health insurance both base and/or rider? If it’s a life combo is it a long term care or chronic illness ADBR. Now (drum roll ) here’s the big one: Did you pay for it? Or did it arrive at the point of sale gift wrapped in “no current premium?”

Now dear friends let’s drill down on the basics as we all know them. Long term care planning solutions come in a very few identifiable flavors and there must not be any co-mingling of structural differences.

  • Traditional sales remain the shortest distance between two points. It is an individual health insurance policy. You pay for what you get, nothing else.
  • Life combo is an either/or contingent benefit. It is simply a base life policy plus an option to have some level of the death benefit made available for long term care planning purposes.
  • These Accelerated Death Benefit Riders are either a LTCI health IRC 7702B or an IRC 101g life chronic illness rider.
  • Now you only need to add two critical ingredients and the pot is right: 1) Did anyone pay for the rider or was it “Zero Premium?”; and, 2) Did you provide for a mechanism to exceed the original death benefit…an “EOB” Extension of Benefit rider?

Now here’s the rub. The vast majority—59 percent of all sales in 2019 booked as life combo sales—were given away, not sold!

Please explain what sale you made if you did not collect a premium? What was placed was no charge until of course you actually tried to use the benefit.

Please tell me you understood that these illusive benefits may ultimately appear as questionable, maybe even re-underwritten or severely limited benefit dollars at the time of claim.

Before my “living benefit” friends get out the tar and feathers, please understand that there are reasonably good ones and those which are not so good. These distinctions are not available from LIMRA. Although wholesale distributors routinely help advisors make these very important distinctions.

  • Never give away or sell a future benefit (or source of potential litigation) without reading the rider specimen language.
  • Begin with a search to make sure benefits are not restricted by the requirement of a permanent disability.
  • In the case of whole life base policies, look carefully at the premium and what may already be included and not appear as an extra charge.
  • Many have been remodeled and updated (if filed through the IIRC) to use HIPAA look-alike claim definitions. The proverbial duck theory does prevail. These CI riders are very hard to tell apart from long term care.
  • Can you tell your client exactly what they will be paid when and if they need money for care? If you cannot, you don’t want those deficiencies cleared up for you by a plaintiff’s attorney in 15 or 20 years.

Two thoughts:

  1. It is so tempting to be able to say: “If you don’t use it, you didn’t pay for it.” Don’t do that—it is not true!
  2. If you didn’t collect a premium you didn’t sell anything. If it was an accommodation to political correctness, an afterthought, or blatant window dressing, therefore it had little meaning and no real value to you or the customer.

Please leave these in your better than nothing bottom drawer.

I cannot resist the ultimate rhetorical question. If there is a worthwhile zero premium option, why not mandate its presence on all life sales? Problem solved, right?

Other than that I have no opinion on the subject.

Hypertriglyceridemia

We’re used to seeing hypercholesterolemia as a known risk factor, but high triglycerides are also associated with an increased risk of cardiovascular disease. High triglyceride levels are additive to risk factors such as diabetes, hypertension, obesity and smoking. Hypertriglyceridemia is also contributory to metabolic syndrome, and it may cause pancreatitis through toxic effects from free fatty acids released by the enzyme pancreatic lipase. So there are significant effects that have to be accounted for in underwriting when elevated levels are encountered.

Hypertriglyceridemia is defined as a fasting serum triglyceride level of 150 mg/dl or more. Levels to 200 mg/dl may be considered normal, but it is important to recognize that triglyceride levels are distinctly affected by fasting. High levels are generally reported as up to 500 mg/dl, and severe is classified as levels over 500 mg/dl. It is important to counsel clients to take their blood draw under fasting conditions. It is also helpful to remove alcohol from the diet prior to blood sampling as well, as it has a deleterious effect on triglyceride levels.

There are five recognized hyperlipoproteinemias recognized by the Fredrickson WHO classification and the American College of Cardiology. The ones that affect triglycerides most are type 2b and type 4. 2b is the commonest one seen in clinical practice and is often associated with a high serum cholesterol as well. Hypertriglyceridemia may result from a genetic or familial predisposition, but is of course affected strongly by diet and lifestyle management.

Lifestyle management is key in managing hypertriglyceridemia. Weight loss, nutritional changes and structured physical activity are the key triad. Reducing carbohydrate intake, and increasing fat or protein intake both lower fasting triglyceride levels. Intake of any fat (saturated or unsaturated) lowers serum triglycerides—an increased intake of unsaturated fats actually increases HDL, the “good” cholesterol fraction. Mediterranean diets have been studied and found to effectively lower triglyceride levels, as do diets designed to lower blood pressure. Exercise on a regular basis has also been found to favorably affect triglyceride levels.

When these measures fail, medications may be prescribed to lower both cholesterol and triglycerides to more favorable levels. Statins are still the mainstay of therapy, and are used in those over age 40 with triglyceride levels of 500 or less and a borderline to intermediate risk of heart disease. Fibrates were more commonly used in years past, but are generally reserved for combination therapy with statins currently. Newer medications including omega free fatty acids (Icosapent, or Vascepa is the newest approved one) may also be added. These of course have to be combined with dietary measures and exercise.

Generally, in considering cases of hypertriglyceridemia, overall cardiovascular risk and the presence or absence of demonstrated cardiovascular disease and/or diabetes is taken into account. Hypercholesterolemia and hypertension are also additive risk factors. While not causing a rating in and of themselves, they can be a multiplier of risk in the presence of other contributing conditions. Cardiovascular disease is the more important of the two.

Hypertriglyceridemia can sometimes be an unpleasant source for a rating when discovered on bloodwork because an insured is generally unaware of it. It can also be a cause of eliminating preferred consideration for an applicant who has already been shown this likely outcome on an illustration. Preferred consideration is generally reserved for levels of triglycerides under 200mg/dl (fasting) or under 400 mg/dl (non-fasting), the absence of cardiovascular risk factors (build, blood pressure, smoking, diabetes) and no diagnosis of metabolic syndrome. This still bears repeating: If there is any question of cholesterol, lipid or triglyceride problems, be sure that the potential insured has his or her blood sample drawn fasting. Preferred categories are tight enough so that even a small difference or elevation in triglyceride levels can have an unfavorable outcome in policy pricing.

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