Exploring Fixed Index Universal Life Insurance Opportunities In Vertical Industries

Why Target Marketing Can Help Financial Professionals Maximize Opportunities

Often when we speak to financial professionals looking for life insurance opportunities, they will say they have increased their focus on the needs of business owners. Business owners have their own set of unique risks that need to be addressed, including business succession planning, attracting, retaining and motivating key employees, and structuring and funding buy-sell agreements. But for those looking for life insurance sales opportunities in this market, simply focusing on “business owners” isn’t enough anymore.

Business owners in different vertical industries have very different concerns. Just think back on the past year, for example. While every type of industry was impacted by the COVID-19 pandemic, the way that commercial real estate companies were affected was very different from the challenges companies in the agricultural industry faced.

By taking a deeper dive into industry verticals and specific target markets, financial professionals can discover additional life insurance opportunities. Understanding the industry trends, vernacular, unique market conditions and risks, and other factors that impact industries can help financial professionals set themselves apart and discover how to connect with business owners in specific industries.

Here are a few unique circumstances and ideas to consider.

Succession planning
Succession planning impacts businesses in all verticals, but certain industries are better suited for certain solutions. Consider this example in the construction industry where business succession planning and life insurance can play a unique role. Obtaining surety bonds is a consistent key issue, and government projects require them, as will almost any major private contract. Surety providers want to see a well-developed and maintained business continuation plan. Having a properly designed and sufficiently funded buy-sell agreement and a risk management solution like fixed index universal life insurance (FIUL) policies on key employees and the business owner, may work in the business’ favor.

In other industries where businesses are more likely to be family owned, like agricultural businesses, different strategies for succession planning can be useful and provide flexibility in different situations—like providing extra cash for buyout agreements between siblings, or to equalize inheritances to children who may choose not to participate in the family’s farming operations.

Estate planning and trust considerations
Beyond the primary need for death benefit protection that FIUL offers, there is the potential to build accumulation value, and any available cash value in the policy could be accessed through policy loans or withdrawals.* This accumulated value can be a way to help fund the specific estate planning or trust needs that business owners in different industries may have.

For example, within the commercial real estate industry, many investors owned other businesses first, and used the proceeds from the sale of those businesses to invest in real estate. Their “business” is more of an investment, and there may be less interest in passing the business to family members intact. In this case, an Irrevocable Life Insurance Trust (ILIT) or a Spousal Lifetime Access Trust (SLAT) may make sense. Heirs will likely wish to sell the real estate, but those transactions take time. An ILIT (or SLAT) funded with a FIUL policy may provide death benefit to help pay estate taxes, property management fees, property taxes, insurance and other costs until the property may be sold at the best available price.

In the agricultural industry, external factors like weather, commodity prices and international demand can have major impacts on the businesses success from year to year. In this case, strategies like a SLAT funded with an FIUL policy could provide the needed death benefit protection while allowing the business owner to retain access to available policy cash values through policy loans or withdrawals* (indirectly through their spouse) in times when external factors create an unexpected need for cash flow.

Attracting, retaining and motivating key employees
Business owner concerns change with the times, and there is no better example of that than what many small- and medium-sized business owners are facing due to the current global health crisis. Labor shortages and supply-chain issues have negatively impacted many businesses, especially those in the construction and manufacturing segments. Financial professionals should be aware of these concerns and be prepared to offer strategies to help overcome them.

Consider key employee compensation plans designed to recruit key employees with experience in supply-chain management, human resources, and technology. These may include plans such as bonus plans, split-dollar plans, non-qualified deferred compensation, phantom stock and more. FIUL policies may be an effective means of funding such plans.

Tax implications
Every industry deals with different tax implications, concerns and strategies. Understanding these complex issues can help make a difference when speaking to business owners and exploring life insurance opportunities. For example, professional service companies typically have fewer available deductions than other industries, and are consequently a prime target for marketers of aggressive tax strategies. Financial professionals should stay informed of current strategies being marketed to these clients, some of which may involve life insurance. This may provide an opportunity to discuss the potential advantages of using FIUL that can build accumulation value for supplemental retirement income through loans or withdrawals* and provide death benefit protection–a simple concept that may be more favorable as a result of recent revisions to the tax code.

Specific industry segments may have different tax-related concerns. For example, technology companies often have a shorter business cycle (from startup to growth to transition) than other industry types. This means business owners may be more concerned about increases in capital gains taxes as opposed to income taxes. Financial professionals should be familiar with proposals coming out of Washington specifically related to capital gains taxes. These business owners may find the tax-efficient aspects of FIUL policies appealing.

Knowing your clients
Financial professionals know the importance of truly understanding business owner clients’ needs, concerns and wants. By taking time to do your due diligence and researching industries and companies you want to work with, you’ll be better set up to help these business owners understand the unique risks they face, and how FIUL can help to mitigate them.

*Policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Withdrawals in excess of premiums paid will be subject to ordinary income tax. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. If a policy is a modified endowment contract (MEC), policy loans and withdrawals will be taxable as ordinary income to the extent there are earnings in the policy. If any of these features are exercised prior to age 59½ on a MEC, a 10% federal additional tax may be imposed. Tax laws are subject to change and you should consult a tax professional.

The death benefit is generally income-tax-free when passed on to beneficiaries.

Fixed index universal life insurance is subject to health and financial underwriting.

Allianz Life Insurance Company of North America does not provide financial planning services.

This content is for general educational purposes only. It is not intended to provide fiduciary, tax, or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote, or recommend any tax plan or arrangement. Allianz Life Insurance Company of North America, its affiliates, and their employees and representatives do not give legal or tax advice. Customers are encouraged to consult with their own legal, tax, and financial professionals for specific advice or product recommendations.

Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America.

• Not FDIC insured • May lose value • No bank or credit union guarantee • Not a deposit • Not insured by any federal government agency or NCUA/NCUSIF